Dummy with the sauce: Trying to decide next steps for profitable Algorithm...
Hello all,
First post here :) nice to meet you. Hopefully this is the right forum to post...
Here's the run down of who I am:
AS from crap school, finishing BS from crap school (Civil Engineering)
Currently employed as a Project Manager for a local government (so I make a meager living)
I've traded my own cash since roughly 2009 after discharging from the Military (honorably)
I've traded just about everything....Forex, futures, equities, debt, etc
I've passed the series 65 (whohoo! Check out the big brain on Brett!)
Fast forward to now....
Over the past 3 or so years I've developed a trading algorithm that is profitable, scalable, and works with any trading modality so long as they can be charted (forex, commodities, equities...). Currently sitting at 8 months of live trading, with 7 of those months profitable. Before in the "demo testing phase" I show 9/10 months profitable. The amount of profit doesn't matter for these purposes as the trading sizes can be scaled up or down vs the capital available. As an illustration though, the profit to draw down sits at 5:1. Profit factor=1.8, Sharpe = 1.5, Sortino =1.6, win rate = 62%.
So, now I have this neat little algo- but I'm not sure what the next step is? I trade my own money, but that's negligible compared to the amount of money a prop fund could provide. Ideally, I think I'd like to get in the door as a fund-backed trader, and access to the "smart guys". I'm improving the algo as I go, but I suspect a real quant could get a hold of this thing and do some amazing stuff.
Regardless of all other factors, is my education going to get me the boot in the ass?
What do prop/hedge/banking/etc. look for when pitching a currently profitable algo?
Should I just sell the algo outright? Is that even an option?
I've got a lot to consider, and from my research even the bottom-tier funds require 24 months of trading activity to get an audience. I'm not in a hurry, but I really don't even know what it is I need to be looking for. Any thoughts, suggestions?
Thanks monkeys!
PS: no, I'm not going the Timothy Sykes route.
your sharpe ratio is pretty low for the size (i assume less than 1mm)... generally +2 merits a look, 3-4 indicates scalability. anecdotally, there are actually lots of profitable; high sharpe strategies that scale horribly once they hit a low size hurdle, because you start to bump into flows and other market participants, not to mention transaction costs
additionally your strategy lacks a significant cycle backtest - historical data is (relatively) free and you should see how it would have done over the past 5-10 years.
if you do have the secret sauce (which is possible), you can put money down at any bucket shop and use them as cheap leverage; paying for the margin/downside.
gryphus,
Thank you for taking the time to reply. Great information.
A few thoughts.... What is your definition of scaleability? I suspect mine is different. When I think scaleability I'm referring to the ability of my algorithm to scale trade sizes and targets. Example, makes no difference the size of the account- depending on the user's taste for risk you can shoot for 100% gain or 10% gain, the losses will scale with it. The only issue you might run into is whether or not the trade sizes can be filled at the correct price. With super liquid markets like FX that's not a problem. Equities might be a different story though....slippage of a few bucks could end in a stop-out. I guess I'm not sure how Sharpe effects scalability in this situation.
I have back-tested 10 years and more, with good results- but my back-testing software is limited, and thus another reason I'd like to get a hold of a quant fund. Even still- I've always thought back-testing wasn't really all that valuable vs real world trading. Even less valuable if you combine a sentient person trading in conjunction with a non sentient algo. Correct?
By bucket shop I assume you mean the "put your money down, use us for leverage" type shops...which is seems WSO patrons strongly recommend against. Perhaps the better play here is to wait 24 months, and market my "trading prowess" instead of the algo....and play the algo marketing by ear. The issue here is that likely won't get me the quant I want. I genuinely have a desire to see this algo work at another level....the ingredients are here, I just don't have the brain for it.
These keep getting longer- I tried to cut the rambling and shorten it down for you. Thanks again.
I agree. I do not think 10 months is enough either -and I'm in no way trying to say it is-, but while I wait, I'm brain storming what the next steps would even be. The trading part for me, at least at this point, is on cruise control. Algo spots, I decide if I want to intervene, lather - rinse - repeat. Currently I have no reason to doubt the process so it's all sunny skies and no rain here. Like anything....it works until it doesn't. It's working now, so my assumption has to be that it will continue to. Until it doesn't.
The back-testing and programming I've done is on the metatrader and TOS (thinkondemand) platforms. My assumption is that funds have access to better software/programs/brains- perhaps not...
Thank you for your reply.
What about a low tier prop shop? You may not get any assistance with your algo or strategy, but you will be able to leverage your funds significantly.
Thank you for the reply, I've looked heavily into these, but it seems most if not all are first loss with $5k+ down which most in this forum vehemently oppose. I have gotten a few "come back in 2-3 years and we'll talk about backing you" So I suppose that's where I sit.
Finished the year 118%, 11/12 (10 consecutive) months profitable. Happy New Year and good luck :)
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