applied

sciences
Article
Grid Trading System Robot (GTSbot): A Novel
Mathematical Algorithm for Trading FX Market
Francesco Rundo 1, * , Francesca Trenta 2 , Agatino Luigi di Stallo 3 and Sebastiano Battiato 2
1 ADG Central R&D Group, STMicroelectronics S.r.l., 95121 Catania, Italy
2 IPLAB, Department of Mathematics and Computer Science, University of Catania, 95121 Catania, Italy;
[email protected] (F.T.); [email protected] (S.B.)
3 GIURIMATICA Lab, Department of Applied Mathematics and LawTech, 97100 Ragusa, Italy;
[email protected]
* Correspondence: [email protected]; Tel.: +39-095-7404566




Received: 7 March 2019; Accepted: 27 April 2019; Published: 29 April 2019


Abstract: Grid algorithmic trading has become quite popular among traders because it shows several
advantages with respect to similar approaches. Basically, a grid trading strategy is a method that seeks
to make profit on the market movements of the underlying financial instrument by positioning buy
and sell orders properly time-spaced (grid distance). The main advantage of the grid trading strategy
is the financial sustainability of the algorithm because it provides a robust way to mediate losses in
financial transactions even though this also means very complicated trades management algorithm.
For these reasons, grid trading is certainly one of the best approaches to be used in high frequency
trading (HFT) strategies. Due to the high level of unpredictability of the financial markets, many
investment funds and institutional traders are opting for the HFT (high frequency trading) systems,
which allow them to obtain high performance due to the large number of financial transactions
executed in the short-term timeframe. The combination of HFT strategies with the use of machine
learning methods for the financial time series forecast, has significantly improved the capability and
overall performance of the modern automated trading systems. Taking this into account, the authors
propose an automatic HFT grid trading system that operates in the FOREX (foreign exchange) market.
The performance of the proposed algorithm together with the reduced drawdown confirmed the
effectiveness and robustness of the proposed approach.

Keywords: financial time-series; machine learning; data forecasting

1. Introduction
Algorithmic trading is a novel operating mode that involves the use of powerful automated
algorithms, known as trading robots or expert advisors, which help traders on monitoring the specific
market conditions in order to identify the best opportunities for buying or short selling the traded
instruments. According to the specific rules properly processed by the aforementioned trading robots,
an order may be opened or not. In particular, the trading robot may suggest to define specific stop loss
and/or a certain take profit level in order to maximize the performance and minimize the losses or
the overall drawdown. At the same time, the adopted algorithmic trading could decide to close an
operation or to manage the grid of trading operations in case this type of approach is adopted. In this
context, the aim of this work is to show an innovative grid trading algorithm able to negotiate on the
complex OTC (over the counter) market. Basically a grid trading strategy is a financial technique for
which market operations of the same sign are opened (all long or all short) appropriately spaced from
each other (grid orders) until the overall balance of the whole operations (including all opened trades)
reaches the desired gain. The distance between one trade and the next characterizes the radius of the

Appl. Sci. 2019, 9, 1796; doi:10.3390/app9091796 www.mdpi.com/journal/applsci

Appl. Sci. 2019, 9, 1796 2 of 15

grid, which can be defined statically or dynamically. The main advantage of the grid trading systems
is the financial sustainability because if the trading system incorrectly determines the direction of the
trend, the opening of other positions at the same direction (grid orders) will serve to average the loss
while, conversely, if the trend prediction system correctly determines the trend direction, opening
more positions will allow to quickly reach the desired profit target. Obviously, a direct consequence
of this strategy is linked to the need to get sufficient funds in the securities account that are able to
cover the total financial exposure due to several transactions opened simultaneously in counter-trend.
Therefore the aforementioned financial sustainability of the grid trading approach had to be related to
the funds available in the trading account. As reported the introduced grid approach will be used
in the OTC financial instruments. In the OTC market, especially if the CFD (contract for differences)
instruments are traded, the transactions are not carried out on the official market because the provider
broker became your trading counterpart [1]. One of the most traded instruments in the OTC market is
the so-called FOREX (foreign exchange)—also known as FX market—showing the dynamic occurring
in the decentralized international financial market in which investors and speculators provide for the
conversion of one currency to another [1].
Until a few years ago, before the explosion of the online trading, FOREX trading was the exclusive
domain of large financial institutions. Nowadays, online trading platforms have opened up the market
to all small investors who would like to buy or short sell currencies, especially the CFD instrument
that follow the real market exchanged currency [1].
The main advantage of the FOREX OTC market is mainly related to its high liquidity as well as to
its practically uninterrupted worldwide trading activity as it starts, for each week, on the late night of
Sunday and it will be closed on Friday late night of the same week. According to current GMT fixing,
forex trading hours is performed around the major financial exchanges in the world such as the New
York Stock Exchange between 01:00 pm–10:00 pm GMT while at 10:00 pm GMT Sydney Exchange
comes online; Tokyo opens at 00:00 am and closes at 09:00 am GMT; and to complete the loop, London
opens at 08:00 am and closes at 05:00 pm GMT. Consequently, the FOREX market has no central
location for the trading operations and currency traders make predictions based on global economic
indicators and each FOREX broker proposes a quotation strictly based on current market value.
Despite that the foreign exchange market is highly efficient, it offers significantly reduced profit
opportunities with respect to other financial markets because of high volatility and unpredictability
of the underlying currency. In fact, currency markets are strongly affected by monetary policies and
central bank interventions, which leads such market inefficiencies difficult to model by means of
mathematical approaches so it is difficult to properly forecast. For the reasons expressed up to now, the
authors have designed a proper algorithm for addressing the mentioned FOREX market inefficiencies
in order to increase the overall performance of the trading system rather, taking advantage of the
strengths of the forex market, which as mentioned are to be found in the high liquidity of the market.
In Section 2 we introduce the prior art about the automatic trading systems especially related
to FX market. An overview about our proposed pipeline will be discussed in Section 3. Section 4
will present the results, validation and benchmark comparison of the proposed approach. Finally, in
Section 5 we present the conclusions and future works.

