केसे करते है algo trading ? क्या retail trader algo trading कर सकता है?
Hello and namaste friends, I am Vivek Bajaj, co-founder of StockEdge and Elearnmarkets How are you all? I hope you are doing well and you are taking care of your family and yourself. Friends, today I want to say something to you. What is the meaning of Vivek? A lot of you must know already it means intelligence, and especially if you want to earn money in the stock market, you need Vivek.
One Vivek here is already trying. Last week, I had brought here a Vivek to talk about a technofunda concept with you And this week as well, I am bringing one more Vivek to our series. So please absorb as much knowledge as you can because if you want stock market success, you need to have Vivek.
Friends, today's session will be fun and fruitful, as we will be talking about a very complex topic in a simple manner, this will be a lot of fun as it would be filled with immense learning. Friends there is a topic which has come to the market in the last 10 years & it has gotten pretty big, and these days a lot of retail investors are willing to learn about this topic. Friends you must have watched videos and learnt about fundamental, technical analysis But there is a still a topic that lot of people don't know about and they want to learn about it, and that is algo trading a lot of people must have gotten scared by hearing this, thinking that a complicated video is going to be recorded today. I will try my best because at least you have accepted that this is a complicated topic, but we will make this super simple and I have with me one more Vivek who is determined to make this topic simple for us. Friends, algo trading means algorithmic or systematic or rule based - lots of words are used for it quantitative trading as well, if I keep going on, there are a lot of words which signify algorithmic trading With Vivek Gadodia, we will learn about what is algo trading and how can one overcome this obstacle if they want to - Hi Vivek - hello. How are you? - Really good, how are you? Really good. I have noticed that all Viveks are truly good at negotiating.
Vivek, I'm so glad to talk to you. We had talked the last time, but unfortunately the video quality was not good. So I had asked you once again, and you sweetly told me that you'd record thousands of times if needed. because spreading good knowledge is very essential, so thank you for recording this again. Thank you for allowing me to do this, because this definitely feels like a breakout in life, Sometimes things don't work out in the first go, we already see this happen as traders, hopefully this will work out as this is the third breakout, this is what usually happens. Very happy to be here, thank you again
Friends if you are unable to understand, this is actually the third time we have recorded this it didn't seem perfect enough in the 1st and 2nd go, so we Viveks try to give 100% perfect content to our viewers. And this is all impromptu. I haven't shared the questions with Mr. Vivek and neither has he given me any answers there is only a PPT so that we can have a candid conversation which can be very interesting sometimes, but sometimes it's not satisfactory so I prefer re-recording, so friends there is a lot of hard work behind this. you taking benefits from this is satisfactory, & if possible so share this because it is important to spread the right knowledge to people.
and our only wish is to have people participate in the stock market peacefully, and I'm glad to have Vivek join us in this journey. Sorry about stealing that moment Vivek, I just enjoy talking to my viewers a lot No, actually until you have that passion, you won't be able to do what you are doing right now so that is very important you are so passionate and you are talking about so many topics here so thank you so much. - Thank you Vivek. So you already know the format Vivek, we will be doing a technical discussion today on a topic that even I want to learn about but before that we want to learn about you. Friends, one thing I want to add here
is that Vivek is a B.Com graduate. - Yes, I took it upon someone's suggestion but I did a computer's course along with it Then I did an MBA in systems. Even though he was a commerce graduate, he was willing to go into a new field and make a name for himself in it.
