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Designing Automated Trading Systems for Commodity Trading – Theoretical

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 Designing Automated Trading Systems for
Commodity Trading – Theoretical Aspects
Petr TUCNIK
Department of Information Technologies
University of Hradec Kralove
Czech Republic

Abstract. This chapter describes three selected problem areas of automated

trading systems (ATS) design. First part is focused on ATS lifecycle, describing
typical stages of its development and application in trading practice. Second part is
focused on application of fundamental analysis in commodity trading which is
source of important information based on other principles that most commonly
used technical analysis. Spread trading is used here as a demonstration of
alternative to standard futures trading. Commodities tend to behave in seasonal
patterns and comprehensible trading approach using seasonal trading strategies
will be described as well in the second part. Third part describes intended future
work in area of automated trading. In this part is presented description of
multiagent systems (MAS) used for coordination of trading effort. Multiple trading
systems are traded at the same time using this MAS. Contract net protocol is used
for cooperation in proposed MAS. Third part is theoretical but reflects modern
trends of trading leading towards more intense automation of trading processes.

Keywords. Automated trading system, commodity, futures, trading, mechanical

trading.

Introduction

Modern way of trading is fully utilizing all advantages of electronic information

processing. Since 90’s, use of computers in trading became widely open and available
to the public and with progress in digitalization, importance of computer applications
has gradually risen. Nowadays, only a part of trading is done in traditional “manual”
way, and there is an extremely wide selection of software tools and applications,
allowing trader to analyze thoroughly market data and place trading order precisely
when he means to.
It is understandable that together with advances in the field of artificial intelligence
(AI) and autonomous systems [11], an area of automated trading systems progressively
developed. This opened new possibilities for traders in means of designing new ways
how to approach market and implement new ideas in such systems [6], [12].
Given the stochastic nature of markets, there are several common mistakes of the
user`s part while using such systems. Typically, undeserved trust is placed in poorly
tested ATS, function or principles of statistical tools - which these systems use - are
misunderstood, and automated profit generation is expected as a rule. This chapter will
provide overview of ATS systems capabilities as well as outline of proper design of
such system, both from the perspective of small speculator.
 Automated trading systems are not a typical AI topic. However, when a high level
of autonomy is considered, such system is not so distant from traditional AI topics such
as autonomous systems, agents, etc, see [11]. On the other hand, there are differences
to be mentioned as well – any ATS is always dependent on trader, at least financially,
which, in principle, limits its autonomy. Also, it is user who has to maintain full
supervision all the time. This level of control has to be maintained all the time, in order
to be ATS used efficiently. This can be achieved by providing detailed and transparent
logging and presentation of ATS`s performance and actions.

1. Automated trading

Automated trading systems (ATS), in principle, does not have to maintain high level of
autonomy in order to fall into description of an ATS. In practice, it is a decision of
trader whether he/she wants to use the system independently or not. However, the
importance of monitoring system`s performance is more important with increasing
independency. This is shown at the Fig. 1.

Figure 1. Impact of selected autonomy level on trader`s workload. Attribute rises in indicated direction.