2. Related Works
Many approaches have been developed in the scientific literature in order to forecast stock market
behavior. In particular heuristic science that takes the name of technical analysis has been widely
applied for addressing financial problems and for making effective trading strategies [2]. However, the
results of applying technical analysis to financial markets are quite weak in terms of both performance
and drawdown so that recently this approach has been significantly improved by means of advanced
financial mathematical modeling as well as by means of innovative and powerful machine learning
algorithms [2].
Appl. Sci. 2019, 9, 1796 3 of 15

Appl. Sci. 2019, 9, 1796 3 of 15

In recent years, neural networks have become popular in the technical analysis field in order to
predict the financial market. Specifically, their ability to extract complex nonlinear and interactive
effects makes them very powerful for modeling nonlinear economic relationships. According to this,
effects makes them very powerful for modeling nonlinear economic relationships. According to this,
there are many recent works about the usage of neural networks in addressing financial issues that
there are many recent works about the usage of neural networks in addressing financial issues that are
are worth considering in relation to the interesting results to which they came. One of the most recent
worth considering in relation to the interesting results to which they came. One of the most recent
papers is [3] in which Rundo et al have carefully investigated the usage of an advanced machine
papers is [3] in which Rundo et al have carefully investigated the usage of an advanced machine
learning platform for a financial time-series forecast. Specifically, they combined a multi Long Short
learning platform for a financial time-series forecast. Specifically, they combined a multi Long Short
Term Memory (LSTM) framework with an ad-hoc adaptive trading strategy for building efficient
Term Memory (LSTM) framework with an ad-hoc adaptive trading strategy for building efficient
investment algorithm. The results seems very promising in the mid-term timeframe. In [4] the authors
investment algorithm. The results seems very promising in the mid-term timeframe. In [4] the
implemented an agent-based approach to provide a robust forecast of the trading behavior in high-
authors implemented an agent-based approach to provide a robust forecast of the trading behavior in
frequency markets. The described method has been tested mainly on EUR/USD currency with
high-frequency markets. The described method has been tested mainly on EUR/USD currency with
intraday trading timeframe. The authors in [4] showed very promising results in terms of FX dynamic
intraday trading timeframe. The authors in [4] showed very promising results in terms of FX dynamic
financial market forecast easily applicable in such automatic trading systems. In [5] the authors
financial market forecast easily applicable in such automatic trading systems. In [5] the authors
proposed an interesting method of a high frequency trading system based on the usage of neural
proposed an interesting method of a high frequency trading system based on the usage of neural
networks trained via recurrent reinforcement learning (RRL). In general, the trading systems with
networks trained via recurrent reinforcement learning (RRL). In general, the trading systems with deep
deep neural networks trained via RRL reached very interesting results, even though the performance
neural networks trained via RRL reached very interesting results, even though the performance varies
varies widely according to the traded currency markets. A very interesting approach was proposed
widely according to the traded currency markets. A very interesting approach was proposed in [6]
in [6] in which the authors presented such strategies based on the usage of common technical
in which the authors presented such strategies based on the usage of common technical indicators
indicators used for defining heuristic rules to make profitable the developed trading strategies. They
used for defining heuristic rules to make profitable the developed trading strategies. They considered
considered reinforcement learning and genetic programming (GP) trading strategies as well as
reinforcement learning and genetic programming (GP) trading strategies as well as computational
computational learning approaches, providing an interesting comparison benchmark of the analyzed
learning approaches, providing an interesting comparison benchmark of the analyzed approaches.
approaches.
3. GTSbot: The Proposed Pipeline
3. GTSbot: The Proposed Pipeline
As described in the previous section, in this paper the authors proposed an innovative profitable
As described in the previous section, in this paper the authors proposed an innovative profitable
grid trading system for the FOREX market, which, therefore, bring all together the advantages of each
grid trading system for the FOREX market, which, therefore, bring all together the advantages of each
part of the described pipeline, i.e., the performance and efficiency of the grid algorithms, the capability
part of the described pipeline, i.e., the performance and efficiency of the grid algorithms, the
of recent machine learning tools and the high liquidity of the FOREX market. In Figure 1, the authors
capability of recent machine learning tools and the high liquidity of the FOREX market. In Figure 1,
reported an overall representation of the proposed pipeline.
the authors reported an overall representation of the proposed pipeline.

Figure 1. The proposed grid trading system robot (GTSbot) pipeline: Overall scheme.
Figure 1. The proposed grid trading system robot (GTSbot) pipeline: Overall scheme.
As previously introduced, the target of the pipeline showed in Figure 1 was to propose an
As previously
innovative introduced,
trading algorithm theexploits
that target the
of the pipeline
capability ofshowed
the grid in Figure 1 was
methodology to propose
together an
with the
innovative trading algorithm that exploits the capability of the grid methodology together with the
HFT approaches. A brief introduction of the pipeline scheme highlighted in Figure 1 was reported.
Preliminarily, like any trading system, it appears propaedeutic to determine the trend of the
instrument to be traded so as to define the direction of the financial transaction (long or short or null
Appl. Sci. 2019, 9, 1796 4 of 15