So you don't have to be an engineer or a science student to do algo trading. The first myth itself has been negated here. If Vivek can do it as a commerce graduate, we can too. So please tell us more about yourself and your life. When we put a trade, the market doesn't know what our background is, right? The last time you were talking to Gaurav, and I heard he is a microbiologist.
surprisingly, people from a non-finance or non-MBA background do very well in the stock market because the market is the reflection of the psychology and behavior of a human being and my journey started way back because my grandfather used to invest in stocks back then so he would always ask me the prices of stocks from the economic times and just like we have OHLC - open high low and close, the paper also had high low and open and I would see his reactions to the prices and remember them the most, even though I didn't understand much back then so that was my background. I actually joined in as a programmer analyst in CMC limited after my MBA in systems, So CMC is ex-government, and when IBM left the country, their business left behind became CMC. There I used to work on treasury software which was used for forex trading purposes so that was a longer and formal interaction with the charts, with the EUR/USD charts and it was interesting to wonder why and how these charts moved, it seemed very mysterious and I couldn't predict it much like at this point I knew I was going wrong. I was always curious to know why was I wrong and what is the secret behind it, that's how I was exposed to the market then I put money into the IPO of Bank of Maharashtra, because my colleagues told me the price would become 100 the IPO came out at 30, and I was doing an interview with a fund manager for a job role, so I told him about my investment and I'm sure he must have thought of this as a layman's answer but till the 2017 rally, and the bull market of 2005-06-07, the price touch 96-97. So on one side of the market there are intellectuals who come with the right studying and research, and on the other side there are people with not much education exposure, those people are also doing well in trading so like you said before, this is a unique field where your background doesn't hold much relevance after that I was on the institutional algo trading desk for philips capital, a global broking firm, I was lucky to work with some of the early algo traders who were doing high speed trading back then but I was helping them from a technological perspective, to see how their systems were working and all, and then I became an independent consultant, and I started making algorithms for good traders in exchange for trading ideas. and then I joined with someone and made my own trading system, he's a CMT or chartered market technician, so we made a simple system based on moving averages and donchian channels, which is highest highs, lowest lows the channel is based on the high and lows of candlesticks. The system is so simple that if the moving average crossover is positive
and price goes above the upper donchian channel, you buy, and short if it goes beneath the lower level we could write the totality of it all in a minute, these were our rules. Luckily, we met a Parsi gentleman through someone he saw the system and gave us Rs. 10 lakhs to trade on, and that is where my journey of systematic trading started professionally - Interesting. In what year was this? - This was in December 2012. Considering we are in 2020 now, almost 8 years Fantastic. So currently, you run your own consulting for algo right?
Yes, I started making systems for clients, then one of them, a senior from school who is my friend, he also joined us, he was at the Edelweiss Algo desk, and then we met someone at a trading conference and these two were room mates, so we 3 joined together and created a company - Dravyaniti Consulting. Dravya means wealth and niti means ethics, inspired by the niti aayog from those days. so the main thing is you try to make wealth from ethics and strategy. Yes, and those who know you, they know what great work you are doing Now let's move to the technical discussions, because you have a very deep understanding of the market, not just algo and you have been there done that, however, I don't want a quantitative discussion & it shouldn't seem too heavy to people. we have to ride up this hill so lets go slowly so that people's mind doesn't get boggled up and according to your pace.
I am making you the presenter now. After that however you want to take us for a ride, you can! Hello! Hope you like this effort of mine. If you want me to record more such videos for you, then like this and share with your friends, if you want to connect with my efforts, then subscribe to this channel and press the bell icon because that's how you can know if i have released a new video. Thank you! So as you said, we can see that it's considered to be a very complex subject but if we start from complete basics, we see that there are 2 words in algorithmic trading, one is Algo and one is Trading. Algorithmic means Rules, algorithm means a set of sequences or steps that we follow to achieve some output.
Let's take a simple example. Suppose we want to eat Maggi today. So let's take a packet of Maggi and we know that anybody can make Maggi, even if he doesn't know how to cook. Reason being, the instructions given on the packets are very clear that first you need to boil 2-2.5 cups of water
and then after 2-3 minutes, once it starts boiling then put noodles and then the masala tastemaker. And then after 2 minutes of cooking you will get your Maggi. So these are a set of steps with which we can make Maggi. Now the algorithm is also like this. suppose today we want to go from point A to point B, suppose you want to go from your house to Park Street we will take out the Uber app we will put out put the location for Park Street and then Uber will look for a car and tell us that there are so many cars around us, and then they will assign us a car, then we will sit in the car and give the otp, we will be taken to our destination and then we will make the payment.
