12 ms·

Why building profitable trading bot is hard?

14 points by Kshitijmore 4y ago

I wants know why 90% of trading bots are fails. What's the reason behind it.

mindaslab 4y ago
Sock markets area a gamble than commonsense.
chii 4y ago
The stock market is very efficient - aka, the price reflects most, if not all available information at the time. Therefore, a trading bot would need to trade on information that is not available to other bots, for it to be profitable. This is hard to achieve, and each bot that _do_ achieve it is making the market even more efficient.
- Flankk 4y ago
  Two investors can look at the same balance sheet and come to opposite conclusions. 90% of actively managed investment funds underperform the market. It's a hard problem, full stop. If you're good at solving hard problems, you could solve something less boring and probably make more.
  - westurner 4y ago
    Managed funds must pay managers; probably out of the returns. ETFs (Electronically Traded Funds) have no fund management fees; like Class B stock, ETFs typically are not voting shares (which you don't have when you buy a mutual fund anyways). Algotraders reference e.g. an S&P 500 ETF as the default benchmark for comparing a portfolio's performance. Quarterly earnings reports are filed as XBRL XML. A value investor might argue that you don't need to rebalance a portfolio until there is new data about technical fundamentals for technical analysis. The average bear trades on sentiment and comparatively doesn't at all appropriately hedge; this is part of Behavioral economics, the technical reason why some people actually can outperform the market, imho.
    - westurner 4y ago
      If the financial analyst does not have a (possibly piecewise) software function to at least test with backtesting and paper trading, do they even have an objective relative performance statistic? Your notebook or better should also model fees and have a parametrizable initial balance. Here's the awesome-quant link directory: https://github.com/wilsonfreitas/awesome-quant https://github.com/wilsonfreitas/awesome-quant
- mbrodersen 4y ago
  Only over the very long term. Short term there is a lot of noise and randomness.
Cantinflas 4y ago
Short term trading, via bot or not, is similar to a zero sum game. Building profitable bots is hard because you are competing for profit with very good ones.
jqpabc123 4y ago
What's the reason behind it. Lol! Because you only hear about the bad bots. Think about this --- if you had a really good bot capable of actually being consistently profitable, why would you ever advertise it or tell anyone about it or even acknowledge it's existence?
- tluyben2 4y ago
  Yep, every bot for sale is proof it doesn’t work. They do exist (at least for a length of time) but they are not for sale.
  - jqpabc123 4y ago
    Paying $49 a month for access to a money making machine is kinda like buying the title to the Golden Gate Bridge --- it's just a slightly more sophisticated con targeted at the internet crowd.
WalterGR 4y ago
Because if it was that easy, everyone would be making a trading bot.
refurb 4y ago
Market efficiency. Trades are all public as well. So any regularly profitable trade of any substantial volume would be copied pretty quickly, squeezing out any profit. No doubt one could find an obscure trade, keep volumes low and stay under the radar long enough to make a tidy sum.
deleted 4y ago
[deleted]
smcn 4y ago
I run https://feetr.io https://feetr.io. I do stock discovery as opposed to automated trading (at this point). Almost a year into recording stock picks, it is averaging 4.0624% per day across all stocks, and 5.9948% for the best stock of that day.[0] With the above, you'd think that a trading bot would be a piece of cake. The easiest part of the process, probably. As of right now, I've found that it's hard to model intuition using code. It's easy to watch a graph and say "I think it's about time to sell", but it's hard to give that understanding to a computer. I do believe that it's a problem that can be solved, and certainly you can look at Aladdin[1] as a system that has been very successful in this space. Don't take negativity as a reason to not do something though. If you're passionate and interested, then go prove everyone wrong. [0] "per day" references per day that Feetr finds a stock [1] https://www.blackrock.com/aladdin https://www.blackrock.com/aladdin
- matt3D 4y ago
  I think comparing the open price to the days high price is a little disingenuous. Stocks fluctuate so I'm not sure what metric would be more appropriate, but it would be interesting to see the discrepancy if you just took the close price.
  - smcn 4y ago
    I don't know that I agree. It's an algorithm geared towards day trading so the highest price of the day is a much better metric than the close price, as you should've sold by then.
    - jqpabc123 4y ago
      This leaves only one tiny little problem --- predicting the highest price of the day before the day is over. Any suggestions for doing this? If you can't do this; if you sell too early or too late, your return will potentially be a lot less than picking the high price after the fact. In other words, the stated returns are maximized assuming perfect clairvoyance --- which no one has. Basing return on closing price assumes zero clairvoyance --- which the average person has --- and is thus a more realistic measure.