HFT approaches. A brief introduction of the pipeline scheme highlighted in Figure 1 was reported.
Preliminarily, like any trading system, it appears propaedeutic to determine the trend of the instrument
to be traded so as to define the direction of the financial transaction (long or short or null operation
in the case of no well-defined trend). For this task, the authors proposed the use of a non-linear
“Regression Network” for instrument close price forecast, together with a “Trend Classifier” block
that on the basis of analytical predictions performed by the regression network, estimates the most
probable short-term financial trend. At this point, the proposed system will take care of autonomously
organizing the trading grid by evaluating the current state of trading such as the opened transactions
of the same sign as the opposite sign, the current drawdown, balance of the trading account, opening
constraints, etc. These evaluations will be performed by the “Grid System Manager” block illustrated in
Figure 1. For the correct evaluation of the performance of the trading system, the authors suggested the
use of a block called “Basket Equity System Manager” that will deal with evaluating and monitoring
the financial exposure of the trading grid, therefore, to close all positions as soon as the system reaches
a pre-established target profit.
The proposed approach was implemented and designed for high frequency trading (HFT).
Particularly, we performed trading strategies on the FX market considering 1 min (one minute)
timeframe EUR/USD currency cross. We collected the EUR/USD currency data from the Tickstory
Database [7], which exports historical data with 99.9% accuracy. Specifically, we have collected the
following currency prices EUR/USD data: Open, close, high and low as well as the volume in a 1 min
timeframe. In order to validate the proposed method, the training and testing data were selected from
latest five years of EUR/USD quotations. Each of the referred blocks in Figure 1 will be detailed in the
following sections.

3.1. GTSbot: Regression Network SCG

The purpose of the regression network scaled conjugate gradient block (SCG) is to forecast
EUR/USD currency close price using previous pricing data such as open, close, low, high and the
volume of exchanged currency shares. As described in the previous section, machine learning and
deep learning are widely used in the field of automatic trading systems development as well as for
addressing a lot of financial issues including time-series forecast [3]. As it is well known in literature,
the financial time-series are highly unpredictable in the mid-long-term timeframe while they showed a
fair predictability in the short-term [3]. Considering that, the proposed approach has been designed to
be integrated into a high frequency trading (HFT) system in order to improve the overall predictability
of the financial trend. In the method herein described, the authors proposed a classical feed-forward
regression neural network in combination with a modified back-propagation (BP) method known as
scaled conjugate gradient (SCG) BP algorithm. The core idea of the SCG algorithm is included on the
classical conjugate gradient methods (CGM), i.e., a class of optimization techniques that allow for
minimizing the second derivative of the used learning goal function [8]. From a general point of view,
the neural network learning procedure is equivalent to minimizing a well-defined performance error
function, which is basically a function that depends on the weights of the network. For these reasons,
the neural network learning phase often involves the adjustment of several thousands of weights so
that optimization methods are relevant to reduce the overall learning complexity.
Most of the mentioned optimization methods are based on the same strategy. They try to minimize
the performance error function by means of a local iterative process in which an approximation (usually
trough a first order Taylor series expansion of the performance error function) in a neighborhood of the
current point (in the weight space) is applied in order to search a minimum of the performance error
function. Basically, for each interaction “k”, the learning algorithm determines a search direction for
which the global performance error function, at interaction “k”, is lower with respect to the previous
value at interaction “k-1”. Once the search direction has been found we have to decide how far to go in
the specified search direction, i.e., a step size has to be determined. Some algorithms propose to set the
Appl. Sci. 2019, 9, 1796 5 of 15

search direction to the negative gradient direction (the so called “gradient descent algorithm”) as they
usually occur in most of the back-propagation learning algorithms described in the literature [8].
Appl. Sci. 2019, 9, 1796
The recalled conjugate gradient methods are also based on the above general strategy with the5 only
of 15

exception being the choice of the search direction and step size are performed by using information
information from the second order Taylor expansion approximation of the performance error (the so
from the second order Taylor expansion approximation of the performance error (the so called Hessian
called Hessian matrix). This means that performance error is basically a quadratic function. Well, by
matrix). This means that performance error is basically a quadratic function. Well, by means of
means of specific mathematical proprieties of the quadratic functions [8], the CGM algorithms assures
specific mathematical proprieties of the quadratic functions [8], the CGM algorithms assures that the
that the global minimum is detected in a reduced number of iterations with respect to a classical
global minimum is detected in a reduced number of iterations with respect to a classical gradient
gradient descent-BP algorithm. Anyway, for each learning iteration, the Hessian matrix has to be
descent-BP algorithm. Anyway, for each learning iteration, the Hessian matrix has to be computed
computed considerably increasing the computational complexity of the algorithm. In the SCG
considerably increasing the computational complexity of the algorithm. In the SCG algorithm this
algorithm this complexity is reduced by means of an estimation and approximation of the Hessian
complexity is reduced by means of an estimation and approximation of the Hessian matrix for which it
matrix for which it will no longer be necessary to calculate each matrix coefficients at each iteration
will no longer be necessary to calculate each matrix coefficients at each iteration but rather it will be
but rather it will be possible to proceed with an estimation, evaluating in any case the goodness of
possible to proceed with an estimation, evaluating in any case the goodness of this approximation
this approximation by means of some heuristic parameters and checks. This result can be obtained
by means of some heuristic parameters and checks. This result can be obtained by applying the
by applying the Levenberg-Marquardt approach to the conjugate gradient methods [8]. Obviously,
Levenberg-Marquardt approach to the conjugate gradient methods [8]. Obviously, for these reasons
for these reasons the SCG algorithm requires only O(N) memory usage and O(NlogN) of learning
the SCG algorithm requires only O(N) memory usage and O(NlogN) of learning complexity (against
complexity (against O(N2) and O(N2logN) of classical BP algorithm, respectively) where N is the
O(N2 ) and O(N2 logN) of classical BP algorithm, respectively) where N is the number of used neural
number of used neural weights in the network [8]. According to this, we implemented a SCG BP
weights in the network [8]. According to this, we implemented a SCG BP neural network composed by
neural network composed by five neurons in the input layer, 500 neurons in the hidden layer and
five neurons in the input layer, 500 neurons in the hidden layer and one neuron in the output layer.
one neuron in the output layer. The output is the predicted currency cross close price. As reported in
The output is the predicted currency cross close price. As reported in [8], the SCG BP neural network
[8], the SCG BP neural network achieves effective results in terms of fast convergence even if it shows
achieves effective results in terms of fast convergence even if it shows some drawbacks in terms of
some drawbacks in terms of regression performance [8]. Anyway, the purpose of our pipeline
regression performance [8]. Anyway, the purpose of our pipeline consisted in predicting the trend
consisted in predicting the trend in the short-term timeframe and not the exact close price. In Figure
in the short-term timeframe and not the exact close price. In Figure 2, an instance of the EUR/USD
2, an instance of the EUR/USD forecasted close prices for a subset of days on January 2018 is reported.
forecasted close prices for a subset of days on January 2018 is reported.