So these are also a set of steps. In our lives we are also surrounded by algorithms since childhood. These days this term has started coming out a lot but we have been using algorithms a lot already. Now coming to trading, algo trading means we basically will have to trade with rules. Suppose today we are buying and selling in some trading. Let's take an example: suppose the Bank Nifty policy is not good, & I think the market is not good, so i want to short the Bank Nifty future Now if we talk about this normally it looks very simple but if we have to make the algo for this, we have to keep one thing in mind - how to define this bad market because for you and me, a bad market might be different, So every person can look at it from a different way. But when we are to computerize these rules or put it in an algorithm, we have to be very clear what a bad market means. For example if you are expecting that the interest rate will come out to be 0.25%,
i.e. the rate cut, but in reality if it doesn't come out to be that much, like the rate cut is 0 or not there or maybe a hike that is greater than 0, So in that case this is bad This doesn't mean that it will be right all the time, it might happen that whatever our views are, the market might do the opposite. but at least we can tell the computer in a clear way that if this happens then you short and if this happens then you have to exit.
Listening to all this, I can remember when we were in school, during final exams when the results used to come and we had to show it to our father. He had not specified a particular percentage but we had an idea that if we would get lower than a particular mark, then we will get beaten up and if the marks are even below a specific percentage, then we will be thrown out of the house. So there was a little subjectivity but what you are saying is that in an algorithm you are objectifying the subjectivity. Correct! so this is the biggest advantage of algorithms which everyone can use. We will move a little further in this. So if we try to trade and think that we should always get the right trade that we should always make money, this is the main problem. Because over a lot of years we have traded and interacted with a lot of traders and there are a lot of successful traders and out of those traders we see it's not like that it goes right for them.
In investing world if we see Warren Buffet or Rakesh Jhunjhunwala it's not necessary that they are making money in all trades let's understand this with the help of an example in the form of a game which in any trading or investing world we think is very basic so we are talking about the 7 up 7 Down game which is played in a funfair It's a very interesting game and a very popular game in cities like Kolkata, Mumbai etc. There is a dealer who has a table with 3 boxes, one box for 7 below, one box is 7 and one box is 7 up The dealer has two dice and whoever person is betting he has to bet on either three of the boxes before the dice is rolled True true! And for each box, there is a payoff. If we have bet on a box and if the dice matches the box then we will get a payback So what kind of payback are we talking about? if it is below 100 rupees then you will get hundred more that is in total 200 rupees and similarly for 7 Up that is in the ratio 1:2 but If you bet on 7 which has a lesser probability of coming compared to the down and up, there you will get payback in the ratio of 1:3 i.e. for every Rs.100 you will get 300 rupees. This looks very good but I have been playing this game for a long time a lot of people play this game and it’s a very popular game but in net Vivek, I have never been able to make money in this game over these years, till today I have not been able to make money and there is a reason behind this, The reason involves mathematics and that too a very simple mathematics. Let's look at why this isn't happening Now if we roll 2 dice, then suppose in the first dice we get 1 and in the other dice we can get either of 1 2 3 4 5 or 6 Suppose we get 1-2 or 1-3 this will all be below 7 because the total will be 2, 3 ,4 etc.
