Creating profitable forex hft strategies

Comparing with their approaches, our agent-based simulation focuses on testing the combinations of different classes of market making strategies for HFTs, and further examining the performance in competitive environments. This system fits with main statistical properties of financial markets and is used to compare the performance of different market making strategies.

We find one market making strategy which increases daily return and decreases end-of-day inventory, is offering prices around last trading price, as well as take advantage of order imbalance, together using adaptive order size based on previous order execution rate and a net threshold based on average trading volume.

We further introducing the environment of increased competitors and decreased latency, in order to test the strategy under different market conditions. Agents are classified into two categories according to their goals and strategies. The one is Low Frequency Traders LFTs , who concern the value of the asset and try to earn the profit using an integrated strategy of fundamentalist and chartist. The other is High Frequency Traders HFTs , who ignore the value of the asset but only pay attention to the trading environment itself, and they mainly try to accumulate the profit on the spread using the market making strategy.

We stimulate the intra-day transaction scenario where both agents trade on one single asset. The framework of the model are presented first, following by details. The trading procedure is as follows: 1. Active LFTs decide whether to enter the market according to their expected returns.

If enter, they submit either a sell or a buy order with size and price based on their expectations. If enter, they usually submit both a sell and a buy order with size and price in order to absorb the orders of LFTs and earn the profit on the spread. Since evidence suggests HFT activities prefer higher volatility.

The number of sessions is set as for intra-day trading. To start, you set up your time frames and run your program under a simulation; the tool will simulate each tick, knowing that for each unit it should open at certain price, close at a certain price, and reach specified highs and lows. The indicators that my client had chosen, along with the decision logic, were not profitable. Here are the results of running the program over the M15 window for operations: Note that the balance the blue line finishes below its starting point.

This is known as parameter optimization. I did some rough testing to try to infer the significance of the external parameters on the return ratio and arrived at this: Cleaned up, it looks like this: You may think, as I did, that you should use parameter A.

Specifically, note the unpredictability of parameter A: For small error values, its return changes dramatically. In other words, parameter A is very likely to overpredict future results since any uncertainty—any shift at all—will result in worse performance. But indeed, the future is uncertain! And so the return of parameter A is also uncertain. The best choice, in fact, is to rely on unpredictability. Often, a parameter with a lower maximum return but superior predictability less fluctuation will be preferable to a parameter with high return but poor predictability.

As such, you must acknowledge this unpredictability in your forex predictions. It is a mistake to assume you know how the market is going to perform based on past data.

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Price Action Understanding price action is one of the safest tips in the world of trading Forex. This step refers to the analysis and interpretation of the latest currency exchange rates. These figures can be displayed in a variety of forms, such as candlestick charts or lines. Price action is regarded as a representation of price movements in the market.

By understanding price action in trading Forex , you can build the right strategy, including determining entry and exit points to get the best returns in trading. Support and Resistance Levels Support and Resistance The levels of support and resistance indicate the range of price movements of an asset in trading Forex. This strategy is quite common for both beginners and professionals who are looking for safe trading techniques. Support shows the approximate price point the value of a falling asset does not breakthrough.

Meanwhile, resistance in trading indicates the estimated value a rising asset price does not exceed. This idea is fairly simple. Yet, by plotting these areas, you can determine the approximate price of the asset when trading Forex. Breakout Breakout in trading Forex refers to the phenomenon when the price movement in the market exceeds the expected resistance point for the asset. Basically, when this happens, there is a possibility that the value will continue moving in line with the trend observed while trading Forex.

Therefore, you should always consider the possibility of a breakout when trading Forex. It prioritizes the analysis of asset price movements over a certain time period in the past. The foundation of this technique for trading Forex is the Elliott wave theory, which states that large waves of price movement will always be followed by small waves. It is taught to newbies, and anyone can use this pattern to accurately predict the real value of an asset in the future.

Follow the Trend More on Trendlines for Forex Trading This approach is suitable even for beginners , especially when trading Forex in the long term. To be able to apply this trading Forex strategy, you must rely on analysis of the value of your currency. If it tends to be quite popular, has high volatility, indicates a high level of global use and support from central banks, a trend-following strategy in trading Forex can be your key to profit.

Price Corridor Technique In trading Forex, the value of certain currencies may show a steady tendency to move within a horizontal range. This phenomenon can be observed when the value has never been bullish or bearish, which would change the pattern of price movements to diagonal. If you find the corridor pattern while trading Forex, you can easily predict the next currency value.

As you can see, this strategy for trading Forex is quite easy to master, even for beginners. Observe Central Bank Policy The next tip for trading Forex is to observe the policy of the central bank. So with demo testing, make 20 trades and see if you have a Positive Expectancy. With some brokers the effect can be big, and with some brokers the effect can be minimal.

Instead, just trade the minimal size, which should be 1 Micro Lot 0. The reason is that you want to test your trading strategy to see if it has a Positive Expectancy in a live environment first. And again, get into at least 20 trades and assess your trading strategy. Do you throw your trading strategy away and go back to the drawing board?

Not necessarily. There are ways that you can actually manipulate your trading strategy to come up with a Positive Expectancy. Here are 4 methods: Method 1: Increase your average profit per trade by taking bigger profits. For example, I had been testing a trading strategy with a So what I did was tweak my Take Profit to 2R instead of 1. In general, the bigger your Take Profit, the lesser your win percentage will be. Method 2: Increase your win percentage by taking smaller profits.

Now, this is the opposite of the first method. So how do you know when to use this method? Generally, method 1 should be used when you have a Trend Trading strategy. Because when you trade with the trend, you should be able to get more profits. What I suggest would be to try both and see which works better for you. Method 3: Decrease your loss percentage by increasing your Stop Loss distance. For example, many traders place their Stop Loss at obvious places that get stopped out.

So a simple hack would be to simply increase your Stop Loss by 5 — 10 pips, but keep the win-loss multiple the same. For example, if you have a trade where the Stop Loss distance is 20 pips from the entry, and your Take Profit is at 40 pips for 2R… Change your Stop Loss distance to 30 pips from the entry, but also change your Take Profit level to 60 pips. This way you maintain a 2R Take Profit level in both cases. For this method, we want to manipulate your risk-to-reward ratio by tightening your Stop Loss.

For example, you may have a Long trade where you place your Stop Loss below the swing low and the Stop Loss distance is 20 pips away, and you have a 2R Take Profit level at 40 pips away. So what you can do is shift your Stop Loss to 10 pips away instead, and keep your Take Profit level the same. This way you have turned an initial risk-to-rewards ratio to risk-to-reward ratio. While this might decrease your win percentage as you will have more stop-outs , it might overall lead to an increase in your Expectancy.

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