There are two extremes (considering autonomy) when defining control method of
an ATS. Most probably, depending on trader`s preference, ATS will belong to one of
them. First extreme is use of an ATS as a decision support (DS) tool. The purpose of
DS is to highlight potentially profitable business opportunities and consequently ease
trader`s workload. In some cases, a DSS may even perform trades (placing business
orders), but always after authorization by trader. Therefore, it is a trader who maintains
full control. The other extreme is full autonomy. A fully autonomous ATS is placing
trading orders without trader`s manual authorization and acts independently. Obvious
risk here is a risk of financial loss, but this can be significantly reduced by suitable
application of risk/money management rules. In fact, fully autonomous ATS may be
more profitable than manual trading. There are several advantages of autonomous ATS
which are often mentioned in this context [8]:
• Emotional trading elimination
• Greater discipline in following strategy rules and more consistent behavior
• Participation is virtually guaranteed in the direction of every important trend
• Losses are minimized (rules of money/risk management are precisely
followed)
And main disadvantages are:
• Most mechanical systems are trend-following
• Trend-following systems rely on major trends in order to be profitable
• Non-trending markets are non-profitable (selection of market is important)
• Occurrence of long periods of non-trending are rendering mechanical system
useless or non-profitable
• It is difficult to mechanically recognize that market is not trending (system is
not able to turn itself off)
Several major advantages listed in the list are related to area of trading psychology. As
it is not purpose of this text to discuss such matters, detailed description of these
aspects will be omitted. But has to be emphasized that appropriate psychological
attitude is one of the most important parts of success in trading. Experts often highlight
the importance of trading psychology and it is considered to be more important than
trading system itself or selected risk management strategy.
It is important to take into consideration, that we approach our topic from the
perspective of a small speculator. Bigger subjects on the market (banks, hedge funds,
etc.) have different issues related to trading. Limited financial capabilities of small
speculator are counterbalanced by complete freedom of choice. Small speculator may
select freely any approach or strategy, using tools, risk/money management rules, etc.
according to his/her wish. From this perspective, trading realized in small scale and
with trader`s own money is extremely unrestricted.

2. Trading system design and lifecycle

Trading system (TS) is a set of rules defining how to place trading orders. It is an
implementation of a trading strategy which is completely depending on a trader to be
invented, for more details see [2], [4], [5] or [1]. Any approach may be valid, and as
there are significant differences between markets, approach unsuccessful on one market
may be profitable at different one.
There are several rules to be followed but generally, the above mentioned is valid.
Trader really has complete freedom in designing the system, see [6]. Worst possible
outcome is loss of money. Rules of TS design are generally intended to reduce risk of
financial loss, so it is always better to follow them. Risk and money management rules
([8], [3]) are described in more detail in another chapter, and therefore, at this moment,
the focus will be at the design procedure itself.
The freedom of choice when designing trading strategy (trading system) is
especially obvious in the case of small speculator - which is our perspective at this
moment. This is given by several circumstances:

• Small speculator is independent in decision making – he/she is not

presumed to be someone`s employee and, therefore, no organization rules
or limitations apply.
• Private funding – in ideal case, the money trader uses are his/her own.
Even in case of borrowed money is presumed freedom of choice. It is
trader`s responsibility to use money wisely and without unnecessary risks.
This is slightly related to the previous point.
 • Financial liquidity – even in case of many thousands dollars on the
trading account, small speculator is still – by definition - considered small
market subject. This allows him/her trade quickly and efficiently, if the
market has enough volume, depth and participants. In case of large
amounts of money (i.e. millions of dollars and more), market liquidity
creates a barrier in processing trading orders. There simply may not be
enough buyers or sellers to process large volume of transactions. This is
typically case of professional traders – banks, hedge funds, large
speculators. In case of small speculators, it is simple to find market with
enough liquidity.

Similar to design of any software product, ATS development and implementation

may be divided into several phases of its lifecycle, see Fig. 2 (this is extended version
of [13] ATS lifecycle).

Figure 2. ATS lifecycle

2.1. Preparation Phase

In the preparation phase, trader faces several major decisions. Most important is the
step (1) where decision about amount of allocated funds has to be made. This is really a
starting point of the trading process, because of its critical consequences. Every
commodity is different and can be traded only with adequate funds, depending on
futures contract parameters. Market volatility plays primary role here because all risk
management measures are derived from it (e g. there is an influence on stop-loss
placement). Secondary is margin size. With introduction of e-mini markets margin
sizes decreased even for markets which are typically considered to be more expensive
(like oil, etc.). Margin is less important because it is normally repaid back after the
position is closed, see [3], [7] or [8] for more details.
The second major decision is commodity selection in the step (2). Its importance
has already been indicated in the commentary of the step (1). It is followed by volatility
and trend assessment (step (3)) and liquidity assessment (step (4)). Volatility increases
occurrence of trading opportunities because it is more likely to obtain a positive trading
signal in market with activity. Also, a presence of trend is required. Most of mechanical
(automated) trading systems use indicators to recognize trend and it is generally more
likely to trade successfully while using the trend than not. It is also generally
recommended by experts in the field to use the trend to one`s advantage. Elementary,
often quoted, rule is “trend is your friend” (original author unknown). Liquidity
assessment concludes this phase of lifecycle; it is necessary to have market where
orders will be processed without significant delay.

