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Ask HN: Automate Stock Trading?

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Re: Ask HN: Automate Stock Trading?

#61

Post by exelius »

riveralabs wrote: post #57
exelius wrote: post #28

This is a bad idea. The "simplistic human investing" you're talking about probably accounts for 0.01% of trades. The vast majority of trading these days is algorithmic, and the HFT guys will eat you for lunch. What you won't see in back testing is how the market reacts to your strategy. The market isn't something that stays static: your activity changes things in subtle ways, and I guarantee there are people smarter…

I agree with the fact that it's very unlikely that I can develop a mechanical system that would beat algorithmic trading. The good news is that I don't have to. That's why I'm a discretionary swing trader. In my personal case, trading is about learning how to fish. Learning a non computer skill that I can use for the rest of my life. Even if it sounds cruel. With enough time and hard work, you can train yourself to d…

I'll put it this way: I went to a top business school (which cost a lot more than $3000), and my finance professors were former traders, federal reserve governors, investment bankers, algo traders, etc. Without exception, they recommended a buy and hold strategy for non-institutional investors. Buy companies you believe in (or better yet, index funds), and hold them until you need the money. And this was in classes where they were teaching us investment strategies! The game is rigged against you; as an individual investor your information will always be 3-5 seconds out of date, and your trades will get thrown in the back of the queue behind the institutional investors. Any strategy that relies on market timing is doomed before you even start.

Professional traders (hedge funds, etc) can get away with risky strategies because they're balancing risk. For every insanely risky, 30x leveraged trade they make, they also hold metric fuck tons of US treasuries. You also never invest in one hedge fund; you invest in 30 or 40 hedge funds because most will lose money. The guys running the funds make their money off of fees because the return of the funds is usually based on economic factors more than 'alpha'.

Trading has changed a lot since the 40s and 50s. Modern finance wasn't really invented until the 80s as the relationship between debt and equity became much more fluid. If you really want a proper investment education, I would suggest a real education in the form of a computational finance degree as offered by many of the top quant business schools (CMU, MIT, etc.) There you can learn about the leveraged trading strategies that HFTs and algo traders use, why they work, and how to exploit them.

The big traders have a word for individuals who try to beat the market: suckers. There is no arbitrage, and even when there is, someone else will beat you to it because your access to the market is inferior to theirs. It's fundamentally unfair, but it's what happens when you have a revolving door between the federal reserve, the SEC and the top investment banks. You're playing a game with asymmetric information from the losing position against very skilled players. If you beat them, it's dumb luck. You're not going to be able to do it consistently.

The guys hosting seminars on investment strategy have found a way to consistently make money: by hosting seminars on investment strategy and charging $3000 to $5000 to attendees. If they had a truly ironclad way to make money consistently in the market, they wouldn't need the money from the seminars because they would be pulling in tens/hundreds of millions a year running a hedge fund or prop trading group.

Re: Ask HN: Automate Stock Trading?

#62

Post by DanBC »

avinassh wrote: post #47
DanBC wrote: post #4

"A mathematician plays the stockmarket" is an interesting read of a smart person who made a bunch of mistakes and lost money. http://www.amazon.com/gp/aw/d/0465054811/ref=mp_s_a_1_sc_1?q...

Non-mobile link - http://www.amazon.com/Mathematician-Plays-The-Stock-Market/d...

Thank you! Sorry about that.

Re: Ask HN: Automate Stock Trading?

#63

Post by jshaqaw »

Use paper trading for a while on a platform like Interactive Brokers before going live. You will find it's unlikely you discovered the holy grail but hey maybe you have. Just be wary of a common trap for both beginners (excusable) and longtime market pros managing billions (not so excusable) - lots of strategies look great while testing because they have a payoff matrix which yields +1$ 95% of the time and -$1000 5% of the time. Obviously this is a poor ex ante bet but you are unlikely to empirically observe/discover the asymmetry at first when it just seems like you are printing free money.

Re: Ask HN: Automate Stock Trading?

#64

Post by poikniok »

riveralabs wrote: post #57
exelius wrote: post #28

This is a bad idea. The "simplistic human investing" you're talking about probably accounts for 0.01% of trades. The vast majority of trading these days is algorithmic, and the HFT guys will eat you for lunch. What you won't see in back testing is how the market reacts to your strategy. The market isn't something that stays static: your activity changes things in subtle ways, and I guarantee there are people smarter…

I agree with the fact that it's very unlikely that I can develop a mechanical system that would beat algorithmic trading. The good news is that I don't have to. That's why I'm a discretionary swing trader. In my personal case, trading is about learning how to fish. Learning a non computer skill that I can use for the rest of my life. Even if it sounds cruel. With enough time and hard work, you can train yourself to d…

As somebody who works in HFT I want to personally thank you, and people like you, for what you do. Making money would be so much harder without you.

