The algo, day 1, 2, 3 and 4

Hi, I would like to start this post introducing the idea behind the algo. Also, I would like to highlight that this is not financial advice because the purpose of this algo is to participate in a simulated algo trading competition.

Current situation

One of the first questions that came to my mind was about the current situation with the Covid-19 and how it would evolve during the competition. At that point, was very tricky because it’s very difficult to forecast the future and to be honest, I don’t know how the markets will react to the help provided by the central banks. I see some similarities with the financial crisis, but I believe that there are more unknowns and the lockdowns extensions can trigger some bankruptcies for small and medium businesses. This will result in a decrease in consumption and the gross domestic products will reflect this as well. The financial situation of some companies and individuals will deteriorate and this will affect the banking sector. This issue can have a domino effect. Luckily, the central banks and the national governments are taking measures to try to avoid the spread of the disease and try to go back to normality (even if it’s done gradually)

The algo

I was considering different types of algos before the competition. As you know, some of the most important algo types are:

• trend following 
• mean reversion
• volatility breakout
• range algos

As I explained in the previous paragraph, the situation was one of my biggest concerns and I was expecting the volatility to continue at least for 3 months. Considering that the central banks were approving measures, I thought that the markets could have some rebounds. This is why I decided to design an algo that is able to catch the trend after a retracement. The main indicators used are two Exponential Moving Averages and a Stochastic.

I chose the Euro FX (6E on CME) future and the British Pound future (6B on CME) and every time that the algo is triggered, it sends a 5 lots order.

Day 1, 2 and 4

The algo was triggered only in the British Pound futures during the first 4 days. I lost $655 in the first trade, as you can see it wasn’t the best day. Its maximum adverse excursion was $875 and the maximum favorable excursion was $500 (this explains that the position was showing $500 profit at a certain time during the position was open) 

The second day was far worse because it hit the stop loss. The similarity with the first trade is the maximum favorable excursion that reached $562.5 at some point during the session.

I didn’t have any entry on the third day.

Finally, I had a small profit on the 6^{th of} April. It was the most volatile day.

Summary

I have introduced a brief opinion of the current situation and I have explained how it was one of the most important facts to choose the algo for the competition. I have shared the idea of the algo and I have reviewed the first 4 days. I will keep posting how the algo is performing and interesting facts that can explain some movements in the Euro and the British Pound futures.