immigrantheart 4y ago
I just recently got into a trading firm. I also had this sort of question before and its relative question, that is “can individual trader really make money without having to be a fortune teller”? What I found out that my trading firm is a market maker, and this trading firm, alongside with other non individual (corporate) players in trading world, have moats in their cutting of fees. To make a profitable trade, you need to take into account many of the fees (and taxes) or else you get into death by thousand cuts. Trading firm simply operates in a different fee structure than individual traders. Some market makers are actually getting paid instead, just by providing liquidity. That’s why they can be profitable. If an individual stock trader buys stock A for $100 and sell it later for $100, it is considered loss (due to fees) or at least break even. Not so much for trading firms, they actually make profit. Since trading bots are just individual traders, same rules apply. CMIIW
- markus_zhang 4y ago
  However doesn't a market maker run the risk of holding an unbalanced bag when the market moves? Also curious is there any true market maker these dayd? Aren't they all doing trading actually or just my fantasy? Thanks!
  - kasey_junk 4y ago
    What do you think the distinction between market making and trading is? Also, yes market makers can get left with bad positions if the market moves against them, but when I was in the industry operational failures were the much more troubling issues.
    - markus_zhang 4y ago
      I think MM doesn't take sides and try to balance the book while making a lot of pennies from both sides. However I heard (not in industry) that many MM are actively taking sides so the question.
      - kasey_junk 4y ago
chewz 4y ago
Building profitable bot isn't the hard part. The problem is that markets go through regime changes and a bot that had been profitable in previous regime could turn into hole digger... Just look at compound results of hedge funds (published by Goldman Sachs). These smart quants are consitently buying high and selling low for last couple of months and years. [] GSTHHVIP vs S&P500
giantg2 4y ago
"Why building profitable trading bot is hard?" Because you have to find a pattern to build it on, and patterns change frequently. If you're wrong or it changes, then you lose a bunch of money.
- jqpabc123 4y ago
  The unpredictable is hard to predict.
robswc 4y ago
Finally a question I can answer (but ppl might not like it)! :) It’s my personal opinion, based on my time and experience (and several books about the field), “90% fail” in the same way “90% of business fail.” Tons of reasons but I truly believe lack of alpha is overestimated. I think finding alpha is not nearly as hard as people make it out to be. Execution and continuously innovating is the real challenge. Design your systems, knowing you will have to change up your strategy and focus on a system that will help you find new alpha. I believe after lots of research, this is how Rentech did it. And to touch on the business ananology again, you could have the best donuts in town but if the rest of your business is fundamentally flawed, it will become part of the “90%.” Now, I’ll say this, I don’t manage some insane portfolio or anything. However, I run a private firm (myself and family) that makes for a comfortable life. I work more than 9-5, but I enjoy the challenges and freedom. If you’re asking about more complex bots used in managing larger, institutional funds, I’m afraid I can’t answer that… but I imagine the challenges are quite different. I try to post things that have helped me with building these systems from time to time. http://www.twitter.com/robswc http://www.twitter.com/robswc Lmk if there’s anything else, I can try my best to answer.
- srckinase123 4y ago
  What books and advice would you give someone with zero knowledge that would make them a good investor such that they would be highly competent in managing a portfolio?
  - robswc 4y ago
    I’m afraid I can’t say I have a good answer for that, as I don’t consider myself an investor. I actually don’t know fundamentals well at all and rarely keep up with news. The systems I designed are for trades lasting no more than a few hours, so much of that stuff never comes into play. I’ll just say, I think investors like Warren Buffett are good to emulate. They play the long game and play it well… I think doing something like that is a full time job though. Last note, just knowing a few ppl personally, I’ve seen people grow their wealth by just sticking it into the market and forgetting about it ;)
  - 4y ago
mbrodersen 4y ago
“Short term trading is speculation not investing.” Warren Buffet

14 points by Kshitijmore 4y ago

I wants know why 90% of trading bots are fails. What's the reason behind it.

mindaslab 4y ago

Sock markets area a gamble than commonsense.

chii 4y ago

The stock market is very efficient - aka, the price reflects most, if not all available information at the time. Therefore, a trading bot would need to trade on information that is not available to other bots, for it to be profitable. This is hard to achieve, and each bot that _do_ achieve it is making the market even more efficient.