So, in total there are 36 combinations when we roll 2 dice so 6-6 numbers. Now suppose if we roll the dice several times suppose say 100 times and if we are betting on below 7 every time then if hundred times we are betting, then only 41% of times approximately it will be below 7 What are the chances for this? Basically only 15 combinations out of 36 below 7 that is 1-1 1-2 1-3 1-4 2-1 2-2 like this, there are 15 combinations. Now if we only have 50 50 chances and if we are betting something and we are getting back that much of it, then if we are winning at least half the time, out of hundred times we are winning 50 times, then we will break even. Correct? Then if 50 times we are going to lose and 50 times we are going to win, we are going to meet our cost, but if the winning rate is below 50 then definitely we're losing. Like how it is given here. Out of hundred bets, 41 times we are getting 500 so we're getting 20830
but in the rest 50 times we are losing 500, so net net it will be -29. so basically the net will be -8300. So it might be that we are lucky such that if we are playing today we might win several times. This might make me feel that I have understood this game and I am the star of this game but the longer you play this game the odds and the chances are that net net you are going to lose your money because this game has been structured as a mathematical probability and we don't think about these things normally but obviously the person who is running this stall has a business to run so he has bought this stall using money and net net he has to earn money out of this stall. Interestingly, at number 7 the chances of winning are much lower that is just 16%.
If we bet on number 7, 100 times then net 25000 is the negative expectancy. This is 3 times more than a normal above 7 below 7. So this is the game's expected value in simple words if we have to say the expected value, so When Rahul Dravid comes to the crease, then given his average in the last matches as 40 runs, we expect 40 runs in this match. Similarly for this game, the expectation is negative. Please don't play 7 up 7 down unless you are the stall owner. Now I will tell you one thing. There is a game called poker in which I am really bad and have a track record that I have never won in this. So last week I was playing this game with my friends, the thing is if I lose a lot of money in the share market I won't have a problem but if I lose even 5000-6000 rupees in poker then I get mentally disturbed. So my friends told me to consider this as an entertainment cost. You are sitting with friends and you have to bear the cost.
suppose you're going out, you would have eaten then you would have to spend money there, you are spending Rs.5000 for entertainment You won't believe that after that I have been winning in poker. Expectations are only 0 So poker is also a very interesting game. Where actually professional poker players who win the world series of poker, they are the same every year. So what's so special in players and traders that they are winning, that they win net-net or the odds are in their favor.
The reason is that they rely on hope and put more weight on reality. They know that if you are trading you are going to bear the trading cost like brokerages, STT, etc. Only once you factor in all this, then we have to be positive. Even though we assume that out of 100 trades our 40 trades or 50 trades or even 60 trades can go wrong. Meaning, Vivek, in very simple words, we can lose more often than we can win.
But net net we can be positive and still make money. How is this possible? Now this the experience traders and professional poker think about while betting, that when we are losing we will lose less. But in the round where there is good chances to win we can bet big also or if we did the same bet then we can cover up whatever we have lost and win more than that. So many traders have identified this and got to know even I in my career years So when I started Systematic trading in December 2012 for 5-6 months I stopped seeing the SGX Nifty and the TV, and I stopped taking any research inputs or any opinions from my friends I used to just switched on my system in the morning that did automated trading and closed it at 3:30 pm. And in 6 months we saw how everything turned upside down. That was also a good phase of trading luckily for system trading but the journey from loss-making becoming profitable, we got to know from the systematic ledger And the ledger doesn't lie, it will always say the truth, whatever you do reflects in your trading system, that is the reality There are many traders like Victor Sperandeo who is popularly known as Trader Vic he coined the term "Art of Losing" who worked for George Soros, who is very profitable Ed Seykota is a trader who started systematic trading in the 80s, is an engineer from MIT, He turned $5000 into $15 million in 12 years This is something 2,50,000% compounded, and he is also known as one of the best traders who has walked the Planet and if you want avoid trading from whipsaw, by whipsaw we mean the trade in which put our money and lost it right If we bet on a poker and incurred loss, we bet on a trade and incurred loss so that trade is known as whipsaw I was talking about the breakout system so if went above the donchian channel, then we will buy but if the price came down then we will exit so that becomes a whipsaw So if we hit the horse with a rope then the rope after hitting will come up right in that way only there will be a whipsaw in trade so the way to avoid whipsaw is only by stopping trading and there is no other way. so if you trade then there will be loss,
that's part of the game. and there is another trader Vanessa Selbst only women to win WSOP 3 times, and a hedge fund manager in Bridgewater associates, one of the largest and very successful hedge funds. It was successful for 24 years out of 25, and it was run by Ray Dalio. Why these people win every time, what have they done differently?