2.2. Market Study Phase

The market study phase focuses on familiarization with the market environment. Trader
must be able to trade manually before he/she tries to implement ATS. This is the reason
why the paper trading step (5) is included here. It is a common mistake of beginners to
expect automated trading system to make all the work. In reality, it is quite the opposite
– it is trader who does all work and ATS serves only one purpose: to ease workload.
The following step is testing of selected indicator (6). It is a common practice to
prefer some indicator(s) over others; this is matter of personal preference and “feel” for
the selected tool [14]. Each trader prefers different set of indicators and since there is
theoretically endless selection of indicators available it is nothing to be concerned
about as there is no general rule to follow in selection of indicator. On the other hand,
not every indicator is suitable for all markets. Best way for trader to avoid any
unsuitability is to familiarize himself/herself with several selected indicators working
on different principles to be sure he/she has a tool available at his/her disposal for the
selected market, whichever it may be. The step (6) is not to be taken as a backtesting
but rather familiarization with selected tools and making sure they work well in the
environment. The most suitable indicator is selected in the step (7).

2.3. ATS Development Phase

The ATS development phase is focused on analysis (8) and implementation (9).
Analytic step (8) is required only in case of complicated trading system and it is
arbitrary. It is always preferable to have existing documentation (including schematics
or diagrams) in case of later use of ATS in different environment. In any case, it is
necessary to make sure there are detailed comments in the source code of the ATS
application for subsequent changes, if required. Please note that typically, a specialized
programming language is used, depending on the platform used for implementation.
E.g. Tradestation uses EasyLanguage, AmiBroker platform uses AFL (AmiBroker
Formula Language), Ninja Trader uses Ninja Script language, etc. See respective
homepages for more details on this topic.

2.4. Testing and Optimization Phase

In the Testing and optimization phase a backtesting procedure (step (10)) is used to
validate indicator settings or to find optimal one (step (11)). Backtesting uses historical
data (there are several decades of trading data available, both as a commercial or free
product, going back to approximately 60s (depending on provider)). On historical data,
TS is applied, using implemented rules, and trading strategy and results of this
application are available to the user. It is also possible to optimize its performance by
finding more appropriate setting of the indicator (this will be described in more detail
later). In the step (12), selected settings of indicator is used which is either requiring
changes in implementation (back to step (8)) or it is ready to use (step (13)).

2.5. Use Phase

The last phase is using created ATS for trading. Please note that markets are
developing over time, their parameters and trends are changing, etc. Therefore, it may
be necessary to backtest ATS periodically for verification of validity as well as
optimize its settings in order to prolong its use.

