4 ms·

I have for two years now been playing around with Algorithmic trading as a hobby and I am amazed by people who think wave riders or simple mathmatical transform

by dkhenry 14y ago

I have for two years now been playing around with Algorithmic trading as a hobby and I am amazed by people who think wave riders or simple mathmatical transforms will get them profits in the market. I have found that the best method is still a good mix of modeling and trader input. I don't think a model exists that you can just turn on and have it print you money. So attempts like this to make one of those really are a waste of time. Your systems should be tuned to listen to you and then take what input you have and do what you cannot ( make decision in sub-second windows )

megaframe 14y ago
Completely agree, been doing the same for last 3 years using a combination of machine learning techniques which without some human input are only at best as successful as putting money into a savings account, or in most cases would loose money.
fawce 14y ago
what do you mean by trader input?
- cinquemb 14y ago
  news events? info from discussions on trading/economic/product related forums? (insider info? dont tell the SEC :P)
vecter 14y ago
I don't know where you're getting your data from, but I know of at least one high frequency algorithmic trading firm that make ~$1B a year using mathematical models. The models aren't simple, but they're entirely automated and they behave exactly the opposite of how you describe them: you turn them on and they print unbelievable gobs of money.
- aortega 14y ago
  Anybody else think this is like, inherently bad? I mean making money from nothing, producing nothing, doing no service to anybody. The only way you could possible get that billion without doing nothing is to take it from other people, essentially stealing it. Why is this legal?
  - ihodes 14y ago
    RenTech doesn't do "nothing". They do a ton of research and write a lot of code. Then, they purchase securities from people who want to sell them, and sell them to people who want to buy them. Why is this more palatable if there is a trader in between?
  - NkVczPkybiXICG 14y ago
    They create a more efficient market. Ensuring, for example, that the future price of a commodity matches the spot price when the future expires. They provide an anonymous financial service.
    - aortega 14y ago
      To a financial-impaired mind like mine those looks like great explanations, thanks you all that responded me, now it does seems a little more fair.
  - jrockway 14y ago
    Is your insurance company stealing from you when your house doesn't burn down? When someone buys or sells a security, they take on risk in exchange for money. When someone is on the other end of the transaction, they give up money to reduce their risk. That seems fair to me. Just because it's a zero-sum game with respect to money doesn't mean it's a zero-sum game in totality. It's just that you can buy less iPods with risk than you can buy with cash, so you mentally overvalue cash and undervalue the lack of risk.
  - boothead 14y ago
    They aren't producing anything, but they are providing a service. Algorithmic futures traders are typically uncorrelated with for example the S&P so pensions funds use their services to smooth out volatility and generate better returns.
- dkhenry 14y ago
  Not knowing the exact firm I would still debate that its purly mathmatical. _Every_ professional I have talked to has pretty much said that no matter how good your math there is still additional information required other then the raw data about the security. Also I am talking about trading not market making which can be done automatically, market making only works when you can beat the other guys at making deals and yes you can do that with pure numbers, but again that's not really what were discussing here.
  - boothead 14y ago
    Algorithmic hedge funds trade on statistical models successfully. I work for one at the moment, and over the long term they expect to make 15-20% per year. We have no traders and there's no intervention - it's purely the statistical model that determines how and when to trade. So it can be done, but you need a brain the size of a planet. (I don't have a brain the size of a planet, so I don't build the models)
    - czr80 14y ago
      I can confidently predict that no, you won't make 15-20 percent as a long term average, though you may well manage a number of good years in a row. Save while the going is good.
      - boothead 14y ago
        May I ask where your confidence in this prediction comes from?
        dkhenry 14y ago
        You comment about needing the brain the size of a planet is what leads off my doubts. Its like people who say that credit swaps are too complex to understand so don't even pay attention to them. Your basically admitting you have no idea whats going on and trying to cover it up by saying its just way to complex to understand
- gammarator 14y ago
  High frequency trading is a different game, though: quoting from an excellent article [1]: "Most HFTs run a market making strategy. What this means is they play both sides of the table - they take no position on whether a stock will go up or down. Instead, they try to offer securities both to buy and sell. If you want to buy, they will sell to you at $20.10. If you want to sell, they’ll buy from you at $20. As long as their buys and sells match don’t get too out of whack, the HFT will collect $0.10 = $20.10 - 20.00." [1] http://www.chrisstucchio.com/blog/2012/hft_apology.html http://www.chrisstucchio.com/blog/2012/hft_apology.html

by dkhenry 14y ago

megaframe 14y ago

Completely agree, been doing the same for last 3 years using a combination of machine learning techniques which without some human input are only at best as successful as putting money into a savings account, or in most cases would loose money.

