1ex Mission: More Successful Algorithmic Traders
Feedback is one of the most valuable things for an algorithmic trader. It allows you to see whether your strategy is working or not. If it is not working, based on the feedback, you can tweak it so that it works and brings you profit.
Our experienced team members have been researching the feedback control methodology for the modern algorithmic trading. Research proved that with due control of feedback you can have a win rate of over 50% in your trades. These results were presented at scientific conferences, in journals such as IFAC PapersOnLine, and books (currently in preparation).
Our team has a great professional and educational background. The Senior Expert in Mathematics and Algorithmics at 1ex Vadim Azhmyakov has a PhD in Physics & Mathematics and is an IEEE Senior Member with over 3 decades of active research in Applied Maths and Computer Science. Our co-founder and product owner Ilya Shirokov is a developer of market making and capital management algorithms with over 10 years of experience in the investment market. 1ex leverages the wealth of their experience to improve your trading. Now our team is ready to share all this knowledge and professional expertise with the trading community.
Today we are experiencing a shift and technology transfer from conventional control theory to modern financial engineering. Within it, Barmish et al. introduced a model-free PID (Proportional-Integral-Derivative) control for stock trading. The 1ex team has gone further and proposed the Proportional, Integral, Derivative, and Second Order Derivative (PIDD) control based on the Switched Systems theory.
With PIDD, gains become dynamic, and additional optimization is available through their tuning. Also, unlike the majority of stock trading products, the algorithm developed by 1ex is model-free, i.e., no predictive models are used for stock prices, because we interpret unknown market price variations as system disturbances.
In our version of the control-based approach to algorithmic trading, we react to stock price variations instead of modeling them. Also, the Integral term of our PIDD control is determined on a time interval with a predetermined exponentially weighted memory loss function — to weigh more recent data more heavily.
The resulting closed-loop trading strategy linearly combines the feedback measures of the profit, its derivatives and an integral term modified by a suitable nonlinear saturation function that guarantees the boundedness of the current investment.
We modify the saturation function to incorporate not only the “buy” and “sell”, but also the “hold” option, thus making the decision rule in our control algorithm strongly nonlinear. With the dynamic gain control in the complete PIDD scheme, we overcome the major limitation of the conventional PI scheme that uses time invariant feedback controllers.
We do not use any formal mathematical model for stock price dynamics in our trading approach, i.e., do not forecast random stock prices. Next, we make the design more powerful by introducing a switching mechanism that brings saturation type nonlinearity. We call our PIDD algorithm with the introduced gain set selection a Maximum Profit Switching Selection (MPSS) algorithm.
When backtested with the following price movements in the Bitcoin/USDT futures on Binance, the MPSS trading algorithm had the following results:
Using the historical market data, optimal calibration of the controller gains and technical parameters can be achieved. The trading rule we propose makes it possible to assign an adequate buy / sell / hold decision for every subsequent time instant in the financial market. The calculated win rate of this MPSS trading strategy exceeds 50 percent, making it a convincing financial strategy.
Moreover, this PIDD-based trading tool can be used in modeling modern financial engineering frameworks. It is compatible with classic prediction-based AT concepts and can be used in combination with a suitable Kalman filter price prediction.
You can find all the formulas and supporting materials in this article.
1ex has a brilliant team of scientists and developers who build the trading board for traditional and crypto markets. This board leverages the power of mathematics and thought-through algorithms to cater to the real needs of traders. Our team has extensive experience in trading and developing trading products (to put things into the right perspective, here is a fun fact for you: trading products by our senior developer have been in the market since 2004). This is why 1ex is the best trading board. See it for yourself at 1ex.com.