3. Fundamental Analysis

There are two fundamentally different approaches to analyze markets. A standard

approach from the perspective of automated or mechanical trading is always technical
analysis, see [7], [2], [12], [8] or [13]. This is induced by the easier machine processing
of technical analysis indicators. Because technical analysis will be discussed in more
detail in another chapter of this book, we will focus on the fundamental analysis here.
Fundamental approach is also valuable, see [4], but it is more difficult to work with
while using automated system. Usually, the best results are obtained when combination
of both approaches is used. This is our motivation why to introduce fundamental
analysis here into context of ATS.
In order to make following statements more up-to-date, domain of spread trading
will be used for further explanation. Although the idea of spreads is not novel, it is very
popular today and many professional traders are trading spreads.
Trading of spreads is very similar to standard commodity trading, see [1]. The
difference lies in the fact that it is not a single contract that is traded, but always a pair
of contracts. The speculation is aimed towards the difference in prices of these two
contracts and there has to be some underlying dependency (correlation) between those
two contracts. If prices have mutual correlation, then they are influenced by similar
stimuli and are easier to predict. The spread trading is considered to be safer way of
trading, with reduced risk, because price of both components does not tend to react so
aggressively as it does in case of (more traditional) single contract trading of futures.
The idea which will be presented here is based on seasonal behavior of
commodities. This is more or less feature of commodity trading - stocks or options do
not have tendencies to behave in seasonal patterns or it is very limited in comparison to
commodities. Commodity contracts are based upon real products. Especially
agricultural commodities tend to behave quite predictably. It is caused by seasonal
cycle during the year: it is time for seeding, growth, harvest, etc. These events occur
predictably in approximately same time of the year and such pattern is reflected by the
behavior of related commodity (futures) contract.
Data used in the following text were obtained (bought) from www.mrci.com
website. At this moment, it is the single one known source of precise historical analysis
for spread trading. For purpose of this part of the chapter, fundamental analysis
utilization will be described in four separate sections and the whole procedure of
trading will be described in the fifth one (FA utilization and trading procedure are not
the same thing).

3.1. Finding Strong Seasonal Movement

It is a general rule in commodity trading that it is useful to use presence of trend to

one`s advantage. Because price movements are not easily predictable, use of seasonal
analysis provides significant advantage and makes estimation and timing of trading
more reliable (and more precise).
As it was already mentioned before, commodities with real underlying element
such as sugar, wheat, corn and other agricultural products in general, tend to act in
repeating, seasonal patterns. What is needed to be found is a starting strong movement.
Example of this phenomenon is shown at the Fig. 3.

Figure 3. Example beginning of possibly very strong seasonal movement in area indicated by rectangle
(source www.mrci.com)
At the Fig. 3, there is a current market price compared to its historical 9 year pattern
(upper part) and for comparison, there is also 9 year pattern and 5 year pattern shown at
the bottom of the figure. The trading opportunity should be obvious from the figure
(area indicated by rectangle). It is really highly probable that in this case the price chart
will follow its historical pattern (see below). Pattern recognition techniques are very
useful, see [9] or [10], but at this moment, a comparison of both historical and actual
price chart will suffice.

3.2. Current and Historical Pattern Correlation

In order to trade efficiently, it is necessary to find market where actual price

development corresponds to its historical pattern. See Fig. 4 and Fig. 5 for clarification.
At the Fig. 4, the current market behavior is very similar to its historical pattern.
This gives us higher probability that price pattern will be copying its historical course,
allowing us to profit from it. Historical pattern is used for better timing of trade (when
to open or close position).
On the other hand, Fig. 5 is example of market with no correspondence to its
historical pattern and should not be traded. Figure is self-explanatory in this case.

Figure 4. Market with good correspondence to its historical pattern (www.mrci.com)

 Figure 5. Market with no correspondence to its historical pattern (www.mrci.com)

3.3. Liquidity Check

Other important aspect of each market is its liquidity [3]. Markets with low liquidity
are difficult to be traded mechanically.
While trading spreads or commodities in general, liquidity is dependent on
commodity contract expiry date. Contracts which are near their expiration are traded
most intensively, see Fig. 6.

Figure 6. Wheat futures volume and open interest report. Most important are columns Volume and RTH
Volume – Open Outcry (www.cmegroup.com).

As can be seen at the Fig. 6, greatest volume of trades is in closest months. ATS should
be trading MAY or JUL contracts. Although it is possible to trade other months, it is
not recommended for ATS (such investment is too long and we are not considering
positional trading here, moreover, there is no advantage in such trade).

