Many years ago I figured out that algorithmic trading for the most part subscribes to the age of paradigm that “nothing works all the time but some things work some of the time” This is very true fro trading approaches in most markets.
One concept that I do like to employ is the concept of biased system trading. What is biased systems Trading? Biased system trading means that a trading approach (in my case algorithms) can be tilted to towards favoring either up trends or down trends. The most obvious example of this is the mutual fund industry that buys long only. They do well when the equity markets rise and poorly when they fall. For trading the same concepts exists but on a smaller scale. Why Bias at all? The answer is behavior. Human beings are generally predictable and so are their behaviors. How a market behaves in an uptrend is different than how a market behaves in a down trend. By designing a trading approach for different markets, traders can achieve more success AND !! if a biased algo is starting to reverse its profit trend (we call this Algo trend) then its a clue as to a new trend developing.
I run 2 types of Algos, Trend and Chop market with signals designed to profit when the market is trending or chopping. I also like to bias these models market towards one trend or another. The benefit of of this approach is that the markets tend to move in waves, both up and down and as such there will always be something working. Below are to graphics showing two US 30 year algos, a bull biased algo on top and a bear on the bottom.
In the top, we see how a bear system performed well in a downward environment while the bottom shows how the bull performed when prices rose. Click for full screen images.
Editors’ Picks
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
EUR/USD comfortable below 1.0800 lower lows at sight
The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.
Gold price finishes Thursday’s session set to reach new all-time highs
Gold price rallied during the North American session on Thursday and hit a new all-time high of $2,225 in the mid-North American session. Precious metal prices are trending higher even though US Treasury yields are advancing, underpinning the Greenback.
Bitcoin price extends retreat from $69K as old whales shift their holdings to new whales
Bitcoin price continues to move further away from the $69,000 threshold, gaining ground as BTC bulls hope for a retest of the $73,777 peak. This is because of the general assumption that clearing this blockade would set the tone for a reach higher, marking a new all-time high.
Bears have been standing before a steamroller so far this year
Despite a pushback on rate cuts from Christopher Waller, and what was supposed to be cautious trading sentiment ahead of critical US inflation data released later on Friday, the S&P 500 rose on Thursday, marking its best first-quarter performance in five years.
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