fawce 14y ago

what do you mean by trader input?

cinquemb 14y ago
news events? info from discussions on trading/economic/product related forums? (insider info? dont tell the SEC :P)

vecter 14y ago

I don't know where you're getting your data from, but I know of at least one high frequency algorithmic trading firm that make ~$1B a year using mathematical models. The models aren't simple, but they're entirely automated and they behave exactly the opposite of how you describe them: you turn them on and they print unbelievable gobs of money.

aortega 14y ago
Anybody else think this is like, inherently bad? I mean making money from nothing, producing nothing, doing no service to anybody. The only way you could possible get that billion without doing nothing is to take it from other people, essentially stealing it. Why is this legal?
- ihodes 14y ago
  RenTech doesn't do "nothing". They do a ton of research and write a lot of code. Then, they purchase securities from people who want to sell them, and sell them to people who want to buy them. Why is this more palatable if there is a trader in between?
- NkVczPkybiXICG 14y ago
  They create a more efficient market. Ensuring, for example, that the future price of a commodity matches the spot price when the future expires. They provide an anonymous financial service.
  - aortega 14y ago
    To a financial-impaired mind like mine those looks like great explanations, thanks you all that responded me, now it does seems a little more fair.
- jrockway 14y ago
  Is your insurance company stealing from you when your house doesn't burn down? When someone buys or sells a security, they take on risk in exchange for money. When someone is on the other end of the transaction, they give up money to reduce their risk. That seems fair to me. Just because it's a zero-sum game with respect to money doesn't mean it's a zero-sum game in totality. It's just that you can buy less iPods with risk than you can buy with cash, so you mentally overvalue cash and undervalue the lack of risk.
- boothead 14y ago
  They aren't producing anything, but they are providing a service. Algorithmic futures traders are typically uncorrelated with for example the S&P so pensions funds use their services to smooth out volatility and generate better returns.
dkhenry 14y ago
Not knowing the exact firm I would still debate that its purly mathmatical. _Every_ professional I have talked to has pretty much said that no matter how good your math there is still additional information required other then the raw data about the security. Also I am talking about trading not market making which can be done automatically, market making only works when you can beat the other guys at making deals and yes you can do that with pure numbers, but again that's not really what were discussing here.
- boothead 14y ago
  Algorithmic hedge funds trade on statistical models successfully. I work for one at the moment, and over the long term they expect to make 15-20% per year. We have no traders and there's no intervention - it's purely the statistical model that determines how and when to trade. So it can be done, but you need a brain the size of a planet. (I don't have a brain the size of a planet, so I don't build the models)
  - czr80 14y ago
    I can confidently predict that no, you won't make 15-20 percent as a long term average, though you may well manage a number of good years in a row. Save while the going is good.
    - boothead 14y ago
      May I ask where your confidence in this prediction comes from?
      - dkhenry 14y ago
        You comment about needing the brain the size of a planet is what leads off my doubts. Its like people who say that credit swaps are too complex to understand so don't even pay attention to them. Your basically admitting you have no idea whats going on and trying to cover it up by saying its just way to complex to understand
gammarator 14y ago
High frequency trading is a different game, though: quoting from an excellent article [1]: "Most HFTs run a market making strategy. What this means is they play both sides of the table - they take no position on whether a stock will go up or down. Instead, they try to offer securities both to buy and sell. If you want to buy, they will sell to you at $20.10. If you want to sell, they’ll buy from you at $20. As long as their buys and sells match don’t get too out of whack, the HFT will collect $0.10 = $20.10 - 20.00." [1] http://www.chrisstucchio.com/blog/2012/hft_apology.html http://www.chrisstucchio.com/blog/2012/hft_apology.html