3.4. Price Bottoms and Peaks

In order plan timing of trade exit, it is often useful to look at the historical price chart.
Example of market where the exit level is quite obvious is at the Fig. 7. Exit level is
approximately at value of -17, as it is indicated by line.

Figure 7. Price bottom is at the value of -17. Price fall can be expected to stop at this level. (www.mrci.com)

Such information may be used for placing stop-loss orders or profit targets during
trading.

3.5. Trading Procedure

Whole trading procedure may be divided into 5 steps:

1. Finding market with strong seasonal pattern and liquidity

2. Correlation check
3. Finding optimal entry point
4. Considering risk-reward ratio
5. Fundamental information check
Steps 1-3 were already covered by parts 3.1-3.4. Step 4 refers to RRR (risk-reward-
ratio), see [8] or [3]. It is supposed to be 1.5 or higher, RRR above 3 is considered to be
very good. Since not every trade is successful, it is necessary to take losses into
consideration when assessing trading system. ATS with low frequency of trading but
high RRR can be very effective. Step 5 is final verification that there is no fundamental
information available which would change the behavior of the selected commodity.
Without some uncommon interference, there is better probability that commodity will
behave in its predictable pattern.
System which was described here is effective, straightforward, and clearly
demonstrates profitable and successful application of fundamental information in
commodity trading. In principle, it is necessary to rely only on dependable sources of
fundamental information which is not always easy to recognize. Fundamental
information generally defines long-term trend and it is useful to know them. On the
other hand, much more important for commodity trader, is knowledge of technical
analysis and related tools.

4. Multiple Trading System Coordination

The principles and results described above leads to idea of more efficient way of
trading. With development in artificial intelligence and autonomous systems, one
should be able to extend efficiency of single stand-alone trading system to more
efficient structure of several systems working together.
In this part of the chapter, the architecture of multiagent system using contract net
protocol will be introduced - on theoretical basis only. This is intended as a future work
in this field and it is a natural continuation of the nowadays trend which is slowly
enforcing use of mechanical trading. Increased demand of such solutions may be
expected in the future.

4.1. Background Outline

In large trading companies, it may happen that several traders share the office.
Although every single one of them uses his/her own system, based on different trading
ideas, all have overall positive results (otherwise they would not be able to keep the
job). The idea here is similar to this situation. When several systems are performing
efficiently on their own it should be possible to shift the autonomy to even higher level
– to the level of ATS working together autonomously. Of course, elementary design
rules should apply here as well: trader has to maintain confidence and trust in such
solution and, when needed, be able to shut the system off, make changes or
modifications and be able to monitor all the system`s activities when it performs its
tasks.
This idea leads to construction of modular system, allowing autonomous trading
systems work together. The inspiration is taken from the multiagent systems and their
architectures [11] – proposed system will be using contract net protocol for
communication and coordination (see below). Separated ATS solutions will be
perceived as agents in this context. This does not change our perspective, agents and
ATS have many attributes in common, see Fig. 3 for comparison.
 Figure 8. Comparison of agent and ATS activity

When compared, agent and ATS show many similarities (Fig. 8). The loop between
environment scanning, decision making and actions is called sense-think-act cycle (Fig.
8, left). It is described in detail in literature; see [Russell and Norvig].There is very
similar cycle in ATS (Fig. 8, right). Because it is possible to imagine software agent
instead of traditional hardware robot then there are no significant differences in those
two concepts. From our perspective ATS may interpreted as an agent and it would pose
no problems.

4.2. Structure of Multiagent System

In order to create multiagent system, formal structure of communication has to be

established. For purposes of communication, contract net protocol will be used. The
principle is as follows. There are two types of agents (manager agent and task agent) in
the system. Manager agent (MAN) are used for coordination of work, task agents are
responsible for realization of desired behavior. The sequence of steps while using
contract net protocol is shown at the Fig. 9.

