On the road to automation with Paul Langham

With leading professional trader and forex educator Paul Langham.

Paul Langham

Paul, please tell us about your background in the markets.

I started working in The City in the late seventies and worked at Barclays, Lloyds and Dresdner in the run up to the 1987 stock market crash.  Given that there was quite a clean out after the crash, I took up an opportunity in Luxembourg and since then have been working in the Benelux region for some of the largest asset managers, including BNP Paribas, Fortis, KBC and BIL. 

In 2008 I started exacttrading.com which specialises in G10 Price Action Trading and recently opened an office in The City - to pursue the development of my own FX algorithmic trading ideas and to promote trader education.  At the moment I commute between London and Brussels on a regular basis.

Some years ago you formed a chat group called The Big Candle Trading group. Please enlighten us?

During my years of research into FX price action patterns, I noticed a phenomenon in relation to momentum moves. Large and sudden bursts in price caused mostly by news or a change in traders’ perceptions of value are frequently either quickly reversed or continue rapidly in the direction of the original move. The Big Candle trading group was formed to initiate a group of traders on these concepts and to help them better trade these moves.

Can you outline your main trading concepts for us? What would you say constitutes the essence of your trading philosophy? 

I am a momentum trader who likes to be with the trend. In FX this is the best way to be facing.  It is a well-known fact that the longer the time frame the easier momentum trading becomes and this is why I seek to hold positions not only on the daily time frame but also on weekly or monthly time frames.  I still have some Short positions in both the EURO and GBP against the USD which were opened back in 2015. 

Recently I launched ‘Exact Trading Studio’ a bespoke strategy development and back testing tool
Recently I launched ‘Exact Trading Studio’ a bespoke strategy development and back testing tool

In the past two or three years you have transitioned to automated trading while still maintaining a focus on your original trading principles and daily position trading. Are the two approaches compatible?

Almost all traders are subject to the same emotional roller coaster rides when trading and are likely to make very similar trading mistakes. This led me to believe that the best way forward was to remove the emotions and automate my existing trading ideas. So, yes, the two are compatible.

Which tools do you using for electronic FX trading and how do you use them in your day to day trading activities?

I run various MT4 platforms, several VPS machines and my own strategy developer and back testing software.

As well as being an automated trader you have become an educator. What differentiates you from other market education services? 

One of the major differences, is that I have worked for some of the biggest names in the business and can talk with some experience and expertise about what happens on the inside.

The London Breakout strategy takes advantage of the momentum that is often prevalent within the opening hours of the London session.
The London Breakout strategy takes advantage of the momentum that is often prevalent within the opening hours of the London session.

You have used a number of retail brokerages. How do you find their execution style and speed affect your results?

Many successful traders run algorithmic trading strategies where the ‘edge’ is around three pips. Having a broker who is serious about execution with margins like this is of vital importance. Given the competitive nature of the marketplace, imagine the impact on the bottom line where you are systematically being slipped a pip each time you trade? In the retail arena you need to tread very carefully, I have seen very good trading systems fail quite badly when run using the wrong broker. So the choice of broker is very important.

On your recommendation most of your clients use a VPS service in London’s LD4/5/6 or NY4 data centres near New York. What service do you use, and does this make a realistic difference in the world of MT4 and MT5 execution? 

Having a co-located VPS machine to quickly get in and out of the market has become a necessity.  Executing trades ahead of the crowd using MT4/5 is an advantage to the retail trader even if the institutions will be much faster still. I use CNS (Commercial Network Services) and have found the service excellent.

I have developed a range of well received courses and EA’s
I have developed a range of well received courses and EA’s

Are there any characteristics of FX trading that in your view require particular tools or data sets or a radically different modelling approach from other markets? 

One of the major differences when comparing FX to the other markets like stocks is the fact that FX is open 24/5, this allows the trader to develop much smoother looking results, which are not subject to overnight gaps so typical of the stock markets. Also, the liquid nature of major currencies lends itself to a certain reliability and predictability.
Is your preference for trading FX futures or spot FX and are there particular reasons for any preference?

I prefer to trade spot, as there are no standardised contract sizes, which  is useful when designing and running algorithmic trading systems. Correct and precise position sizing can therefore be applied. 

Also, futures are by their nature a derivative of spot FX, and may be subject to periods of short-term price manipulation. 

