Automated Liquidity Extraction Trading System Applied to Currencies
May 16, 2017 - Currency Trading
How profitable is automated multi-horizon extraction of liquidity premiums in currency exchange markets? In their April 2017 paper entitled “The Alpha Engine: Designing an Automated Trading Algorithm”, Anton Golub, James Glattfelder and Richard Olsen introduce an adaptive counter-trend algorithmic trading system that seeks liquidity premiums from price series via automated trades at adaptive market events. The system consists of the following building blocks:
- Module that employs an event-based (intrinsic) time scale to determine price series directional changes and overshoots.
- Module that analyzes relationships between price series directional changes and overshoots over multiple (baseline four) horizons.
- Module that sorts directional changes (upward or downward) to enable asymmetric overshoot thresholds.
- Module that trades at empirically adaptive events.
- Module that sizes trades by identifying degrees to which associated market conditions are abnormal.
- Module that suppresses accumulation of large inventories during long market trends.
For opportunity generation and execution, they require: intraday trading capability; full automation; and, limit orders (to the extent possible). They illustrate the system on currency trading. Using intraday data for 23 currency exchange rates during 2006 through 2013, they find that: Keep Reading