Figure 2. The EUR/USD prices time-series (January 2018).

Figure 2. The EUR/USD prices time-series (January 2018).
In Figures 2 and 3 represented the regression performance showed by the used SCG BP neural
In Figures
network, which 2was
andnot
3 represented
optimal whiletheon
regression
the other performance showedthe
hand it was evident byability
the used SCG
of the BP neural
used neural
network,to
network which was
predict not
the optimal
trend while
of the on currency.
traded the other hand it was evident the ability of the used neural
network to predict the trend of the traded currency.
Appl. Sci. 2019,
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9, 1796
1796 66 of
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15

(a)

(b)

Figure 3. Cont.
Appl.
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1796 77 of 15
15

(c)

Figure 3. (a) The EUR/USD real close time-series (red) vs EUR/USD forecasted close prices (black).
Figure 3. (a) The EUR/USD real close time-series (red) vs EUR/USD forecasted close prices (black).
(b,c) A detail of the forecasted close pricing (by the proposed scaled conjugate gradient back-propagation
(b)–(c) A detail of the forecasted close pricing (by the proposed scaled conjugate gradient back-
(SCG BP) neural network).
propagation (SCG BP) neural network).
Future works aims of improving the performance of the SCG BP regression block in forecasting the
Future works aims of improving the performance of the SCG BP regression block in forecasting
currency close price. We are analyzing the application of ad-hoc cross currencies correlation analysis [9]
the currency close price. We are analyzing the application of ad-hoc cross currencies correlation
or by replacing the SCG BP neural network with recent deep neural network architectures such as
analysis [9] or by replacing the SCG BP neural network with recent deep neural network architectures
Stacked AutoEncoders, Convolutional Neural Networks (CNNs) or Long Short Term Memory neural
such as Stacked AutoEncoders, Convolutional Neural Networks (CNNs) or Long Short Term
networks (LSTMs) [10].
Memory neural networks (LSTMs) [10].
3.2. GTSbot: Trend Classification Block
3.2. GTSbot: Trend Classification Block
The output of the regression network SCG block (the predicted currency close price) was used
The output
to estimate the mostof the regression
probable trendnetwork SCG block
of the traded (the predicted
financial currency
currency cross. In aclose price)
classical was (one
1 min used
minute) intraday trading timeframe, there are n close price quotations so that if we denote c f (k)(one
to estimate the most probable trend of the traded financial currency cross. In a classical 1 min
close the
minute) intraday trading timeframe, there are n close price quotations so that
close price to be the predicted at k-time (by the SCG BP neural network), then we define the following if we denote
( ) the(1):
relationship close price to be the predicted at k-time (by the SCG BP neural network), then we define
the following relationship (1): 
cClose
f
(k) = RSCG cClose (k − 1), cOpen (k − 1), cLow (k − 1), cHigh (k − 1), cVolume (k − 1) (1)
( )= ( − 1), ( − 1), ( − 1), ( − 1), ( − 1) (1)
We denoted RSCG as the regression map function of the SCG regression network block. At the
We denoted as the regression map function of the SCG regression network block. At the
next step, the trend classification block (TCB) provided an estimation of the current financial trend
next step, the trend classification block (TCB) provided an estimation of the current financial trend
performing the following check:
performing the following check:
∂cClose ((k+1+
) 1) ∂2 cClose (k+1) ( + 1)
Long Trend if
f
> δ>and f
>0 >0
∂k ∂k 2

ℎ ∂c f (k(+1+
Close ) 1) ∂ c f (k+1) ( + 1)
2 Close
(2)
Short Trend if ∂k
< δ<and ∂k2
<0 <0 (2)
Null Trend otherwise
ℎ
Basically,the
Basically, theTCB
TCB performs
performs ad-hoc
ad-hoc fastfast mathematical
mathematical analysis
analysis offinancial
of the the financial currency
currency time-
time-series
series acquired
acquired from
from the the broker
broker quotations.
quotations. MoreMore in detail,
in detail, the TCB
the TCB system
system performs
performs careful
careful analysis
analysis of
of the
the first
first andand second
second derivative
derivative of of
thethe collected
collected FXFX crosstime-series
cross time-seriesand
andthe
thepredicted
predictedclose
closeprice
priceat
at
(k+1)-time. It can be noted that, if the first derivative is greater than an empirically defined threshold
 Appl. Sci. 2019, 9, 1796 8 of 15

