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Building Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading, + Website by Kevin J. Davey

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CHAPTER 23 The Ins and Outs of Monitoring a Live Strategy

In factories, when a machine makes parts, the operations are closely monitored and the dimensions closely checked. The idea is to ensure that the part-making process is going smoothly, and to give an early warning signal when things are beginning to go bad. The same process holds true in evaluating live trading systems. I use a variety of tools to monitor strategies I am trading or that I am incubating.

The first chart I use is what I call a “bird’s-eye view” chart, as shown in Figure 23.1. It tells me, at a glance, how my strategy has performed historically and in real time. To keep consistency, I use the same data source for all the data. In my case, it is the Trade List provided by TradeStation. You can get similar data from just about every trading platform. This is not actual real money data, which will be covered in later charts and metrics.

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FIGURE 23.1 Bird’s-Eye Equity Chart

The point of this chart will be to gauge the general overall effectiveness of real-time performance (the portion of the curve on the right). Are the real-time data consistent with the historical test and the incubation period data? If not, there may be something amiss. Maybe the strategy has stopped working correctly, due to market conditions, for example. Or maybe the assumptions made in the strategy about limit order fills are not realistic. ...

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