Re: Ask HN: Automate Stock Trading?

#65

Post by [deleted] »

riveralabs wrote: post #57
exelius wrote: post #28

This is a bad idea. The "simplistic human investing" you're talking about probably accounts for 0.01% of trades. The vast majority of trading these days is algorithmic, and the HFT guys will eat you for lunch. What you won't see in back testing is how the market reacts to your strategy. The market isn't something that stays static: your activity changes things in subtle ways, and I guarantee there are people smarter…

I agree with the fact that it's very unlikely that I can develop a mechanical system that would beat algorithmic trading. The good news is that I don't have to. That's why I'm a discretionary swing trader. In my personal case, trading is about learning how to fish. Learning a non computer skill that I can use for the rest of my life. Even if it sounds cruel. With enough time and hard work, you can train yourself to d…

[deleted]

Re: Ask HN: Automate Stock Trading?

#67

Post by nikhilsaraf9 »

I want to clarify, the intention of this system is specifically to NOT be a HFT system because I'm aware of the large handicap associated with inferior data available at slower speeds. It's intended to primarily help with stock picks since it can look through more data than a human can. This would involve both fundamentals and technical analysis. The most frequent trades would be once a day and may end up being closer to once a month. It is intended to be a low-cost solution. I would like the trades to be done by the system but the approach will not require it.

Based on some of the comments it seems such a system will be the underdog and will be the prey for the large HFT shops. And that's one of the risks of such an experiment. Once I put in real money into this (not too much, but just enough to not be consumed by the fee) there will be a hard point after which I'm ready to throw in the towel. I think of this more like an investment management software that has more knowledge than myself (various trading techniques, tax laws, etc.).

Re: Ask HN: Automate Stock Trading?

#68

Post by nikhilsaraf9 »

raverbashing wrote: post #38

The only thing you're going to automate is the emptying of your account. > I'm planning to host this on AWS and use a combination of Python and R. Yeah, great idea. NOT. Unless you're doing something like tens of trades per day, or less.

@raverbashing, One trade a day, maybe even less.

Re: Ask HN: Automate Stock Trading?

#69

Post by yummyfajitas »

nikhilsaraf9 wrote: post #25
yummyfajitas wrote: post #17

Earlier quoted context omitted.

Your automated system will require human input. I lost a bunch of money in Jan - I saw a huge drawdown, discovered a fixable flaw in my strategy, panicked and closed my positions. Human inputtime - do I close positions and shut down? Had I stuck with the flawed strategy, I'd have made (a small amount of) money. Dont think that you dont need to manage your psychology simply because you are running an algorithm.

Yummyfajitas, that's exactly why I do not want human input. Also, I'm not trying to make money on every bet, but to make more money in my winning bets (less fees) than I lose in my losing bets.

What I'm trying to convey is that you do have human input even for a pure algo strategy. If you acknowledge it exists, attempt to minimize it and manage what remains, you are far less likely to have it cause you problems.

Re: Ask HN: Automate Stock Trading?

#70

Post by brc »

anovikov wrote: post #42

Someone can please give me some trustworthy, scientific reading material to give people asking me to proof the point 'systematically beating index performance on the stock market, using only public available data, is not possible'? Intuitively i understand this is true, so no need for holywar. Same also applies to commodities trading.

You don't need scientific proof or reading material - the theory you are trying to prove is wrong.

Just look at the number of billionaires who have decades long 20,30,50% average returns - not possible by chance.

The efficient market hypothesis believers say that these people were lucky.

People who say that don't understand probability.

The probability of winning big one year is probably not that rare - lotto win sort of numbers, and given the number of players and the number of iterations - easily explained away.

However, the existence of scores of individuals who have been able to profit for long periods of time completely destroys the efficient market hypothesis, because the hypothesis says they can't exist.

Take one single example ; Richard Dennis. He started off with $1500 and ran it up into hundreds of millions. He then taught a group of people who had zero trading experience his system and then they went off and made hundreds of millions (some are still going).

http://en.wikipedia.org/wiki/Richard_Dennis

That is completely non-random outcomes. The efficient market hypothesis is something that academics wet themselves over while other people laugh at their theories and make millions.

Essentially, for 'systematically beating index performance on the market using publicly available data is not possible' to be true, then the scores of people who have done just that, over decades, cannot exist. And yet they exist.

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