(k+1)-time. It can be noted that, if the first derivative is greater than an empirically defined threshold δ
(defined
Appl. Sci. 2019,equal
9, 1796to the broker spread), then the trend increases over time (long trend). To confirm8this of 15we
needed to check whether the sign of the second derivative, which is a robust measure of the concavity
𝛿 (defined equal to
of the acquired the brokercurve.
time-series spread), thenconditions
If both the trend increases
were true,over time confirmed
the TCB (long trend).
theTo confirm
long trend or
thisshort
we needed to check whether
trend, otherwise. theone
If at least signofofthe
theabove
second derivative,
check which
failed (i.e., theisfirst
a robust measure
and second of the
derivative
concavity
did notof the acquired
show time-series curve.
same mathematical If both
behavior), conditions
it was enoughwere true, thethat
to indicate TCBtheconfirmed
trend was thenot
longwell
trend or short trend,
determined, therefore,otherwise. If at least
no operation one of theFor
was suggested. above check failed (i.e.,
the mathematical the first and
computation of thesecond
first and
derivative
the second didderivative,
not show same we usedmathematical
the Equationsbehavior),
(3) and it(4),was enough to indicate that the trend was
respectively.
not well determined, therefore, no operation was suggested. For the mathematical computation of
the first and the second derivative, we ∂cClose (k + 1)
f used the Equations (3) and (4), respectively.
Close
𝜕𝑐𝑓 𝐶𝑙𝑜𝑠𝑒
(𝑘 + 1) ∂k 𝐶𝑙𝑜𝑠𝑒c f (k + 1) − cClose
real
(k ) (3)
𝐶𝑙𝑜𝑠𝑒
≌ 𝑐𝑓 (𝑘 + 1) − 𝑐𝑟𝑒𝑎𝑙 (𝑘) (3)
𝜕𝑘
𝜕 2 𝑐𝑓𝐶𝑙𝑜𝑠𝑒 (𝑘∂+2 c1)
Close (k + 1)
f ≌ 𝑐 𝐶𝑙𝑜𝑠𝑒 (𝑘 𝐶𝑙𝑜𝑠𝑒Close 𝐶𝑙𝑜𝑠𝑒
𝑓 + (1)
cClose k+ − 1𝑐)𝑟𝑒𝑎𝑙 (𝑘 −
− creal (k1)
− 1−) 2𝑐
− 2c Close
𝑟𝑒𝑎𝑙 (𝑘)
(k ) (4) (4)
𝜕𝑘 2 ∂k2 f real
In Figure 4 an instance of the trend prediction made by TCB is reported, both for the long trend
In Figure 4 an instance of the trend prediction made by TCB is reported, both for the long trend as
as well as for the short ones.
well as for the short ones.

Figure 4. The trend classification block: An instance of trend prediction (EUR/USD, January 2018).
Figure 4. The trend classification block: An instance of trend prediction (EUR/USD, January 2018).
We tested the described trend forecast algorithm over EUR/USD currency historical data (as said:
We tested the described trend forecast algorithm over EUR/USD currency historical data (as
Latest five years (2014–2018)) at 1 min timeframe. From our experimental results, the TCB was able to
said: Latest five years (2014–2018)) at 1 min timeframe. From our experimental results, the TCB was
forecast the trend with an accuracy of 73.2%.
able to forecast the trend with an accuracy of 73.2%.
3.3. GTSbot: Grid System Manager Block
3.3. GTSbot: Grid System Manager Block
The aim of this block was to open a grid-trading scheme according to the predicted trend as per the
The aim inside
algorithm of thisthe
block was to open
previously a grid-trading
described TCB. As scheme
already according to trend
stated, if the the predicted
predictedtrend
wasas perthe
null,
thesystem
algorithm inside the previously described TCB. As already stated, if the trend
would not perform any operations. The grid system manager (GSM) block performed a long predicted was null,
theoperation
system would not perform
if the TCB estimatedanytheoperations. The grid
long trend while system manager
it performed (GSM) block
a short operation if theperformed
TCB estimateda
long operation
a short trend.ifInthe
theTCB
firstestimated the long
case, we bought thetrend while
FX cross, it performed
while a short
in the second caseoperation
we decided if the TCB
to perform
estimated a short trend. In the first case, we bought the FX cross, while in the second case
a short selling of the FX currency. The FX market price at which the GSM performed the operation was we decided
to perform a short
the available openselling of theprice.
currency FX currency.
AnywayThe the FX
GSM market
blockprice at which
performed thethe GSM performed
specified operation the
if and
operation was the available open currency price. Anyway the GSM block performed the
only if the grid condition was also verified. The grid condition represented the additional constraint in specified
operation if and only if the grid condition was also verified. The grid condition represented the
additional constraint in the GSM block we had designed to build a robust and effective trading
framework for the proposed pipeline. According to the trend estimation from TCB, the GSM block
performed a careful check of the current status of the trading acitivities. Figure 5 shows the workflow
followed by the GSM block. The first target of the GSM block was a further deep analysis of the
Appl. Sci. 2019, 9, 1796 9 of 15

