What is Algorithmic Trading?
Algorithmic Trade Modeling, according to wikipedia is: the use of computer programs for entering trading orders with the computer algorithm deciding on certain aspects of the order such as the timing, price, or even the final quantity of the order. This should not be confused with the simple 'back test' design mechanisms offered by some charting packages, this is about shifting perspective. It should be recognised that these models are primarily real-time, and are best instigated by organisations that have reduced friction in transaction processing thus improving overall long term performance. For the average retail trader however, transaction costs are very important and as such, high speed, high volume trading only really benefits the broker hence both the time frame must be addressed and greater care taken.

What is the advantage of using Algorithmic Trade Models?
Algorithmic Modeling is firstly and lastly about perspective. If your perspective is identical to everyone else it becomes impossible to discover anything unique or insightful that could not be instantly duplicated by everyone else. To both gain and maintain a tactical advantage, it becomes necessary to alter your perspective, and ensure that you are participating in the same market but at a different level from the crowd. The core value of using an algorithmic approach is the removal of emotion from the process and dealing only with the instructions at hand. The future is thus made entirely irrelevant.

What has been developed?
The final application is a culmination of many years of work and research. Unlike the description given above, it does not offer automated order entry. It is concerned with the identification of opportunities only, assigning direction and transaction size based upon assumed risk and available capital. Risk management lies at the core of the processing, so action is only taken when appropriate. This of course can lead to extended periods of 'sideline' time when conditions are simply not favorable, the flip side to this is of course: if conditions are poor why take a risk !

Vigorous back testing has shown that the negative impact of transaction costs is far too pronounced in smaller account sizes and as such the outcome resulting from this modeling is only suitable for accounts in excess of 100K. The target audience for this program is therefore small self managed private funds and small to medium hedge fund type structures. Whilst no firm decisions have been made, the current intention is to offer the outcomes generated by the Algorithmic Trading Application on an annual subscription basis at an estimated cost of $5000 per annum. On a 100k account this would represent a 5% annual expense.

It is expected that a final decision on the overall direction of this program will be made in early 2009. If you wish to register you interest in this program and be informed of its progress through to release, please enter your email address in the space below.