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Ask HN: Anyone making money through algorithmic trading?

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Re: Ask HN: Anyone making money through algorithmic trading?

#111
post #85

My question for everyone: Where do people get reliable data for back testing? Ideally I'd like data that goes back over 20 years. And with relatively few data integrity issues (e.g. does not exclude companies that no longer exist). Even more important: How do I know my data is accurate?

There isn't an easy answer for this. Large hedge funds have entire teams whose only job is to collect, process, and clean data.

I know, which makes me wonder how/why people are doing algorithmic trading on the side when they don't have a reliable way to backtest.

I don't want minute by minute data. Average price for the day is fine with me. Or max/min/average.

Re: Ask HN: Anyone making money through algorithmic trading?

#112

I hacked together my own scripted system that would arbitrage cryptocurrency across exchanges. It worked (for the most part), but it's been abandoned now. The best way I can think of to describe why is to say that while the low hanging fruit exists, there's far too little juice in it for it to be worth the squeeze. Others have explained that the problem they've encountered is counter-party risk in that some exchanges…

I considered doing something like this when I saw how wide the differences between exchanges could be, but the problem I ran into was that the fees for trading on most exchanges are insane. Which is probably why those huge difference exist.

Re: Ask HN: Anyone making money through algorithmic trading?

#113

There are a few things to watch out for: 1. Systematic trading doesn't necessarily require an algorithm. For instance this rule might work (over a 5 year horizon, don't try it monthly): "buy very large cap stocks if their P/E goes below 4 and sell if it goes over 10." But you don't need an algo. 2. The market has long bull runs. So you might have an algo that has some long bias. It will seem to perform above chance.…

maybe I'm being naive but "buy very large cap stocks if their P/E goes below 4 and sell if it goes over 10." sounds kind of like an algorithm to me. Maybe it's just a ruleset?

I think they meant that it needn't be a software implementation. You could run that rule by hand.

Re: Ask HN: Anyone making money through algorithmic trading?

#114
post #17

I wonder whether the premise of your question is faulty. If you ask enough people: "In your last 100 flips of a coin, did you get more than 60 heads?" some will truthfully say "Yes." Unfortunately, that does not mean there's anything special about their coin-flipping strategy, or that you will be able to generate a successful coin-flipping strategy. My guess is what you really want to know is "What is my expected gai…

I think your argument is logically correct, but you are using numerical assumptions that are off by one or two orders of magnitude. Your typical successful algorithmic trader is probably flipping their metaphorical coin 1,000,000 times, and getting 520,000 heads. Each individual trade may only be slightly profitable, but there is often no statistical ambiguity about the effectiveness of the strategy.

Individual trading strategies often become less effective over time, though. Whether this kind of success can be sustained at the level of a trading firm over many years is an entirely different question. Whether they can beat the market after fees is a third, also entirely different question.

Re: Ask HN: Anyone making money through algorithmic trading?

#115
I tried some HFT between altcoins but order latencies killed my margins. Had a few days with up to 6% profit (per day) but net loss was 10%, mostly due failed attempts, bugs and transaction fees.

It felt just like gambling and ate my life away for a few weeks

Re: Ask HN: Anyone making money through algorithmic trading?

#116

You probably can't do HFT trading because you need to have capital to reduce latency. Maybe you can rent servers very close to the trading centers, but this still will cost money. You can use http://www.quantopian.com to try out different algorithms. It will tell you how well your strategy works.

There was a great post on HN fairly recently written by someone who used to work in HFT. He talked about how they tapped the incoming network cable to read the incoming prices on an FPGA faster than they could make it through the OS's network stack. I think they were sending out trades in response to the new prices before they would have even made it to userspace on an OS.

https://meanderful.blogspot.com

Worth a read.

Re: Ask HN: Anyone making money through algorithmic trading?

