4 ms·

I'm going to say a couple of things about algorithmic trading and the knee jerk reactionaries. First--there is an industry that makes pretty good money from pr

I'm going to say a couple of things about algorithmic trading and the knee jerk reactionaries. First--there is an industry that makes pretty good money from practicing algorithmic trading. I work with some of them. Some of them do well. However, on the average, returns in that business are subpar. Then again, on the average, most people are idiots. On the average, most startups fail. "On the average" is usually not taken as a reason to not do something by this community (HN), at least allegedly. Second--there are plenty of reasonable issues to raise whenever this comes up. For instance--your average investor is going to have a tough time of this--for starters due to transaction costs, taxes, etc. Then again, your average investor is going to have a tough time of the stock market in general. Again, the average, by definition, is not impressive and can never do any better than--well--average. But we don't want to be in the average. That's the whole point of much of what we do here. Except when it comes to exploiting financial markets, in which case the average is all that matters? Point being--is it possible to have a reasonable discussion about statistical analysis of markets and what, if anything, might be done to exploit any regularities found? Is it really so difficult to believe that regularities in relative price movements exist? And yeah, I get it--there's something generally slimy about the whole industry, and there have been plenty of hucksters over the years (and in the present). Then again... isn't this true for the entire tech industry, more or less? So, you don't have to take part in it, you don't have to learn about it, but can we PLEASE have a better response than "oh, backtesting, that doesn't work, dur"? I mean, yes, there's a fair amount of "lead into gold" type stuff there--but I really don't think it's an unbelievable stretch of the mind to say that regularities exist in markets. No doubt those regularities change, but wouldn't it be interesting to see how quickly and why? And maybe some people can be better at it than others (that doesn't happen anywhere else right?) So yeah, don't get too excited, but then again, don't be so damned pessimistic. Markets are a system like any other, probably some of the most interesting systems around because they are so hard (some say impossible) to grasp.

tunesmith 13y ago
I dunno about average algorithmic traders being idiots. I think people have to have a certain level of smartness to even grasp what algorithmic trading is, let along attempt it. If the average return is subpar, then that's out of the people that are smart enough to be in the business, grasp the concept, and try it enough to qualify for whoever's doing the measuring.
- Choronzon 13y ago
  Signal to noise ratio is very high,50x in some cases which makes this a very hard (though interesting ) problem.
rdtsc 13y ago
My issue with the appeal of the this is that it targets people who are smart in one domain. So they are above average in say programming (everyone is above average, of course, right? ... ;-) ). So it makes them think, ah yes, I am smart, I do algorithms, I should be good at this. You see, the real market is not the stock market (which I assume is already exploited at small and large scale for all conceivable regularities by now), the real market is in creating novel trading platform. Kind of like the money is not attending a "how to get rich seminar" but in inventing, promoting and running "get rich seminars". > So, you don't have to take part in it, you don't have to learn about it, but can we PLEASE have a better response than In other areas perhaps that is the right approach, but I personally think when it comes to the stock market the position that there are profitably exploitable regularities by your average (or even slightly above average) individuals should be questioned. Another anecdotal example, this is like the gold rush. Except at the tail end. When all the large chunks of gold has been mined but people are still coming. The best thing is to start selling food and tools to those people.

tunesmith 13y ago

I dunno about average algorithmic traders being idiots. I think people have to have a certain level of smartness to even grasp what algorithmic trading is, let along attempt it. If the average return is subpar, then that's out of the people that are smart enough to be in the business, grasp the concept, and try it enough to qualify for whoever's doing the measuring.

Choronzon 13y ago
Signal to noise ratio is very high,50x in some cases which makes this a very hard (though interesting ) problem.

rdtsc 13y ago

My issue with the appeal of the this is that it targets people who are smart in one domain. So they are above average in say programming (everyone is above average, of course, right? ... ;-) ). So it makes them think, ah yes, I am smart, I do algorithms, I should be good at this. You see, the real market is not the stock market (which I assume is already exploited at small and large scale for all conceivable regularities by now), the real market is in creating novel trading platform. Kind of like the money is not attending a "how to get rich seminar" but in inventing, promoting and running "get rich seminars". > So, you don't have to take part in it, you don't have to learn about it, but can we PLEASE have a better response than In other areas perhaps that is the right approach, but I personally think when it comes to the stock market the position that there are profitably exploitable regularities by your average (or even slightly above average) individuals should be questioned. Another anecdotal example, this is like the gold rush. Except at the tail end. When all the large chunks of gold has been mined but people are still coming. The best thing is to start selling food and tools to those people.