the GSM block we had designed to build a robust and effective trading framework for the proposed
pipeline. According to the trend estimation from TCB, the GSM block performed a careful check of the
Appl. Sci. 2019, 9, 1796 9 of 15
current status of the trading acitivities. Figure 5 shows the workflow followed by the GSM block. The
first target trend
estimated of the made
GSM block
by TCB. wasIfaTCBfurther deep analysis
returned the null of the estimated
trend, the GSM trend block made by TCB.
workflow If TCB
jumped to
returned the null trend, the GSM block workflow jumped to “No Operations”
“No Operations” waiting for the next prediction made by the GSM block. Otherwise, if the long waiting for the next
or
prediction
short trend madewasbydetected
the GSMby block.
TCB, Otherwise,
the GSMif algorithm
the long or short
checkedtrendthewas detected
overall by TCB,
number ofthe GSM
opened
algorithm checked the overall number of opened operations in the current
operations in the current grid trading system. During the trading activities, a maximum number of grid trading system. During
the trading (long
operations activities, a maximum
and short) numberaccording
was defined, of operations
to the(long and short)
available was defined,
investment fund inaccording
our trading to
the available investment fund in our trading account. Consequently,
account. Consequently, the GSM block checked if the maximum number of operations was reached the GSM block checked if the
maximum number
and it proceeded of operations
with the next check wasonreached and it proceeded
the workflow, with
i.e., the grid the nextObviously,
distance. check on the workflow,
if the system
i.e., the grid distance. Obviously, if the system had already opened
had already opened all the allowed operations, the GSM algorithm jumped to “No operations”. all the allowed operations, the
GSM algorithm jumped to “No operations”. Instead, in case the maximum
Instead, in case the maximum number of operations had not been reached in both the long and short number of operations
had
trades,notthe
been
GSM reached in both
workflow the long
checked theand
gridshort trades,
distance the GSMi.e.,
constraint, workflow
the minimumchecked the grid
distance indistance
number
constraint, i.e., the minimum distance in number of samples (abscissa axis
of samples (abscissa axis of the Figure 3) and in the currency price with respect to all opened tradesof the Figure 3) and in the
currency
with the same direction. Basically, the GSM block will open a trade (long or short) if and only ifwill
price with respect to all opened trades with the same direction. Basically, the GSM block the
open a trade (long or short) if and only if the x-distance and y-distance between
x-distance and y-distance between the current FX cross price at which we want to open the trade and the current FX cross
price
all the at corresponding
which we want x-valuesto open the andtrade and allwe
y-values thestill
corresponding
had for each x-values
opened and y-values
trades (with wethe
stillsame
had
for each opened trades (with the same direction) was greater than the x-threshold
direction) was greater than the x-threshold and y-threshold we had defined in our GSM block. Figure and y-threshold we
had defined
6 reports thein our GSMpipeline.
described block. Figure 6 reports the described pipeline.

Figure 5.
Figure 5. The grid system manager (GSM) block: The workflow.

From the representation shown in Figure 6 we can better understand the working flow of the GSM
block. In the detail of the financial time-series explored in Figure 6, the already opened operation was
identified by the green circle. During the normal trading activity, the proposed algorithm proposed
the opening of another long position represented by the red circle reported in Figure 6. However, the
GSM block discarded this proposal as they were not respecting the grid conditions both in reference
 Appl. Sci. 2019, 9, 1796 10 of 15

to the abscissa axis (distance x1) and in relation to the price value (distance y1) as they were both
considerably below the pre-set thresholds. On the other hand, the subsequent proposal to open another
long position (blue circle) was granted by the GSM block because it respected both the conditions
relative to the grid distance with respect to the position already open (distance x2) and the condition
relating to the distance of the price value (distance y2). Therefore, in the hypothesis that was in the
example shown in Figure 6, the maximum number of operations had not been reached, the GSM
block would confirm and execute the opening of the second long order proposal, characterized by
the blue circle in detail in Figure 6. In this way, the GSM block would be able to open such trades in
grid schemes and operations appropriately spaced from each other in order to average any wrong
trades open against the real trend. The heuristically defined x-thresholds and y-thresholds allowed the
prevention of several wrong trades very close to each other being opened by the GSM block. To confirm
what has been said, we had tried the proposed approach disabling the checks performed by means of
the mentioned x-thresholds and y-thresholds. Specifically, we had tried the grid trading system robot
(GTSbot) system without the x-threshold based check. The so modified algorithm had performed lower
with respect to the same with the x-threshold check enabled. More in detail, we noticed a considerable
increase in the drawdown (on average +25%) accompanied by a reduction in profit (−10% of daily
profit in average). Similarly, with the y-threshold control disabled, we found a considerable increase in
the drawdown (+18.3%) along with a reduction in daily profit (−11.25%). The above tests (performed
in the scenarios reported in Tables 1 and 2) confirmed the key role played by the x-thresholds and
Appl. Sci. 2019, 9, 1796 10 of 15
y-thresholds based checks in the proposed system.

Figure
Figure 6. 6.
TheThe
GSMGSM block:
block: AnAn instance
instance of of workflow
workflow (long
(long trades).
trades).

From the representation shown Tablein

1. Figure
Trading6Performance
we can better understand the working flow of the
Comparison.
GSM block. In the detail of the financial time-series explored in Figure 6, the already opened
ROI MD
operation was identified
Experiment [11] FX by the green
Currency Cross circle. During the normal trading activity,
ROI (Proposed) the proposed
MD (Proposed)
[11] [11]
algorithm proposed the opening of another long position represented by the red circle reported in
Nr. 01 EUR/USD 60.77 21 94.11 11.25
Figure 6. However, the GSM block discarded this proposal as they were not respecting the grid
conditions both in reference to the abscissa axis (distance x1) and in relation to the price value
Table 2. Trading Performance Comparison.
(distance y1) as they were both considerably below the pre-set thresholds. On the other hand, the
subsequent proposal
Experiment [11] toFX
open another
Currency Cross long position (blue circle)
ROI MD
ROIwas granted byMD
(Proposed) the GSM block
(Proposed)
[11] [11]
because it respected both the conditions relative to the grid distance with respect to the position
Nr.01(10
already open Lots)
(distance EUR/USD
x2) and relating to64.86
the condition607.75 the distance 350.62 38.75
of the price value (distance y2).
Nr.01(10 Lots) EUR/USD 607.75 64.86 500.73 65.11
Therefore, in the hypothesis that was in the example shown in Figure 6, the maximum number of
operations had not been reached, the GSM block would confirm and execute the opening of the
second long order proposal, characterized by the blue circle in detail in Figure 6. In this way, the GSM
block would be able to open such trades in grid schemes and operations appropriately spaced from
each other in order to average any wrong trades open against the real trend. The heuristically defined
x-thresholds and y-thresholds allowed the prevention of several wrong trades very close to each other
Appl. Sci. 2019, 9, 1796 11 of 15

This approach provides a simple and effective method to compensate any drawdown drifts due
to wrong opened trades. We performed several tests in order to select a robust values of x-threshold
and y-threshold as well as the maximum number of allowed operations with an intraday investment
perspective. According to our experimental results, we decided to use the following values:

• x-threshold = 15 (candlestick, i.e., 15 min in a 1 min timeframe);

• y-threshold = 0.00020 (two pips according to FX 5-digits quotations);
• Maximum number of operations = 13.