Flankk 4y ago
Two investors can look at the same balance sheet and come to opposite conclusions. 90% of actively managed investment funds underperform the market. It's a hard problem, full stop. If you're good at solving hard problems, you could solve something less boring and probably make more.
- westurner 4y ago
  Managed funds must pay managers; probably out of the returns. ETFs (Electronically Traded Funds) have no fund management fees; like Class B stock, ETFs typically are not voting shares (which you don't have when you buy a mutual fund anyways). Algotraders reference e.g. an S&P 500 ETF as the default benchmark for comparing a portfolio's performance. Quarterly earnings reports are filed as XBRL XML. A value investor might argue that you don't need to rebalance a portfolio until there is new data about technical fundamentals for technical analysis. The average bear trades on sentiment and comparatively doesn't at all appropriately hedge; this is part of Behavioral economics, the technical reason why some people actually can outperform the market, imho.
  - westurner 4y ago
    If the financial analyst does not have a (possibly piecewise) software function to at least test with backtesting and paper trading, do they even have an objective relative performance statistic? Your notebook or better should also model fees and have a parametrizable initial balance. Here's the awesome-quant link directory: https://github.com/wilsonfreitas/awesome-quant https://github.com/wilsonfreitas/awesome-quant
mbrodersen 4y ago
Only over the very long term. Short term there is a lot of noise and randomness.

Cantinflas 4y ago

Short term trading, via bot or not, is similar to a zero sum game. Building profitable bots is hard because you are competing for profit with very good ones.

jqpabc123 4y ago

What's the reason behind it. Lol! Because you only hear about the bad bots. Think about this --- if you had a really good bot capable of actually being consistently profitable, why would you ever advertise it or tell anyone about it or even acknowledge it's existence?

tluyben2 4y ago
Yep, every bot for sale is proof it doesn’t work. They do exist (at least for a length of time) but they are not for sale.
- jqpabc123 4y ago
  Paying $49 a month for access to a money making machine is kinda like buying the title to the Golden Gate Bridge --- it's just a slightly more sophisticated con targeted at the internet crowd.

WalterGR 4y ago

Because if it was that easy, everyone would be making a trading bot.

refurb 4y ago

Market efficiency. Trades are all public as well. So any regularly profitable trade of any substantial volume would be copied pretty quickly, squeezing out any profit. No doubt one could find an obscure trade, keep volumes low and stay under the radar long enough to make a tidy sum.

deleted 4y ago

[deleted]

smcn 4y ago

I run https://feetr.io https://feetr.io. I do stock discovery as opposed to automated trading (at this point). Almost a year into recording stock picks, it is averaging 4.0624% per day across all stocks, and 5.9948% for the best stock of that day.[0] With the above, you'd think that a trading bot would be a piece of cake. The easiest part of the process, probably. As of right now, I've found that it's hard to model intuition using code. It's easy to watch a graph and say "I think it's about time to sell", but it's hard to give that understanding to a computer. I do believe that it's a problem that can be solved, and certainly you can look at Aladdin[1] as a system that has been very successful in this space. Don't take negativity as a reason to not do something though. If you're passionate and interested, then go prove everyone wrong. [0] "per day" references per day that Feetr finds a stock [1] https://www.blackrock.com/aladdin https://www.blackrock.com/aladdin

matt3D 4y ago
I think comparing the open price to the days high price is a little disingenuous. Stocks fluctuate so I'm not sure what metric would be more appropriate, but it would be interesting to see the discrepancy if you just took the close price.
- smcn 4y ago
  I don't know that I agree. It's an algorithm geared towards day trading so the highest price of the day is a much better metric than the close price, as you should've sold by then.
  - jqpabc123 4y ago
    This leaves only one tiny little problem --- predicting the highest price of the day before the day is over. Any suggestions for doing this? If you can't do this; if you sell too early or too late, your return will potentially be a lot less than picking the high price after the fact. In other words, the stated returns are maximized assuming perfect clairvoyance --- which no one has. Basing return on closing price assumes zero clairvoyance --- which the average person has --- and is thus a more realistic measure.

