Getting Started with Forex Trading Using Python: Beginner's guide to the currency market and development of trading algorithms

Cover Page....2

Table of Contents....3

Preface....4

Part 1: Introduction to FX Trading Strategy Development....13

Chapter 1: Developing Trading Strategies – Why They Are Different....14

Trading strategies – it’s all about how you manage risk....16

Automated trading – operational risk and regulatory limitations....19

Retrieving market data – quality and consistency as keys to success....21

Making actual trading decisions – trading logic and credit risk....25

Ordering – transactional risk....27

The general architecture of a trading application....28

Summary....28

Chapter 2: Using Python for Trading Strategies....30

Technical requirements....31

The advantages of using Python in trading strategy development....31

Modeling – forecasting the future doesn’t necessarily mean practical benefits....38

Paper trading and backtesting – an essential part of a systemic trader’s risk management....40

The disadvantages of using Python in trading strategy development....45

Live trading – where Python faces its limits....47

Summary....48

Chapter 3: FX Market Overview from a Developer's Standpoint....49

Trading venues – where money meets… other money....50

Trade mechanics – again, some terminology....62

Market makers – comfortable, sophisticated, expensive....65

Liquidity providers – the whales that support this planet....72

ECN – looks like a fair game, but is it?....76

Aggregation – in search of the best price....80

Trading the FX market – what and how....82

Why do I need all this?....89

Summary....90

Part 2: General Architecture of a Trading Application and A Detailed Study of Its Components....92

Chapter 4: Trading Application: What’s Inside?....93

Technical requirements....94

Have your app talk to the world – the gloomy world of communication protocols....94

Retrieving data – garbage in, garbage out....107

Trading logic – this is where a small mistake may cost a fortune....115

Risk management – your safety belt....117

Ordering – make sure you are understood correctly....118

Summary....119

Chapter 5: Retrieving and Handling Market Data with Python....120

Navigating through data....120

Data compression – keeping the amounts to a reasonable minimum....132

Working with saved and live data – keeping your app universal....145

Summary....157

Chapter 6: Basics of Fundamental Analysis and Its Possible Use in FX Trading....158

Fundamental analysis – intuitive but of little practical use....159

Economic news....159

Economic news from a fundamental analysis perspective....166

Political events....167

Industry-specific information....170

Summary....173

Chapter 7: Technical Analysis and Its Implementation in Python....175

Technical analysis – ideal for computing, but missing real market processes....176

Implementation of TA indicators in Python....205

Summary....216

Chapter 8: Data Visualization in FX Trading with Python....218

Technical requirements....218

The basics of charting with Python....219

Simple plots of market data....226

Visualizing static market data with pandas....235

Visualizing live market data....243

Adding objects to price charts....256

Summary....259

Part 3: Orders, Trading Strategies, and Their Performance....261

Chapter 9: Trading Strategies and Their Core Elements....262

Alpha and beta – widely used, widely confused....263

Options – stable income with unlimited risk....273

Alpha classics – trend-following, mean reversion, breakout, and momentum....276

Arbitrage – let’s earn from others’ mistakes....286

Statistical arbitrage....288

Event-driven trading strategies....291

Market-making – profiting on liquidity provision and associated risks....291

High frequency, low latency – where Python fails....292

Summary....293

Chapter 10: Types of Orders and Their Simulation in Python....295

Order ticket – what you send is what you get....296

Market orders – the way to get maximum control over transactional risk....299

Limit orders – guaranteed price, but not execution....303

Time in force – better control over execution....307

Stop orders – maximum uncontrolled risk....310

Compound orders....315

Summary....316

Chapter 11: Backtesting and Theoretical Performance....317

Trading app architecture – revised and improved....317

Multithreading – convenient but full of surprises....331

Trading application with live data feed....333

Backtesting – speeding up the research....346

Summary – where do we go now?....364

Part 4: Strategies, Performance Analysis, and Vistas....367

Chapter 12: Sample Strategy – Trend-Following....368

Trend-following revisited – trading setup....368

Choosing the market and preparing data....377

Trend-following strategy – implementation....384

Summary....387

Chapter 13: To Trade or Not to Trade – Performance Analysis....389

Trade analysis....390

Average trade and trading costs....390

Measuring performance – alpha and beta revisited....400

Net profit versus buy and hold....409

Drawdown....412

The power of leverage – how much do I need to trade it?....420

Summary....423

Chapter 14: Where to Go Now?....425

Implementing limit and stop orders....426

The correct way to calculate the number of trades....434

From trading ideas to implementation – another sample strategy using limit and stop orders....438

Money management and multiple entries....445

Strategy performance revisited – more metrics....448

More about the risks specific to algo trading....449

Classical technical trading setups....450

Optimization – the blessing and the curse of algo trading....452

Final words....454

Index....455

Why subscribe?....474

Other Books You May Enjoy....475

Packt is searching for authors like you....478

Share Your Thoughts....478

Download a free PDF copy of this book....478

Algorithm-based trading is a popular choice for Python programmers due to its apparent simplicity. However, very few traders get the results they want, partly because they aren't able to capture the complexity of the factors that influence the market. Getting Started with Forex Trading Using Python helps you understand the market and build an application that reaps desirable results.

The book is a comprehensive guide to everything that is market-related: data, orders, trading venues, and risk. From the programming side, you'll learn the general architecture of trading applications, systemic risk management, de-facto industry standards such as FIX protocol, and practical examples of using simple Python codes. You'll gain an understanding of how to connect to data sources and brokers, implement trading logic, and perform realistic tests. Throughout the book, you'll be encouraged to further study the intricacies of algo trading with the help of code snippets.

By the end of this book, you'll have a deep understanding of the fx market from the perspective of a professional trader. You'll learn to retrieve market data, clean it, filter it, compress it into various formats, apply trading logic, emulate the execution of orders, and test the trading app before trading live.

What you will learn

• Explore the forex market organization and operations
• Understand the sources of alpha and the concept of algo trading
• Get a grasp on typical risks and ways to mitigate them
• Understand fundamental and technical analysis
• Connect to data sources and check the integrity of market data
• Use API and FIX protocol to send orders
• Translate trading ideas into code
• Run reliable backtesting emulating real-world market conditions

Who this book is for

This book is for financial traders and python developers who are interested in forex trading. Academic researchers looking to focus on practical applications will find this book useful. This book can also help established fx market professionals who want to take the first steps in algo trading. Familiarity with Python and object-oriented programming within the scope of an online course or self-study is a must. Knowledge of network protocols and interfaces is a plus but not a prerequisite, as is specific knowledge about markets and trading.