Trading Guide

How to use Algophase automation & Different ways of doing so.

Different Approaches to Trading

For the context in which we can use Algophase Automation

  • Discretionary

  • Quantitative

What is the difference?

Discretionary Approach is a system in which trader has developed an enormous expertise in trading a specific strategy. Trader specializes in one strategy - ORB, Stochastic Divergences, Supply & Demand, Market Profile, Volume Profile, ICT concepts, Price Action or whatever else it may be.

Traders develop an ability to differentiate between the quality of setups and they are able to articulate why that is the case. Something along the lines of:

  • A+ setups - criteria XYZ

  • A setups - criteria XY

  • B setups - criteria X

How does this relate to Algophase automation?

Algophase automation does not have the ability to classify setups into A+, A and B categories yet. However, It is designed with the ability and intent to apply filters that increase winning probability and the quality of setups. We will show some examples below. Think about it as if the goal is to filter out and only trade A+ setups on the parameters that make contextual sense. For example if we want to go Long with the ORB breakout we only want to take trades if we’re above previous day high, have formed FVG and price action has formed aggressive pattern. We’re stacking bullish confluence.

Backtesting targets should look like something like this:

  • If testing parameters with 1 R - 1:1 Risk Reward Ratio, you’re looking for at least > 60-70% Win rate

  • If testing parameters with 2 R - 1:2 Risk Reward Ratio, you’re looking for at least > 45-55% Win rate

Benefit of this approach is that many times backtesting does not have to be performed extensively and over longer period of time, past 60-90 days is often all we need and maybe 2-3 instruments like MNQ, GC, MBT. It is ok if one of these instruments is breaking even or in a bit of drawdawn if other two or showing great results. Think about it as if this the setup you would trade manually.

Quantitative Approach is the one where trader is optimizing parameters in a ways that don’t need to have much conceptual sense but are working out statistically. Your goal is not to think in a way that discretionary trader would. We’re not looking to improve quality of setups per se but just looking for a highly profitable system. These trades do not need to be something we would ever trade manually.

Exercising quantitative approach, more time is spent optimizing parameters and thinking outside the box. We can experiment with unusual parameters. For example instead of 15 min ORB we can try 13, 7 or 23 min range, experimenting with many different combinations.

Backtesting goals should look to provide healthy profit curve on longer periods, 6 months at least. Different types of backtesting techniques should be exercised as well, like Monte Carlo and Walk Forward Optimiziation.