so if we put the analogies with sports like trading is also like a sport, Vivek I know you are a big fan of sports so in boxing it is also like this, if you are boxing you get a punch, stand up and start boxing But you have to take a few punches to give that big punch. In basketball it is also like this when you throw it wont go in the basket every time, Michael Jordan who is one of the best basketball players has said I am what I am because of all the throws I have made and missed without missing you won't even be able to reach the basket But if you don't throw there is no chance of going in the basket, you have to attempt but which way to attempt is important So in systematic trading we are trying to do that only, suppose if our win ratio is only 38%, this is example of live system which I have been trading from December 12 and today also this system is there and the winning rate is only 38% in school when your father would ask about the report card where 38 marks was passing, in this also there is 38 marks or little above But this is enough for making money in the trading, the reason is that when the winning trade comes how much we are winning from the normal loosing time? Like normally if we lose 1% in every trade in average, then when we are winning we are winning 2.5% so that is not 2:1 that is 2.5:1. In some system you can be winning 3:1 right so when you are, your payoff ratio keeps on increasing, first your win ratio will be so less that it will compensate and still your system will be profitable Like a layman, many people, and even I did the mistake of wanting that in our system there are more winning trades, we should not be wrong but basically there are many systems in which win rates are around 40% There are many legendary traders whose win rates are only 30% means in 10 only 3 will win so if you see them, then in your journey that will be a failure right But when they win they win so much that the losses which they had made are covered up and become positive let me tell you, Vivek the topper in our school got 91 or 92 score and the worst performer got 48, but in life performance it's reversed I can tell 100% what you are saying is guaranteed, right, so it is not important that everyone is a top performer, they won't be doing well in life it is not like that but when education or rank’s ego come in yourself and if you are not open for new learnings or if you think that you know everything, then it is very destructive so anybody can do this because 30-40 is doable for everyone so after spending time and reading books, and also seeing the track record of many successful people and my own trading life and ledger, so I realized I do not have to make money in every trade, and I shouldn't have such expectations I have to play that game only in which I have a chance to win even if there is a loss in the short term but if we play the game in the right way then in the longer term there is a chance of making money. So in that way we need to change our mind wiring. There is no rocket science or not much change in the rules If you see common moving averages, rsi, adx anyone can use any of these, depending on what you like to use People say that this is not a good indicator, my method is good, but maybe for him it didn’t work but for other person, it may work It is not like that there is some magic indicators give you a signal. The magic is when you lose then how much you lose,
and how you lose gracefully, so if you don't have the losing spirit and grace that loss will be there and you should accept it happily So actually Ed Seykota made a song whipsaw, the lyrics are very interesting, if you google it you will get it So he enjoys the losses as much as the gains because it will happen if you know that it will happen then what's the point of feeling sad about it? You might as well enjoy it, that now the sad phase has come, there is a chance of a happy phase coming. Right? So you keep playing the game. So, in this way there are many traders who have made legendary returns. So it is not like its only luck or an anomaly. Along with luck there is a method with which they have learnt to be successful.
