How It Works

Introduction and Objectives

  • Highly automated, simple to use and comprehensible system
  • Transparent tracking, clearing and reporting
  • Low cost level
  • Achieving institutional standards as a private investor

Philosophical approach

  • We are looking for the solution on the largest and the most liquid market: the foreign exchange market
  • With the smart selection of the derivative and spot products, we create such a complex logic which results in a profitable trading with speculation-free series of mathematical steps

Choosing an instrument

Criterias of selection:

  • Liquidity
  • Continuous time series
  • Huge economical background, general public and economies
  • Ability to establish the binominal tree
  • EUR/USD

Method of analysis, narrowing the logic

1.Assessing the current state, instead of ex-post evaluation

  • Benefits of current state assessment
  • Drawback of ex-post evaluation (delay-> increasing failure rate)

2. Approach under short-term volatility, which eliminates the need for “range-thinking”, there’s only breakout event when the ‘stimulus range’ is sufficiently narrow

peakValue (‘csúcsÉrték’) indicator group

Self-developed set of indicators

  • 3  range defining indicator working together, 2 time based and 1 fixed distance based, it examines the last quotation’s location in the ranges
  • From the 3 range datas and and the movement events described in the ranges it creates summary outputs, which expresses the movement’s quality, strength, volatility and the condition of its position
  • The aim is to have narrowly constructed, short-term (thinking in minutes) movement following entries and exits. Nothing else, practically minitrend tracking.

Complementing with derivative products

The spot method signals when the trend starts, so we need a range method too

    • options transactions, means + 4 product
    • benefits of 6 transaction

Options trading method, roll-over

  • Trapeze pattern, two remote short pair, jointly neutral in the moment of trading
  • If there is a sufficient hedging method, then straddle instead of trapeze, as it yields significantly more premium income
  • The roll-over pattern needs to generate profit on every trade, it is based on abandoning the profitable leg and recording the initial pattern on a new schedule

Options portfolio, as Asset Acquisition

  • Building initial “profit engine”, that is, money invested in the fund scheme
  • This peculiar logic implements the “forever” maintained and rolled-over short options pattern, which follows the market. Its drawback becomes its advantage, if we merge it into the algo portfolio

Risk factors (Plague spot scenario)

Breakout traps for spot

  • A non charactersitic, motion following spot logic will be able to reset the investment to zero?

Unlimited loss of short options

  • Can a traded short option with unfavorable directions be defended with roll-overs indefinitely?
  • In our opinion cannot be continously profitable because of the unpredictability of the exchange rate movements. In this case we can give it an extra purpose: following the break-outs, which helps the options pattern in disadvantageous situations
  • The unequivocal exit or enter decision of the spot’s two transactions are easily algorithmised
  • Because of short term calculations algorithm is better instead of constant presence too
  • Stop type trades are also easily algorithmised  both for options and for spot
  • The point of the tuning is that with weighting and limitations the two method is working together and evaluates the results and quality, performance of the whole portfolio

Retained Necessary Role of Human Control

  • The algorhytm is consequent and disciplined, human resources are not
  • Programming indirect changes to the fund is meaningless, they are excluded from the base logics of the algorythm. These can be breaking news events (when staying away is the correct answer) and money transactions involving the fund
  • Building the portfolio and the daily, weekly parametering is always entrusted to human resources

Implementation in Practice

  • Chichago Electronik Exchange EUR/USD futures and option contracts
  • SmartQuant algo engine
  • Xtrader trading platform
  • current broker is Valbury Capital LTD London

Performance

  • Ever-developing, “never finished” technology
  • Results of live trading from October 2014 are evaluables. Not continuous track record, but periods can be analyzed, they reflect the improvements
  • The legacy of the development: our portfolio qualifying standards