The x-threshold set to 15 indicated that the GSM block did not open any operation if we have at
least 15 samples (or candlesticks) of distance between each opened operation and new ones. Similarly,
GSM block did not open any operations (long or short) if the FX cross quotation value at which we
want to open a new trade was greater or lower (according to the type of operation if it was long or
short, respectively) than the y-threshold with respect to all the prices at which previous trades (in the
same directions) had been opened.
The used distance metric was the absolute distance. The FX cross quotation value was measured
in pips, which was the standard unit for FX markets. The maximum number of allowed operations had
been defined as an odd number because we want to avoid a perfect hedging condition in which we
had a number of long trades exactly equal to short ones as the trading system became market neutral.
Formerly, the GSM block would proceed opening a trade if (in the hypothesis of the defined trend
detected by TCB):
Long trade:

Open
creal (k1 ) : k1 > k + xth ; ∀ k ∈ k1 , k2 , . . . , km and
Open Open Opened i
 
creal (k1 ) : creal (k0 ) < creal k0 + yth ; ∀ k ∈ k01 , k02 , . . . , k0m and (5)
Ntrades < M0

Short trade:
Open
creal (k1 ) : k1 > k + xth ; ∀ k ∈ k1 , k2 , . . . , km and
Open Open Opened i
 
creal (k1 ) : creal (k0 ) < creal k0 + yth ; ∀ k ∈ k01 , k02 , . . . , k0m and (6)
Ntrades < M0

where we have defined xth , yth and M0 as the x-threshold, y-threshold and maximum number of trades
Open
respectively while creal represents the current currency price at which we want to open a trade and
Opened
creal represents the price at which we have already opened previous trades.

3.4. GTSbot: Basket Equity System Manager

The basket equity system manager (BESM) block is able to monitor the econometric balance of the
trading account. This block performs at each quotation (according to the timeframe we have selected)
the current monitoring of the overall balance indicators of the FX broker account we were using.
It checks the drawdown, the account fund availability, net account availability, which is basically the
total balance account deducted, the current drawdown and the operative margin amount the broker
incoming for each opened trade (this value is strictly correlated to the adopted leverage, i.e., for a
leverage 1:30 for each LOT FX trade, i.e., an investment of 100,000 US dollars; an amount of about
3000 US dollars is required as a margin withheld from the broker). By means of BESM block the
proposed pipeline monitors the current status of the trading account according to the prefixed take
profit and stop loss. In the proposed grid strategy, we avoided to use stop loss as the grid algorithm, as
explained in the previous sections, was able to compensate for the drawdown, resulting in the opening
of incorrect trades. Instead, we had defined a take profit as the amount of gain at which the BSEM
block will close the basket trades (i.e., the set of all opened trades).
Appl. Sci. 2019, 9, 1796 12 of 15

4. Results and Future Works

As already stated, we trained and tested our pipeline by using the EUR/USD FX spot currency cross
quoted in the latest five years (2014–2018). Moreover, in order to provide a comparison with similar
approaches applied to the FX market, we have downloaded 99.9% accuracy historical data of EUR/USD
in the years 2004–2018. We used a 1 min timeframe quotation as we were interested in the HFT
strategy consisting of the execution of several operations with intraday perspective. We downloaded
historical currency data from the Tickstory database with 99.9% accuracy. We supposed a broker
account with 30,000 US dollars as an initial balance and two pips of spread bid/ask (the spread is
the average gain commission cashed by the broker). As said, we performed the described learning
of the proposed machine learning framework (regression network SCG block) by means of 1 min
FX EUR/USD time-series of day t1 to perform EUR/USD close pricing forecast for the next day t1+1.
We supposed an account leverage of 1:400 (the broker requires about 300 US dollars as a margin for
each LOT FX trade) and a LOT size for each single FX trade order.
We validated our proposed pipeline over all available years (from 2004 to 2018), performing
several tests in which we have selected each time a different day, a different daily time-window, which
means a different stock exchange. We collected the validation results providing a comparison with the
following works made on the FX spot markets (from 2004 to 2011) [11]:
If we increased the risk (reducing the x-threshold and y-threshold to 5 and 0.00005, respectively)
we obtained the following performance applying the proposed approach to the same historical data:
We have defined the financial performance indicators (return of investment ROI and maximum
absolute value of drawdown MD) according the following Equations (7) and (8) [11]:

100 × (Gain − Investment)

ROI = (7)
Investment

BalanceValley − BalancePeak
MD = (8)
BalancePeak
In order to validate the performance of the overall proposed system, we compared our method
with a similar one [11]. As showed in Tables 1 and 2, the ROI indicator we obtained was on average
lower than the best performance of the method [11] if we increased the financial risk (MD) but on the
other hand, our approach showed a good performance (ROI) if we maintained a reduced financial risk
(MD). We have further extended the benchmark comparison of the proposed approach as reported in
Tables 3 and 4:

Table 3. Trading Performance Comparison.