Right! This is a great starting point or a base, and you have brought sensitiveness towards money management too, and I think people should get a lot of confidence from this, because most of the times from the emails I get, with people asking if they should quit because 5 out of 10 trades of their went wrong Well this a testimony to the fact that even if 10/6 is wrong, then we don’t quit but make most of the 4 right trades. So thank you so much for this simple and relevant presentation. Now let's move to Algo discussions. When you showed the thought process for Algo only then what you showed is applicable, but how do i adopt this as a trading model? Right Right! So there is a software known as trading view which is open source and free, with a paid version if needed And here you can see a simple algo. The programming used in trading view is known as Pine editor or pine script. So different tools can have different languages. For instance amibroker tool uses afl, amibroker formula language. Like that there is python also. So many times we get fascinated by the language. Vivek, I have seen, and you must have seen more than me, that
Many times we see people ask which software to use to make more money. From this I remember an anecdote. When I worked at Philip capital,a broker from Gujarat called me and said he wanted to do Algo. So we asked what in Algo? So he said only algo. We said okay but what in algorithm? Directional, non-directional, buy or sell? So he said no I just want to do algo.
He had invested in a high end software worth 70-80 lakhs and told me he wants to make money. So it’s not about the tools, an ordinary person can use excel, trading view or even write it physically to make money. Tools can help and for certain types of trades, tools may be a necessity with high speed trading But that is a small group of traders who do that professionally. That is a different game and it is like a 7up 7 down game.
So we don't want to play that game as we will only make losses there. So what should we do? Make positional trades of 2-3 days or 5 days holding period. Swing trading basically. That is a game that does not require high speed computing. So we can make a simple pine script system where you can see a long condition. Let me zoom a little.
I was about to tell you to zoom. So this strategy is F2F for face2face. Users can change and add anything here. Long conditions are a rule to buy. So the rule is simply defined, when 14 period’s Simple moving average goes above 28th period moving average then we will buy.
This is a simple rule, if the 14 period closing price is above 28th period then there is a buy. So the strategy’s entry position is long. Similar for short trade, if the 14 average is below 28 then we will sell. So this is a sell condition in the strategy. And for long exit, If 5 avg is below 13 then exit and for short exit, is the opposite. If the 5 avg is above 13 avg then we exit. So in this, 14 is a faster avg which changes fast and moves with the price when compared to 28 which is slower.
The most simple is when we look at the 1 avg which is the price itself. 2 will lag and 3 and so on. So 14 is faster than 28 right? What we are doing here is that when fast avg is going above slow avg then momentum seems to be strong so let’s long. Similarly if the 14 period is going lower than 28 then it seems weaker so we short. So this is the logic of this. So the trading view can understand this strategy of when to exit long and when to exit from short position. Vivek if you see this in totality, this a total of 12-13 lines of codes only.
And I had seen a presentation of a money manager running a hedge fund in the USA managing 25 million dollars with 25 lines of code. In his presentation it says 25 million dollars handled by 25 lines of codes. So entry rules need not be too complicated. A lot of people have charts with so many indicators that you can’t even see the candle. So you leave the essence of the price. So you can use price simply to make simple tools and if you follow that with money management rules.
If you have a loss, then how much of the capital should be a loss? let’s assume 1%, so if we trade 5 lakhs then we lose 5000 in 1 trade. Same 5000 losses are made in the 2nd and 3rd trades too, but in the 4th trade you make 25000. So net net your capital becomes from 5 lakh to 5 lakh 15. Slowly it goes up but sometimes there will be falls which I will discuss next. So if I take the same thing and save it and then add it to the chart then, TradingView will run this in 2 seconds on 2-3 years of data. Where there is a buy and where a sell, it will plot those. And if I go to Pine editor then we can see the strategy tester, the summary of all trades.