Figure 9. Contract net protocol

Fig. 9 describes mutual communication between agents in the system. Manager agent
starts communication with notification (of available work) and seeks the best possible
candidate for the job. In this case, manager agent is trying to find the most suitable
trading system for the market intended to be used for trade. Task agents react by
sending their responses and manager agent either accept or reject their offer. Accepted
agents are informed and may begin work. This is general sequence which will be
modified for our purposes below.
Since task agents represents individual trading systems here, they will be called
“trading agents” (TRA) in the following text. Description of graphical elements used in
following figures is shown in the Tab. 1.

Table 1. Graphical elements – description and function

Visual Sub-type Name Functions
notation
Used indicators
Rules for market entry/exit
DB-TS Trading system parameters
Stop-loss, profit target positioning
Position sizing settings, etc.
Allowed single trade funds allocation
Risk & money Funds allocation for stop-loss
DB-R&MM
management rules Allowed position sizing
MFE/MAE analysis
User`s risk, drawdown, position sizing,
DB-UP User preferences
etc. tolerance settings
Backtest reports
DB-TRA-PR TRA performance report Trading records
Related statistics, graphs
Identification
DB-MP Market parameters Margin size, open interest, liquidity
check, trending, volume, …
Historic data archive (all Historical trading data (all commodities)
DB-OHLC
markets) Continuous actualization
Comissions, broker services costs (use of
DB-BS Broker service parameters IM system for communication, trading
advice service, warnings, etc.)
Fundamental analysis information, in
Fundamental knowledge
DB-FD declarative representation format (rules)
base
Inserted by user (if needed)
Trading day summarization
TRA performance reports + related
DB-LOG Trading log
statistics
Periodical actualizations
Real-time trading data Market data provided in real-time
RT-OHLC
stream Data format, timeframe
Representation of ATS
Responsible for trading system`s
TRA Trading agent
application to market
Communication with Manager agent
Trading agent coordination
Funds allocation
MAN Manager agent
Collection and analysis of data related to
whole system performance
Information represented in suitable form
OBJECT Data object (electronically), no specific format
defined
Several data objects of the same type
joined together
LIST Data object collection (set)
The basic principle remains the same. MAN agent is trying to find most appropriate
trading system, i.e. one with the best backtesting results. It is intraday trading which is
considered here, but algorithms may be easily modified to cover position or swing
trading approaches as well – the core behavior would remain the same.
The mutual coordination of agents is shown on two figures (Fig. 10 and Fig. 11),
but agents are mutually communicating with each other as it is indicated (single figure
could not be used due to limited space on page).

Figure 10. Manager agent algorithm

The Fig. 10 shows manager agent`s (MAN) activity, divided into 17 steps. This
sequence corresponds with the Fig. 4, but it is more detailed and modified to fit ATS
needs. The overall goal here is to find the most appropriate agent (trading system) for
selected market environment.
In the step (1), MAN reads market parameters. At this point, it is presumed that
user specifies set of markets intended for trade. Therefore, database DB-MP is input of
the algorithm. In order to avoid unsuitable markets – trading of such markets most
probably results in financial loss – a filter is applied in step (2). Suitability is
considered from the perspective of ATS. Not all markets are ideal for mechanical
trading. Most important attributes are liquidity and presence of trend. Price chart
without recognizable trend (i.e. chopping or “moving to side”) can be more effectively
traded manually, but ATS application is not effective here. Also, transaction costs are
to be considered here as well. Too expensive markets would bind most of trader`s
trading account. For small speculator, e-mini markets are generally more suitable
because of smaller margins and contract prices. Remaining candidates (markets) are
sorted (3) and a structure “WORKLIST” is created (4). Preference in the step (3) is
given by trader.
The first item in the list is selected (5) and all TRA agents are notified (6). TRA
agents perform backtesting to verify their profitability and results are send back to
MAN agent (7). After evaluation of results (8), TRA agents are notified about the
decision (9) and funds are allocated from the trading account to the most successful
TRA agent (10). Processed market is deleted from the WORKLIST (11). If there is
enough money on the trading account (12), sequence continues with next item in
WORKLIST (13). Otherwise, MAN agent waits for TRA agent(s) to finish trading (14)
and funds are collected (send back) to MAN agent (15). For statistical analysis
purposes and evaluation of system performance, trading records are collected from
TRA agents, which performed trading (16). Results are saved into LOG (17) for later
analysis or simply to be at the user`s disposal.

