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Charts & Analysis

System Trading Performance Update

A system trading update: now we have two systems in operation. The first one is running reasonably, up 19.11% since Jun 08, unlevered. This translates to around 60% annualized returns, which is reasonable – our aim was to get something that can survive ups and downs.

The Nifty in the same time period, has been down 17%. Last five days have been positive returns, regardless of which way the market went. (All returns are net of costs/brokerage etc.)

System 2 is now on for about five days. It’s done one trade and is up 3%, though 5 days is simply too little to judge. Will keep posting as it goes on.

What we’ve learnt is to understand how systems change – and they change often. Specifically intraday systems change because the behaviour of markets changes. Plus, given that we’ve focussed only on the most liquid stocks, adding a lot more money shouldn’t impact prices too much. (Otherwise, you could buy 1 lakh worth of a small cap and literally make it hit upper circuit – a waste of effort!)

One thing is that now we must look at whether this kind of system trading concept can be taken to a new level. Either by directly managing money or providing system advise. It’s a pretty lousy market to raise money, unfortunately. Need to find investors who’ll understand the concept and be willing to participate – this is going to be tougher than designing the systems themselves!

  • Anonymous says:

    >All the best deepak, am an ardent follower of ur blog for over a year or so.. and yes am a .net programmer.. its very exciting to see someone do somethig like this.. ie an automated system.. would like to see some posts on technical side of the trading systems.. good luck.
    Aditya

  • Anonymous says:

    >I am interested in Automated Trading Systems.

    Would you please post some blogs about different Trading Systems out there in the market.

    The System which you use, is it self built or customized to your needs from the offshelf product?

    How you get the feeds from the Market data to your system?

  • Deepak Shenoy says:

    >Thanks Aditya. I won’t be posting much on the tech side at the moment, though I do have a post in mind about the best way to store minute data – both in memory and on disk.

    Anon: I don’t know any trading systems that are out there. The system we use is built entirely by us. Feeds: There are a number of market feeds available at a cost – like Reuters, Bloomberg, Quote.com, etc.

  • DK says:

    >Those are some pretty impressive returns.

    I think the near future is a perfect time for systems because one can only react to changing conditions. Rationality is not really gonna help us.

    I am not sure, but are you looking for investors? If so, how much capital you are looking for?

  • Deepak Shenoy says:

    >DK: Could you contact me at deepakshenoy at gmail DOT com – can give you details.

  • Siddharth says:

    >” Need to find investors who’ll understand the concept and be willing to participate – this is going to be tougher than designing the systems themselves!”

    Petty retail investor like me welcome?
    If yes, then count me in please. Looks like its going to be blood everywhere in the street, so time is ripe to try out some financial adventure!

    Good luck in your next goal.

  • Anonymous says:

    >Deepak,

    It might be a long comment :-).

    My guess is that if the required amount is of the range of a few Crores, there will be enough people among your blog readers who will be willing to pitch in 15-20 lakhs each. The only thing you will have to compromise is that you will have to deal with several people instead of one VC. And as the founder/CEO you might have to reveal your plans in front of more people than you might be comfortable with. You might not get all the amount at the same time. You might have to collect 50 lakh from a 3-4 people first and after three months you will get another 50 and so on.

    If you are looking for retail investors of 15-20 lakh capacity ( above that I count them as small VCs) And say you are looking for 4 cr. You will deal with 20 people. And everyone’s money will not be free at the same time.

    Also, one more question. Do you have all the legal/SEBI approval for taking people’s money for trading ? If yes, what is the minimum amount you would like from and investor? If no, do you intend to get it, and by when can we expect all the formality to be over?

    And unless my memory is not weak (which isn’t!) previously you have criticized PMS services and showed a lot of flaws/malpractices in PMS services offered. Ho do we trust you ? What is the guarantee that you will not indulge in such practices? And as you are smarter than most of the idiot fund managers/market experts ( At least I think and hope so ! ) you are capable of finding out new innovative and legal methods to cheat customers.

    I am not saying that you will cheat customers. However, I am just saying that you are capable of it 🙂 .

    And I am also one of investors willing to invest 15-20 lakh. Otherwise why would I write such a long comment? I am hoping that you will publish it without censoring it.
    Regards,
    HK

  • Deepak Shenoy says:

    >Hk: You’re close to reality – we are looking at something like this, figures wise. Getting a PMS License is something that’s on the cards – just have to figure out how it can be funded etc. SEBI minimums are 5 lakhs – but I expect to need higher than that as you described.

    The plan is to get it all rolling in the next month if we are able to get through the funding/legal hurdles.

    regarding cheating – I understand what you mean and we have to build trust. I’m in the business for the long run – so cheating would be fairly stupid, but still, the trust has to be built. It has to be a combination of automation (more human input = potential for trouble)and transparency (open audited model account that anyone can use to match their returns) Still, that will take it’s time – and I know that trust cannot be demanded, it can only be earned.

    Perhaps, initially we will only work with people we know personally.

    Still early days; the next couple weeks will determine how the plan will move.

  • Anonymous says:

    >Deepak

    I presume that there are various systems that u must be testing parallely and only a few make the grade after the backtesting process to reach a stage where u actually put money in it.

    What is the ratio of systems that make it thru the rigorous testing process.

    Cheers

    Ninad

  • Deepak Shenoy says:

    >Ninad – Less than 10%. We have a back testing process, a real-money-testing process, and of course the real time monitoring and refinement processes.

    Typically systems need to be retested after they are discarded also, just to get an idea of whether certain things might work better now. So we’re building a portfolio of systems, and a framework for auto-testing too.