#117

When trades are placed using a fixed setup of rules or algorithms it is called algorithmic trading. HFT is a type of algo trading where latency is one of the important rules. So, while all HFT trades are algo trades, reverse isn't true. AFAIK some(maybe a lot) of algorithm or quant firms hire people who can read the latest investment research, form a hypothesis and test out the hypothesis to see whether there is a wi…

> If someone says their algorithm relies on some sort of TA, run for the hills. Care to explain? I'm genuinely curious as I've had some success in this area. Curious if I should be aware of something that I'm not...

Excuse me for being ignorant, but what does TA mean in this context?

Re: Ask HN: Anyone making money through algorithmic trading?

#118
Yes. I traded equity options. The methodology can be summarized as sentiment analysis and "alternative" data gathering.

My algorithm earned about 127% on an initial outlay of $30,000 from August of 2016 to the beginning of January 2018. The algorithm only deployed 5% of available capital (defined risk exposure) at any time and targeted an aggregate win rate of 60% or greater. Its primary imperative was volatility prediction to sell options on equities with overrated volatility. Selling options is a good foundation for a strategy because you can easily make steady returns over time. But one loss can eliminate a year of profit (or your entire outlay); hence the volatility prediction is required to establish a probabilistic win rate above 50%. The goal is to profit on many small positions consistently, not to profit on fewer large positions. Risk is defined to limit total exposure for each trade. There are explicit stop loss and stop profit triggers, and leaving an indeterminate amount of profit "on the table" (selling a position early) is preferable to risking any amount of loss.

Volatility prediction happens in two stages. Stage one is this: first the algorithm seeks all equities with only one or two sources of revenue and a market cap above $1B. Next it crawls news and social media to assess the amount of "hype" attention the equity is receiving. Then it ranks this list according to the amount of hype, weighting social media (uninformed hype) and source of news (informed hype) differently, in ascending order. Lower hype is considered better (and to clarify this point: hype is considered a volatility indicator whether negative or positive). This task is executed daily.

Stage two is alternative data gathering. For each equity going down the list, common sources of financial data are crawled (analyst earnings consensus, prior 10Qs and 10Ks, etc). I receive a notification with a list of which companies are "candidates" for trading, and look into them to identify sources of alternative data. This data is mostly found through web crawling to track signals with a 1:1 indication to a given equity's revenue. Once I have automated the method of collecting the data, it gets incubated for timeseries analysis for at least two quarters. If it forecasts revenue correctly to within 95% accuracy, the equity is formally whitelisted for trading eligibility to the algorithm.

Finally the algorithm begins selling options on each whitelisted equity. On a daily basis a volatility forecast is made for the equity based on weighted social sentiment and the corresponding alternative data timeseries. When the volatility prediction reaches a certain threshold, the algorithm ceases selling options on that equity.

Re: Ask HN: Anyone making money through algorithmic trading?

#119
post #51

Earlier quoted context omitted.

Mostly I believe this too, but I am familiar with some people who can consistently make money year after year. From talking to them it becomes clear that they understand things very, very deeply. See /u/Fletch71011 on reddit-- he's always happy to discuss things. He's made millions trading options, mostly algorithmically as I've understood it. The methods he uses are sufficiently complex that you need to be very well…

Markets have been going up for a while now. So anyone with half a brain is making money. But long term, there are essentially 0 investors making money on day or algorithmic trading.

That's extremely untrue. Especially if we are counting non-retail investors i.e. prop market maker trading

Re: Ask HN: Anyone making money through algorithmic trading?

#120
We are seeing a number of market enthusiast coming up with trading strategies that work. Most don't have the staying power to get them to work enought to trade. Some do. Those that have the staying power often lack the financial resources to trade those algos for themselves. Problems = Capital, Access, Data, ...

To overcome that some are turning to CloudQuant (where I work). The CloudQuant algo development environment, backtesting tool, and trading strategy incubator is making it easy for people to take their trading ideas to funded trading rapidly. So far they have announced $72M in risk capital allocated to algorirthms created by individuals. Algos are licensed from the creator.

https://info.cloudquant.com/

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