Finally, there is simply a greater choice of pairs in the spot market, some of which are suitable for trading with my strategies.

Do you regard operational efficiencies as the main advantage of electronic FX trading, or has the electronic environment allowed you to diversify more and use methods/techniques not possible in a manual environment? (e.g. fully automated trading.) 

Algo trading with automatic electronic execution in FX has allowed me to multi task my trading, by which I mean that I have several complex trading systems running at the same time on multiple time frames and in different time zones.  

The flexibility, ability and relative ease involved in running this type of operation was  practically unthinkable thirty years ago. Trading manually is fraught with issues and means  having to be available to look at screens most of the time. This limits the available time  which could be spent on developing new ideas - and other pursuits.

The liquid nature of major currencies lends itself to a certain reliability and predictability
The liquid nature of major currencies lends itself to a certain reliability and predictability

Has integrating the FX electronic trading tools you currently use been a matter of “plug and play”? Or has a significant amount of integration work been necessary?
Before going live with an algorithmic trading system, there are several steps which have to be completed, the most important of which is that, once you have defined your method it must be proven. This can be achieved by robust and rigorous testing. Most traders under estimate the time it takes to achieve this testing phase, which is reliant on having good data and an understanding of what constitutes ‘robustness testing’. So not really ‘plug and play’.

You have recently started selling a MT4/MT5 compatible testing tool. Please tell us about that.  How does it compare with the one that comes with MetaTrader itself?
Recently I launched ‘Exact Trading Studio’. This is a bespoke strategy development and back testing tool which takes a deep dive into past market prices, looks for patterns and spits out profitable trading ideas. The strategy development tool is able to scan vast quantities of data in seconds and within minutes collate any strategies that it finds which meet the trader’s requirements. It runs approximately 1000 times faster than the default MT4 back tester.

Please can yoy outline some of the concepts you use in your automated approach?

It is no secret that the London open is frequently responsible for the high or low of the day of several pairs. Armed with this knowledge, the trick is to get on the right side of the move as price comes off that high or low and this is something I like endlessly experimenting with. Night Managers are a well understood feature of FX trading this is where trading is very light during the Asian trading hours and mean reversion strategies are the order of the day.

Do you have a preference for trading certain currencies and would you agree with somewho believe that from a micro perspective they all trade differently?

The G10 mostly behave very differently. This is because they have different participants trading them, might have different core trading hours. However sometimes one is surprised how they correlate when you would least expect them too. The minimal costs and the fact that the EUR/USD moves quite a lot means that the pair is always very high up on my list of favourite instruments to trade.

Do you offer assistance to traders with customising their own strategies and help with their use of trading metrics?

Yes I do. Most private traders come to me with very little understanding of how to design and develop a robust trading strategy. Frequently they have ideas requiring further development and require help in developing their trading concepts. To this end I have developed a range of courses and EA’s all the way from my basic preferred technical concepts to advanced multi day courses on system development. Details at exacttrading.com.

Do you feel we may be entering an era of ‘disposable models’ or do your strategies remain viable over time? 

Some models developed by some very highly qualified quant traders will definitely fail in the future. The primary reason is that the people developing and trading such systems do not understand from a market perspective why the strategies work and therefore do not fully understand their edge they think they have created. When market conditions change, what are they going to do? They won’t understand the reason for failure. Some models will also become far less profitable or may lurch toward significant loss.

Do you write your own strategies or have a team of developers write them for you? 

I conceptually develop my own strategies. By that I mean I create the trading idea myself and look at it on charts. Once I am happy with the idea, I have it developed using one or more individuals from a group of developers I use.

You market a number of custom automated MT4 strategies, perhaps the most famous of which is known as London Breakout. Tell us about this? 

The London Breakout strategy takes advantage of the momentum that is often prevalent within the opening hours of the London session. The idea being that momentum creates further momentum, so the trend becomes self-fulfilling.

You have worked with a number of companies that will fund traders who have successfully developed strategies. What is your view of this emerging sector?

There are several very good companies looking to attract traders with successful algorithms. This sector will surely grown even further in the coming years.

Paul, you have been in the trading world for over 30 years, with experience in multiple markets working with banks, funds and private clients. Where do you see the future of electronic FX? 

Most banks are moving to being 100% electronic, given the technological possibilities that are available. Going forward I see electronic algorithmic forex trading gaining more and more ground as investors look for more and more diversification.