Over the past few weeks I’ve been playing around with the robotic trading system from Think Or Swim called Prodigio. It’s actually a very cool system and promises to bring just about anyone into the inner circle of system trading. It allows trading systems to be developed without any scripting or coding and then allows those same systems to be deployed on the Think Or Swim platform, making them fully automated… yes, it’s that cool.
It took me a little while to get familiar, but once I did I decided to tackle a trading system on a different time frame than my normal swing trading style. High frequency day trading seemed logical, and it wasn’t too long before I had something that looked interesting… or so I thought. The platform allows you to develop your system and then backtest it, even on intraday data.
And now the results of the backtest…
What you see below is the equity curve for a simple mean-reversion system which trades on 5-minute bars. It’s not a lot different than what I do on daily bars, but it’s done much more quickly. Consequently, profits are smaller on each trade, but I can get MANY more trades.
As usual, this doesn’t account for commissions or slippage, yet at first glance looked really promising. Just as I was about to start browsing www.YachtWorld.com, I saw something fishy.
And now the other shoe drops…
Take a quick look at these statistics and see if you spot anything that doesn’t look right. Get it? Right, 11,264 profit dollars for more than 12,000 trades. Average profit is less than $1 per trade. And remember I didn’t include commissions or slippage. At this point, that feeling of deep disappointment, and “I just wasted a lot of time”, came over me. Doh!
I entered 0.005 per share of commission (my rate), and ran the backtest… LOSER! I tried a few fixes, but at this point I just don’t see how a retail trader can scalp stocks and make it work. Anyone have any ideas?
Good Trading…
I would have to know a few things before I might make an informed judgement. Was this test in raw mode or simulated portfolio? Was it run on a custom stock list or one of the pre-built indexes, i.e. S&P 100, Nasdaq 100, etc.? Simulated portfolio contains risk control settings and could provide better results as could only running against a select list of stocks better suited for your system. Did you recreate and test your regular trading system in Prodigio? How did that do?
ReplyDeleteGood questions. I started with raw, and ultimately used the simulated portfolio model, attempting to make it as realistic as possible. I ran it against the SP500, which is technically a custom list, but pretty standard, but I got similar per trade results with SP100 or NAS100.
ReplyDeleteI have been able to recreate some of my current systems, and they seem to perform fine. I certainly don't fault the platform, as it seems to work well. It just seems to be challenging to pull enough out of a short day trade to overcome the commission factor... at least when compared to a swing trade.
Commissions with Prodigio (I'm assuming they will be the same as the standard TOS commissions) are $9.99 per trade, so whatever system is developed has to support $20 commissions to get in and out. I am only able to get $1 per trade, which looks fantastic until you factor in commissions. By the way, I set the portfolio settings up for $10,000 trades. I tweaked it with some different lists, and I have been able to get as much as $6 per trade, but that's still not good enough.
Bottom line is: I'm sure it can be done, but I'm probably just not going about a day-trading strategy correctly.
Thanks for the thoughts. I really like the platform.
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