Kevin Davey – Strategy Factory Workshop

How I Build Successful Algo Trading Strategies

Here’s the brutal truth about trading:

Trading is HARD!

I’ve always said it is the hardest way to make easy money…

And trust me when I say that in the early years I failed, and failed a lot.

• Feeling like a total loser at futures trading? Unfortunately, YES!
• Lacking confidence in my trading strategies? Once again, YES!
• Fearful of what tomorrow’s markets would do to my trading systems? Ashamed to admit it, but YES!

But after many years of trading failure, in the early 2000’s I discovered “algo” trading systems.  This is trading based on a set of rigidly applied, backtested rules.  Once I fully embraced algo trading, a few years later I was a 3 time trading contest trophy winner…

The best part? It’s a simple, 8-step process.

The process takes hard work, and trading is risky.  But it does not have to be complicated.  And it’s one of the fastest ways I’ve discovered to quickly build a portfolio of algo trading systems.
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If you want to get access to the above strategy – a real-life case study of the Strategy Factory in action – just enter your name and e-mail address below and I’ll send it over.

What are Algorithmic Trading Systems?

I’ll make the answer VERY simple, even though “algorithmic” sounds super complicated.

Think of an algo as “rules to trade by.”

If you want to buy 52 week highs and sell 52 week lows, those are rules that can be turned into a computer algo. Maybe you add a stop loss in there, or even a profit target. Basically, you program the rules you want (the algo), and then test it on whatever stock, forex pair, futures instrument or crypto that you want.

An algorithmic trading system, then, is just a set of rules to control your trading decisions. These rules can include buy/sell decisions, position sizing rules or even concepts like equity curve trading.

Types of Trading Systems

Most retail traders trade one of the following trading systems:

Full 100% Algo – ALL rules for entry and exit are determined by the computer.  No intervention by the human trader.  Can be easily historically tested (known as a backtest).

Hybrid Algo – Rules are defined, but sometimes the human trader overrides the computer rules/decisions.  Many traders fall into this category, since they like rules, but they also think they are smarter than any algo they create.

 Discretionary – Trading is conducted via guidelines rather than hard and fast rules.  The trader uses a lot of judgement and intuition to make trading decisions.  Most traders start out with this approach, since they feel they can easily outsmart the market (usually a bad assumption!).

How To Build An Algorithmic Trading System

This is a complex topic, for sure.
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I could write a book on how to create an algo trading system – in fact, I actually did! My first book is called Building Winning Algorithmic Trading Systems. It was released in 2014, and in many trading circles it is now considered a classic in trading system development.

My approach to building trading algos is a multi step process I call the Strategy Factory®. It is an objective process, built to help traders avoid common mistakes like over-optimization, curve fitting, etc. The best part? This process is what I use to develop trading strategies AND it works for traders I have taught it to.

I’ve also written 4 other algo trading books. They are all best sellers at Amazon. Here is a time where 3 of them were in the top 5 bestsellers for Futures Trading!

Build Successful Algorithmic Trading Strategies

This is the goal. And what is a “successful” strategy? A winning algo trading strategy PRODUCES GOOD RISK ADJUSTED PROFITS IN REAL TIME. That is the goal.

This is a VERY important point. Traders new to algo trading mistakenly think the goal is creating a great looking historic backtest. WRONG!!! In fact, creating a great backtest is many times the exact wrong thing to do. Don’t fall for “educators” who claim you can optimize your way to profits. You can’t.

There is a paradox here, though. Optimizing is a bad thing, if you do too much of it. BUT, if you optimize properly, it can really boost your algo trading. This is kind of like the Goldilocks story – the porridge is not too hot, and not too cold, but is just right!

There are a ton of choices to make when setting up your algo trading. Many traders find my “best of trading” compilation very helpful in finding their way around.

Step by Step Algo Trading Strategies

If you want to succeed in algo trading, you need a process to develop algos. Ideally, the process will be objective, rigorous and comprehensive. I’ve created such a step by step process for my own trading. I can take a trading idea, develop a strategy based on it, test it and determine if it is worth trading.

The problem is most ideas fail! The algo building process I use routinely discards 99 to 99.9% of strategies I test. And that is OK by me – I only want to trade the best algorithms. I’ll let losing traders trade the others!

Free Algo Trading Strategies

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