immigrantheart 4y ago

I just recently got into a trading firm. I also had this sort of question before and its relative question, that is “can individual trader really make money without having to be a fortune teller”? What I found out that my trading firm is a market maker, and this trading firm, alongside with other non individual (corporate) players in trading world, have moats in their cutting of fees. To make a profitable trade, you need to take into account many of the fees (and taxes) or else you get into death by thousand cuts. Trading firm simply operates in a different fee structure than individual traders. Some market makers are actually getting paid instead, just by providing liquidity. That’s why they can be profitable. If an individual stock trader buys stock A for $100 and sell it later for $100, it is considered loss (due to fees) or at least break even. Not so much for trading firms, they actually make profit. Since trading bots are just individual traders, same rules apply. CMIIW

markus_zhang 4y ago
However doesn't a market maker run the risk of holding an unbalanced bag when the market moves? Also curious is there any true market maker these dayd? Aren't they all doing trading actually or just my fantasy? Thanks!
- kasey_junk 4y ago
  What do you think the distinction between market making and trading is? Also, yes market makers can get left with bad positions if the market moves against them, but when I was in the industry operational failures were the much more troubling issues.
  - markus_zhang 4y ago
    I think MM doesn't take sides and try to balance the book while making a lot of pennies from both sides. However I heard (not in industry) that many MM are actively taking sides so the question.
    - kasey_junk 4y ago

chewz 4y ago

Building profitable bot isn't the hard part. The problem is that markets go through regime changes and a bot that had been profitable in previous regime could turn into hole digger... Just look at compound results of hedge funds (published by Goldman Sachs). These smart quants are consitently buying high and selling low for last couple of months and years. [] GSTHHVIP vs S&P500

giantg2 4y ago

"Why building profitable trading bot is hard?" Because you have to find a pattern to build it on, and patterns change frequently. If you're wrong or it changes, then you lose a bunch of money.

jqpabc123 4y ago
The unpredictable is hard to predict.

robswc 4y ago

Finally a question I can answer (but ppl might not like it)! :) It’s my personal opinion, based on my time and experience (and several books about the field), “90% fail” in the same way “90% of business fail.” Tons of reasons but I truly believe lack of alpha is overestimated. I think finding alpha is not nearly as hard as people make it out to be. Execution and continuously innovating is the real challenge. Design your systems, knowing you will have to change up your strategy and focus on a system that will help you find new alpha. I believe after lots of research, this is how Rentech did it. And to touch on the business ananology again, you could have the best donuts in town but if the rest of your business is fundamentally flawed, it will become part of the “90%.” Now, I’ll say this, I don’t manage some insane portfolio or anything. However, I run a private firm (myself and family) that makes for a comfortable life. I work more than 9-5, but I enjoy the challenges and freedom. If you’re asking about more complex bots used in managing larger, institutional funds, I’m afraid I can’t answer that… but I imagine the challenges are quite different. I try to post things that have helped me with building these systems from time to time. http://www.twitter.com/robswc http://www.twitter.com/robswc Lmk if there’s anything else, I can try my best to answer.

srckinase123 4y ago
What books and advice would you give someone with zero knowledge that would make them a good investor such that they would be highly competent in managing a portfolio?
- robswc 4y ago
  I’m afraid I can’t say I have a good answer for that, as I don’t consider myself an investor. I actually don’t know fundamentals well at all and rarely keep up with news. The systems I designed are for trades lasting no more than a few hours, so much of that stuff never comes into play. I’ll just say, I think investors like Warren Buffett are good to emulate. They play the long game and play it well… I think doing something like that is a full time job though. Last note, just knowing a few ppl personally, I’ve seen people grow their wealth by just sticking it into the market and forgetting about it ;)
- 4y ago

mbrodersen 4y ago

“Short term trading is speculation not investing.” Warren Buffet