So this is telling us that totally on the long side we made 2300 and short side made 662. So you can see long trades are more because Nifty by default is going up. If we see despite the covid crash we are still up. So this is showing that distribution. Then in this, Vivek we will see the max drawdown. This is very important, and if we focus on it and understand it, our trading journey can become easier. So in this chart that you can see, the blue line is the equity curve, which shows the position of the money we started with. So here out of 181 trades only 39% trades are profitable in Nifty, so as per this rule, 40 times we make money and 60 times we lose it but we will see net-net, it has earned money, and this is a simple rule which can be enhanced to give more results this example gives us an idea of the power of system trading. The red part we see is the drawdown, when we have losses.
this is called drawdown or underwater equity, and wherever the red line is deeper, the loss is more, like the up and down of a mountain so the biggest slope out of all the slopes of the mountain is the maximum drawdown. like we can see it in the period between the 138th and 140th trade. Here we can see how it fell from zero to -1200. this is maybe during the feb-march covid crash. So with backtesting we can see how these rules performed historically. Yes, so if I give a summary of this, 39% times we saw profits, with a total of 2962 and max we had to give 1200 to it, Not on capital but from the earnings, Yes, vivek, you have highlighted an interesting point, we have to think that if we start and come to this point, and we dont know what will happen next, as we stand on the steepest slope, we have to mentally prep for its possibility yes, I understand why it's called maximum drawdown, and it is concerned with the deduction from the final capital amount you can also think that if it happens in the beginning it will drain my capital, you can enter with that mindset.
the chance is less but it can happen. So to make this efficient,.. suppose someone started this with a simple logic, and now they want to improvise it, how should they think for it to make it better? so the one thing we can use here is the variety of indicators. suppose we took up moving average for the momentum indicators, and we want to know when the momentum is strong.
because momentum keeps happening, but is there any way to qualify when it is strong so I will participate then only? So we have to add one more filter? Exactly. The number of trades might fall but accuracy will improve. so the broker might earn less, but you can be more profitable. That's the best case scenario, right? and brokers love profitable traders because they know they'll be here for the long run, yes I think that apart from the broker we have to give to the government and the exchange too, and the broker sometimes takes nothing we have to pay tax anyhow.. yes yes. so this is exactly how it works - you start with an idea and do a high trade, then let's say we can add ADX here when ADX is above 25, the trend can be strong, maybe trades can fall from 180 to 160 but the 39% can become a win ratio of 40 or 41%., and the payoff ratio which was winning versus losing, we can look at it from profit factors, with total profit divided by total loss. If this rises from 1.4 to 1.6,
so these minute edges, these are present with the person making us play the 7 up 7 down game. so the 9% difference between 50 and 41, that is his edge. As a systematic trader we have to add such edges, and Vivek we often observe that even combining 1-2 edges can give us a lot of improvement in the entire system.
so it is very interesting and researchful, you have to find something that works for you and your brain as well. they're simple things but try to apply them with your own taste and style, please don't listen to a neighbor if they say adx doesnt work you have to try to know if it works or not and why do you need neighbors to tell you when you have backtesters for your strategies? Yes, definitely One of my neighbors would say if I bought this share I would be able to get a house in Alipore, an expensive place in Kolkata and I said you are still my neighbor without a house in Alipore and you are asking me to buy that share neighbors can be very fraud characters. I was attending a session of someone very interesting, a trainer and trader, they said here you have to earn your money on your own, which is something I will always remember we can listen to everyone but at the end we have to do it all on our own. So this was a way to develop a strategy of our own.
