Algorithmic Trading: The Play-at-Home Version • Hacker News Board

Re: Algorithmic Trading: The Play-at-Home Version

#41

Post by SonicSoul » Mon, Aug 10, 2015, 6:58 PM UTC

joosters wrote: post #29

exelius wrote: post #25

Earlier quoted context omitted.

Yeah, most people don't realize that finance is a zero-sum game. That leads to arms races which over time remove the lion's share of the profit (companies will spend money on a better solution to a problem until such time as a better solution costs more than the value of the opportunity). I expect this to replicate itself on the low-end as well.

The 'zero-sum game' part is meaningless and adds no insight here. It doesn't matter whether you believe trading/gambling is zero-sum or not. For instance, imagine you have a poker-playing bot at a poker table, where the house takes no cut of the stakes. Zero-sum? Yes. But your bot has to be better than the other players, and win more than its running costs in order to profit. Now imagine the same situation but the ho…

Think you missed the point. All he was saying (I believe) that no matter how good your models are it's still a race between the players to get the biggest share of the pot. The more players the less chance you have

Re: Algorithmic Trading: The Play-at-Home Version

#42

Post by jsprogrammer » Mon, Aug 10, 2015, 7:00 PM UTC

joosters wrote: post #29

exelius wrote: post #25

Earlier quoted context omitted.

Yeah, most people don't realize that finance is a zero-sum game. That leads to arms races which over time remove the lion's share of the profit (companies will spend money on a better solution to a problem until such time as a better solution costs more than the value of the opportunity). I expect this to replicate itself on the low-end as well.

The 'zero-sum game' part is meaningless and adds no insight here. It doesn't matter whether you believe trading/gambling is zero-sum or not. For instance, imagine you have a poker-playing bot at a poker table, where the house takes no cut of the stakes. Zero-sum? Yes. But your bot has to be better than the other players, and win more than its running costs in order to profit. Now imagine the same situation but the ho…

Another way to look at your 'profit' is just as an increase in the operating costs of all the other players and the house.

I think the zero-sum part implies that this type of trading is not actually productive. At this point, it is literally just modifying numbers represented as fluctuations in local electro-magnetic fields instead of something useful like carrying spices from one continent to another.

Re: Algorithmic Trading: The Play-at-Home Version

#43

Post by noname123 » Mon, Aug 10, 2015, 7:01 PM UTC

lifeisstillgood wrote: post #34

noname123 wrote: post #26

Interesting article but for a different take on a statistical approach to the market, curious if any peeps on HN are into volatility trading? From what I understand a lot of the "DIY vendors" cater to the equity crowd, meaning people who build their models on technical indicators (MACD, RSI, advancers/decliners ratio, Fibonacci golden ratio retracement, MA); you build your model of some combined signals, back-test it…

I don't trade but I am interested in understanding what HFT and other algorithmic trading actually is (having been fooled by The Flash Boys into thinking it's something it's not and having been frustrated trying to find out what it really all is. Any pointers gratefully rcvd

Np, lifeisstillgood. I'm busy at work today, so am afraid I can't give full-length explanations. However I'll provide some links to some of the ideas.

HFT: Most HFT strategies involves making a market or rebate trading.

https://en.wikipedia.org/w/index.php?title=Market_maker&sect... https://en.wikipedia.org/wiki/Day_trading#Rebate_trading

They leverage being co-located next to the exchange servers and trading algorithmically. Anyone can sign up (provided you have >500K capital).

http://www.lightspeedinstitutional.com/automated-trading/lig... http://limebrokerage.com/SystematicTrading/Network/CoLocatio...

Algorithmic Trading: HFT is form of algo-trading, just higher frequency. Most peeps in the WSJ article is probably hooked up to Interactive Brokers via Quantopian doing swing trading (entering and exiting a position on order of days or weeks).

Here is a good Quantopian back test: https://www.quantopian.com/posts/system-based-on-easy-volati...

The paper behind the back test: http://www.naaim.org/wp-content/uploads/2013/00R_Easy%20Vola...

The gist is selling VXX, the VIX 30-day synthetic futures when a VIX ratio indicates that it is too overpriced. But should give you an idea of how a backtest works and how signal (VIX ratio) is generated.

Options Trading: It's harder to explain options satisfactorily in short space of time (basically you can google Black-Scholes model, options, option greeks). There's a whole online retail community devoted to this and probably very cultish and strange to people who don't follow it; but if you want to check it out: (https://www.tastytrade.com/tt/)

Re: Algorithmic Trading: The Play-at-Home Version

#44

Post by evanpw » Mon, Aug 10, 2015, 7:02 PM UTC

lifeisstillgood wrote: post #34

noname123 wrote: post #26

Interesting article but for a different take on a statistical approach to the market, curious if any peeps on HN are into volatility trading? From what I understand a lot of the "DIY vendors" cater to the equity crowd, meaning people who build their models on technical indicators (MACD, RSI, advancers/decliners ratio, Fibonacci golden ratio retracement, MA); you build your model of some combined signals, back-test it…

I don't trade but I am interested in understanding what HFT and other algorithmic trading actually is (having been fooled by The Flash Boys into thinking it's something it's not and having been frustrated trying to find out what it really all is. Any pointers gratefully rcvd

This blog is the best public description I've seen: https://mechanicalmarkets.wordpress.com/2015/01/13/trader-ty...

Re: Algorithmic Trading: The Play-at-Home Version

#45

Post by fluidcruft » Mon, Aug 10, 2015, 7:06 PM UTC

joosters wrote: post #29

exelius wrote: post #25

Earlier quoted context omitted.

