models

Trading Logic

Building Your Trading Algorithm

The first step in creating a trading algorithm is defining its logic – the rules that determine when to enter and exit trades. Spectral Alpha's Model Builder simplifies this process by dividing the logic into distinct sections, aligning with development best practices.

Step-by-Step Approach:

We recommend building your algorithms incrementally, validating each step as you go. This allows you to systematically refine your logic and avoid unnecessary complexity.

Logic Sections:

  1. Signal: Generates trading signals based on market conditions and indicator values.
  2. Filter: Defines conditions under which trading should be avoided to prevent losses during unfavorable market periods.
  3. Stops: Adds fixed stop-loss orders to protect your capital.
  4. Trailing Stops: Implements dynamic stop-loss orders that trail the price action.
  5. Risk: Manages the risk of open trades with features like breakeven stops and profit locking.
  6. Phantom: (Coming soon) Controls how the algorithm manages drawdowns internally.

Signal

The Signal section defines the logic for generating trading signals. You can use multiple signals for a single trading action, combining them with AND/OR logic.

Trading Actions

Each action has a Long/Short/Both setting for precise control:

  • Long/Short: Enter a long or short position, closing any opposing positions.
  • Exit: Exit all trades, or specifically long or short trades.
  • Reverse: Flip an existing long/short position.
  • Stay: Maintain the current position (useful for training continuous signal logic).
  • Scale In/Out: Partially enter or exit positions.

Trigger Logic

Add multiple rules to an action using AND/OR logic. This allows you to create complex conditions for generating signals.

Source

Select the data series to analyze for trading logic:

  • Indicator Series: Use indicator values or levels (e.g., crossovers).
  • Market Series: Use market data like Open, High, Low, Close.
  • Trade Series: Analyze trade-specific data like lifetime, risk/reward (requires Stops).

Conditions

Choose from a variety of conditions to define your trading logic, such as:

  • Crossover: One series crosses above/below another.
  • Above/Below: A series is above/below a specific value or another series.
  • Equals/Not Equals: A series equals/does not equal a specific value.

Filter

Similar to the Signal section, but with actions designed for continuous conditions (e.g., price above the 200-day SMA).

Filter Actions

  • Open All New (Long/Short): Allow new trades when the logic is true.
  • Skip All New (Long/Short): Prevent new trades when the logic is true.

Stops

This section defines how the volatility-based stop-loss is calculated (e.g., using the Average True Range).

  • Multiple: Controls the factor applied to the indicator value (e.g., a multiple of 2 would set the stop-loss at 2 times the ATR).

Trailing Stops

Trailing stops dynamically adjust the stop-loss level to trail the price action, potentially locking in profits and reducing losses.

Simple

  • Slope: Adjusts how much the stop-loss moves with each new high/low (a value less than 1 results in a slower trailing stop).
  • Step: Trails the stop-loss by a fixed fraction of the distance between the current stop level and the price at every bar.

Advanced

  • Offset: Requires the price to move a certain distance into profit before activating the trailing stop.
  • Speed: Increases the trailing speed before the breakeven level is reached.
  • Lock: Locks in a percentage of open profit or raises the stop-loss to breakeven once the offset is reached.

Risk

Dynamically adjust the behavior of open trade stops based on algorithm events.

Trigger Logic

Trigger events based on:

  • Indicator crossovers
  • Market data reaching certain levels
  • Trade-specific events (duration, risk/reward)

Stop Config

Override the default stop configurations when the logic is triggered.

Example Use Cases

  • Cycles: Set the stop-loss to breakeven when a cycle indicator crosses its midpoint.
  • Trend Following: Use a wide stop initially, then trail aggressively before breakeven and more conservatively afterward.

Phantom Trading

(Coming Soon) Implement advanced drawdown management techniques like equity curve trading.