FX Cross: EUR/USD ROI

S/R + Ichimoku IWOC [12] 13.33%
S/R + Ichimoku IWC [12] 14.08%
Proposed 13.76%

In Table 3 we reported an interesting comparison between the proposed approach with respect to
similar ones applied in the FX markets. In [12] the authors reported the performance of an algorithm
that uses classic technical analysis indicators to define an efficient trading strategy. Specifically, the
authors in [12] proposed the use of a classic approach based on the analysis of the supports and
resistances levels computed from the financial charts together with the trading signals provided by
the “Ichimoku” indicator. Once again, it was evident that our approach, although not always able
to outperform the method proposed in [12], was sustainable as the overall DrawDown (DD) did not
exceed 9% and also does not use any technical indicators information that was often closely related to
broker quotes, therefore, not always reliable.
Appl. Sci. 2019, 9, 1796 13 of 15
Appl. Sci. 2019, 9, 1796 13 of 15

Finally, in Table 4, the authors

Table compared their proposed
4. Trading Performance approach with another HFT pipeline
Comparison.
[13]. In the following table, the best performance results reported in [13] are highlighted:
FX Cross: EUR/USD Total Profit DD
Threshold (0.03%)—Strategy 2 [13]
Table 4. Trading 97,687
Performance Comparison 50.47%
Threshold (0.07%)—Strategy 2 [13] 62,707 9.93%
FX cross: EUR/USD
Proposed Total72,541
Profit DD
10.91%
Threshold (0.03%)—Strategy 2 [13] 97,687 50.47%
Threshold (0.07%)—Strategy 2 [13] 62,707 9.93%
Finally, in Table 4, the authors compared their proposed approach with another HFT pipeline [13].
Proposed 72,541 10.91%
In the following table, the best performance results reported in [13] are highlighted:
In [13] the authors propose a trading approach based on the computation of the so-called “Direction
In [13] the authors propose a trading approach based on the computation of the so-called
Changes” applied to the HFT context. Once again, from a comparison of the results shown in Table 4
"Direction Changes" applied to the HFT context. Once again, from a comparison of the results shown
it was clear that the method we had proposed determines an efficient trade-off between profitability
in Table 4 it was clear that the method we had proposed determines an efficient trade-off between
and the sustainability level, highlighting a drawdown that was still limited against an acceptable
profitability and the sustainability level, highlighting a drawdown that was still limited against an
performance comparable to that of that shown by the approach proposed in [13].
acceptable performance comparable to that of that shown by the approach proposed in [13].
As explained in the previous sections, we were interested in developing a trading system that was
As explained in the previous sections, we were interested in developing a trading system that
financially sustainable as well as profitable which means, in few words, that we were more interested
was financially sustainable as well as profitable which means, in few words, that we were more
in a trading system that performed less than others but that did so by minimizing the financial risks.
interested in a trading system that performed less than others but that did so by minimizing the
Figure 7 reports the GUI mask of the proposed algorithm (developed in MATLAB rel. 2018a running
financial risks. Figure 7 reports the GUI mask of the proposed algorithm (developed in MATLAB rel.
in a PC Intel Core i5 with a 32 Gb RAM and without GPU):
2018a running in a PC Intel Core i5 with a 32 Gb RAM and without GPU):

Figure 7. The GTSBot GUI interface. The first graphic on the top showed the dynamic real drawdown
Figure 7. The GTSBot GUI interface. The first graphic on the top showed the dynamic real drawdown
of the financial account. The second diagram showed the total profit being obtained. The third diagram
of the financial account. The second diagram showed the total profit being obtained. The third
showed a financial indicator known as the Sharpe ratio [12] that we used for monitoring financial
diagram showed a financial indicator known as the Sharpe ratio [12] that we used for monitoring
dynamic of the trend.
financial dynamic of the trend.

Future works will aim to integrate a cross-correlation method as implemented in [14] as well as
getting the grid-scheme dynamically regulated through a common financial indicator such as the
Sharpe ratio [15]. Moreover, we are investigating about the replacement of the used SCG regression
Appl. Sci. 2019, 9, 1796 14 of 15

Future works will aim to integrate a cross-correlation method as implemented in [14] as well
as getting the grid-scheme dynamically regulated through a common financial indicator such as the
Sharpe ratio [15]. Moreover, we are investigating about the replacement of the used SCG regression
neural network with a more efficient deeper LSTMs framework combined with ad-hoc hand-crafted
signal features as some recent studies confirmed their capability on financial time-series forecasting.

5. Conclusions
In this paper, the authors showed the capability of an innovative trading algorithm based on a
grid strategy and applied in the FOREX market. The stated objective of the proposed pipeline was
to provide a methodology to combine the advantages of the FOREX market (high liquidity) with the
grid strategy (financial sustainability) and artificial intelligence based methods. So, the desired target
was to provide a trading algorithm that performed properly but with a contained financial risk (in
terms of drawdown). The results reported in the previous section confirmed beyond any reasonable
doubt that the proposed pipeline was able to achieve the proposed objectives, demonstrating excellent
performance with limited financial risks. The validation of the proposed system with respect to similar
algorithms confirmed what we had just been asserted. In the near future the authors intend to better
analyze the recent machine learning techniques to improve trend forecast of the traded financial
instrument. Furthermore, financial indicators are being evaluated to be used for the dynamic definition
of the grid radius in order to optimize the algorithm’s performance.
Currently, the authors are investigating innovative machine learning based approaches that make
the proposed system fully automated with specific reference to the choice of the maximum number of
operations that can be performed in the grid, in the (adaptive) choice of x-thresholds and y-thresholds,
in the choice of take profit as well as in the addition of an ad-hoc feedback mechanism coming from
the BESM block in order to improve the robustness of the overall trading system.

Author Contributions: Conceptualization & Investigation, F.R.; Validation, F.T.; Writing-Review & Editing, S.B.
and A.L.D.S.
Funding: This research received no external funding.
Conflicts of Interest: The authors declare no conflict of interest the results.

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