Obviously this video can go on for hours or years, because there is so much to say over this subject, but this is a stage where you picked up an indicator, saw the price movement and tried to work it out, and trading view has simplified life a lot because before you couldn't find the tools and I'm an advanced premium user of it because it was so good I decided to spend money on it, but to take the idea to the next stage, right now I am doing it manually how do I automate it? Luckily there are a lot of improvements in the ecosystem. For example, with systems like trading view we can bridge our trading system to them. I simply log in to my trading terminal, I choose Nifty, F1, price, quantity then buy. we do all this manually, as usual. These inputs like price, quantity come from amibroker or trading view,
and a bridge will pass these inputs on to the trading system, and in the terminal, which we manually order, it will automatically show as placed in a popup. so this system, the API which interacts with the trading system, it's a big deal outside I think people do this on a retail level as well - they make a system and leave it I remember going to the US in 2010, where I met a doctor, who was a good trader and he would check his trade on his phone, he had developed a system, and he is seeing patients side by side, that is how developed the culture is in India there are regulatory restrictions, and you can't directly trade in some areas. Is this there or has it improved? this is my love hate relation with the regulator. I have respect for Indian regulator because in the 2008 crisis, when Lehman blew over, there was a lot of stress in countries and governments, and you must have seen this amazing thing in the Indian markets how robust our clearing system was in 2008 so in this way the conservative mindset is good however for algo, SEBI took out a policy in 2008 April called DMA or direct market access which allowed institutions and allowed changes and announcements on that level, on the retail level it feels like a bow which has released the arrow, it will never go back to the way it was in my opinion so why not formalize it more and remove the remaining ambiguity? in my opinion risk management issues and failures happened before too, it's not like there weren't crashes or bubbles before, which started from tulipmania in 1600s, where people were ready to give everything up for a flower. This was the reality perception, that the flower was so valuable. I think we are informed and we can care for ourselves, and SEBI should bring more clarity on this.
Maybe there is a process and through the authorized dealer or sub broker, you can apply for the approval of your strategy from the exchange, after testing it. The exchange is scared that the system shouldn't go down, because a lot of people have misused it too, You have seen there is a book that's come out, the Market Mafia, by a journalist who has described it factually. we don't want misuse where people are denying others service for their benefits or they have choked the entire trading pipe, put so many orders in that other orders are denied, which is denial of service. The exchange doesn't want that. That's why they're conservative but i think we should get that clarity as soon as possible. What do you think? I absolutely agree with you, it's just a matter of time. So friends, right now you might not be able to do this automatically without approval,
but one touch is allowed. This means you will get an alert that this order is generated, you have to say yes to execute the trade, for that you need one touch manual intervention. But if you want it automatic, there is an approval process facilitated by brokers, so you can ask your broker and know about the services if you want to go on this path. Yes, correct Vivek? Some brokers allow it under the purview of the exchange, if you are ordering with trading view or amibroker, which is automated trading software which already has a risk and money management rule, we didnt expand on that but you can put these in your system exchanges are open to that and it is broker specific. So it is opening a lot, there is a recent rest API which is like our own login and password
when I connect to the broker I will get a token unique to my account and I wont get it without permission, so I can do algo with that so yes it is opening, but the more it does the better, and it will happen gradually too Friends, the idea of this video was to introduce the concept and the path to you, A to Z, and you will be able to do it with practice only the last mile problem of automatic execution, some broker will definitely help with that but the core is how to generate idea to backtest and how to shape up our algo trading, I hope you must have understood that much from this video now there is no need to be scared. See we are always afraid of the things we dont have knowledge about. When we get it our fear disappears. before we end this video, is there anything you would like to say to motivate people to do this? like you said in the end, there is no fear and that is most important. Algo even puts your trading emotions into rules and code. emotions will be there but this is a way to channelize them and do rule based systematic trading. for entertainment there is Las Vegas, poker or the 7 up 7 down game but if you want to do trading business algo can make it beautiful and systematic. Very well said, friends, I would like for you to connect with Vivek. He is doing good work and he does a lot of events too so you can get information if you connect with him. Vivek, what is your twitter handle?
My twitter handle is interesting, actually I used to invest in tech stocks, so it is techno and vestor, technovestor. Awesome, we'll give the link below this video. You know I only bring people worth following so please follow him and Vivek there may be some technical comments that I may not be able to answer, so I would request you to please take some time to answer them.
absolutely, and Vivek, I would take this occasion to thank you, not as an individual but on the behalf of the community, the work you and your team are doing is a global revolution in global literacy which not a lot of people might be doing. you have given a good input of thinking global now, since we have a lot of people joining in, also Vivek has taken a very good webinar with us, please do see it, he teaches very well, as you have seen today,