Recently a trader shared a day trading system based on event tracking, which had some success and in the course of our email exchange I said may be one needs to look at the market totally differently to build a suite of day trading automated system. Now this got me thinking. My primary focus has so far been on long term trading and so bulk of my understanding about market and research and efforts are focused on that.
To look at a day trading system is something unique and a creatively challenging process. So I decided to approach the problem on several level and will probably offer him a set of 5-8 ideas next week. It has been a very interesting exercises for me because it involved learning about an entirely different area of market and coming up with possible solutions.
To successfully trade the market and find enduring trading ideas requires creativity. Most of the trading systems which work are creative interpretation of market structures or creative workable interpretation of the market anomalies.
There are so many constrains when you are looking at high frequency short term automated system. The challenge is to find a solution which is enduring with a long term structural edge. The edge should withstand the markets ever changing cycles, plus it should exploit the available opportunity for the day to maximum possible extent. In the sense say if the possible opportunity for a given set of stock on a given day is say 1 million, one must extract the maximum possible out of it while managing risk.
Now in most peoples mind trading system development is mostly about data crunching or back testing. But much of the work is really concept development, the physical aspect of putting a system together if you have a profitable ideas is simple it involves entry, exit, and risk management.
I am approaching the problem differently and creatively. Lot of time we fail to find new ideas because we do not think creatively. Now I have some serious background in creative thinking because I spent over 6 years working in an intensely creative environment in the advertising business. In the advertising business your product is completely intangible. There is a constant pressure to come up with new ideas under strictly defined constrains. Plus most of good advertising ideas has to have enduring value to them. The automated day trading system is similar problem.
In my next post I will talk about the kind of crazy and whacky things I did to find possible solutions to this problem.