Figure 11. Trading agent algorithm

The situation is similar at the Fig. 11. TRA agent begins by downloading trading
system`s parameters (1). In the following step, TRA agent waits for market
specification (2) provided by MAN agent. Indicator settings are optimized (3) for given
market using correlation analysis (4) which helps to identify best setting or indicator in
correlation to the net profit of trading system. Backtest is performed to verify trading
system`s effectivity (5) and report is send back to MAN agent (6). TRA agents wait for
results of evaluation process (7). If TRA is denied (8), then it participates in the
following market selection by repeating process from the step (2), otherwise it waits for
funds allocation (9) and performs trading (10). Trading record is continuously
actualized. In the end of trading, positions are closed (11) and funds returned to MAN
agent (12) along with trading record (13). It is intraday trading considered here, in case
of positional trading whole algorithm would have to be modified accordingly, but as it
is not difficult, this should pose no problem.

4.3. Utilization of Multiagent System

The multiagent system described in part 4.2 serves two main purposes – it helps to find
the most suitable trading system for given market and distributes funds between
individual trading systems. Such coordination structure could be very helpful in trading
organization, especially when larger number of trading systems is to be used at the
same time.
Obvious risk here is loss of control. There are mechanisms incorporated into
system designed specifically to prevent this – periodical evaluation of system`s
performance, logs, information sharing, transparency. The overall structure is logical
and contains only necessary parts. Although list of elements in Tab. 1 may seem to be
too long, most items on the list are data separated into specialized “storages”.
The function of the system was explained using intraday perspective. Whole
procedure (Fig. 10 and Fig. 11) can be easily modified for other type of trading. The
intraday trading is more transparent, because at the end of each trading day are results
at the disposal of trader.

5. Conclusion

This chapter provided overview of several important areas of theoretical approach to

commodity trading. All provided information is intended to be used in mechanical
trading.
First part of this chapter was focused on the lifecycle of automated trading system.
This allows trader to have better orientation in what has to be done when constructing
or designing trading system. Lifecycle sequence is generally valid, but minor
modifications may be done, adjusting procedure to individual preferences.
Next part was focused on less common, but gradually more popular, approach to
seasonal commodity trading using fundamental analysis in trading spreads. This
approach was specifically chosen because it provides understandable example of use of
fundamental information. It is also valuable example of historical data analysis`
application.
The concept of multiagent system presented in the following part is theoretical, but
applicable and comprehensible even to non-technical user. There are no procedures in
 this architecture which would make it particularly difficult for machine processing and
great importance plays transparency and continuous evaluation of system’s
performance. Since each trading agent (TRA) is representing trading system originally
designed and tested by trader, there should be no reason to doubt the system`s
individual part profitability. If some part of the system does not work correctly, it is
easy to eliminate it from the selection process and make necessary adjustments “off-
line”.
All design decisions and suggestions were made in order to allow trader to have as
much confidence and control in this system as it is possible. We believe it is essential
part of mechanical trading to establish such confidence on user`s part in order for the
system to be used.

Acknowledgements

This work and contribution were supported by the Specific Research Project
“Automated Trading Systems for Futures Trading”.

References

[1] Angell, G., Real-Time Proven Commodity Spreads – The 20 Most Consistently Profitable Low Risk
Strategies, Windsor Books, USA, 1985.
[2] Aronson, D., Evidence-Based Technical Analysis – Applying Scientific Method and Statistical Inference
to Trading Signals, John Wiley & Sons, USA, 2007.
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