Yeah, most people don't realize that finance is a zero-sum game. That leads to arms races which over time remove the lion's share of the profit (companies will spend money on a better solution to a problem until such time as a better solution costs more than the value of the opportunity). I expect this to replicate itself on the low-end as well.

The 'zero-sum game' part is meaningless and adds no insight here. It doesn't matter whether you believe trading/gambling is zero-sum or not. For instance, imagine you have a poker-playing bot at a poker table, where the house takes no cut of the stakes. Zero-sum? Yes. But your bot has to be better than the other players, and win more than its running costs in order to profit. Now imagine the same situation but the ho…

That's the logic suckers use when buying bitcoin mining hardware.

Re: Algorithmic Trading: The Play-at-Home Version

#46

Post by conistonwater » Mon, Aug 10, 2015, 7:09 PM UTC

noname123 wrote: post #26

Interesting article but for a different take on a statistical approach to the market, curious if any peeps on HN are into volatility trading? From what I understand a lot of the "DIY vendors" cater to the equity crowd, meaning people who build their models on technical indicators (MACD, RSI, advancers/decliners ratio, Fibonacci golden ratio retracement, MA); you build your model of some combined signals, back-test it…

This strategy is often used in finance courses (in the context of portfolio optimization) as an example that very badly trips up conventional risk measures due to the very peculiar and ill-behaved risk distribution. Insurance companies depend on risk pooling, and bookmakers depend on running balanced books, which would distinguish them from this type of strategy.

Re: Algorithmic Trading: The Play-at-Home Version

#47

Post by joosters » Mon, Aug 10, 2015, 7:21 PM UTC

SonicSoul wrote: post #41

joosters wrote: post #29

Earlier quoted context omitted.

The 'zero-sum game' part is meaningless and adds no insight here. It doesn't matter whether you believe trading/gambling is zero-sum or not. For instance, imagine you have a poker-playing bot at a poker table, where the house takes no cut of the stakes. Zero-sum? Yes. But your bot has to be better than the other players, and win more than its running costs in order to profit. Now imagine the same situation but the ho…

Think you missed the point. All he was saying (I believe) that no matter how good your models are it's still a race between the players to get the biggest share of the pot. The more players the less chance you have

That's true of many endeavors, and is unrelated to any 'zero-sum' argument.

Re: Algorithmic Trading: The Play-at-Home Version

#48

Post by e15ctr0n » Mon, Aug 10, 2015, 7:21 PM UTC

lukebuehler wrote: post #36

It absolutely can be done. I know a handful of people who are doing well, or have spun a small hedge fund out of their DIY trading system. Having said that, it's hard. Most people simply don't have the bandwidth to do it properly. Parsing daily Yahoo prices and having a R script or two somewhere will absolutely not put you in the "I do successful algo trading" camp. Or running TradeStation with a handful of pair stra…

> Or running TradeStation with a handful of pair strategies or whatever.

You can now buy trading strategies from their TradingApp Store. Supposedly, they've been written by professional algorithmic traders.

https://www.tradestation.com/trading-technology/tradestation...

https://tradestation.tradingappstore.com/search/all/Rating

Re: Algorithmic Trading: The Play-at-Home Version

#49

Post by barrkel » Mon, Aug 10, 2015, 7:31 PM UTC

exelius wrote: post #25

ericjang wrote: post #11

Earlier quoted context omitted.

One clarification - these mom & pop prop shops aren't necessarily competing against big baskets of MIT PhDs. If your book size is only $200K, the big players (i.e. scores of MIT PhDs) won't even bother competing with you on the same strategies. Alpha from these strategies may very well be orthogonal to hedge fund alpha. That said, you're still playing a zero sum game with other mom & pop shops and the general large-s…

Yeah, most people don't realize that finance is a zero-sum game. That leads to arms races which over time remove the lion's share of the profit (companies will spend money on a better solution to a problem until such time as a better solution costs more than the value of the opportunity). I expect this to replicate itself on the low-end as well.

I don't really see how finance is a zero-sum game.

I mean, trading in paper without any insight into the capital allocation the paper is abstracting, and observed over a very short time horizon, it's more or less zero-sum. Many synthetic products just distribute risk differently. Etc.

But finance more generally is helpful for efficiently allocating capital towards wealth generating industry - and by industry I mean it literally, people physically doing things, creating things, generating wealth by the sweat of their brow. When you own a share of a wealth-generating enterprise that grows in value, you're acquiring some fraction of the discounted future returns on that effort today. This isn't zero-sum; it's a slice of tomorrow's wealth, today. And it's backed by real action, actual things, products and services that you can use or exchange with other people for things you prefer more. These are things that didn't exist before the capital allocation, and may never have come about without it.

Re: Algorithmic Trading: The Play-at-Home Version

#50

Post by [deleted] » Mon, Aug 10, 2015, 7:40 PM UTC

jsprogrammer wrote: post #42

joosters wrote: post #29

Earlier quoted context omitted.

The 'zero-sum game' part is meaningless and adds no insight here. It doesn't matter whether you believe trading/gambling is zero-sum or not. For instance, imagine you have a poker-playing bot at a poker table, where the house takes no cut of the stakes. Zero-sum? Yes. But your bot has to be better than the other players, and win more than its running costs in order to profit. Now imagine the same situation but the ho…

Another way to look at your 'profit' is just as an increase in the operating costs of all the other players and the house. I think the zero-sum part implies that this type of trading is not actually productive. At this point, it is literally just modifying numbers represented as fluctuations in local electro-magnetic fields instead of something useful like carrying spices from one continent to another.

[deleted]