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Using an automated day trader to generate income

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Re: Using an automated day trader to generate income

#81

Post by gaius »

matt1 wrote: post #64
mattmaroon wrote: post #40

Earlier quoted context omitted.

What's the merit to publishing a successful algorithm? Or using a previously published algorithm that any hedge fund manager or resourceful individual can find and implement trivially.

A better question is how do you know your algorithm is successful? If it predicts correctly 10 days in a row, have you got a winner? It's like those guys that advertise by saying "We outperformed the market by 6.2% on average the last four years." Put enough monkeys in front of a trading terminal and you're going to have some that outperform the market by 6.2%; doesn't mean you should invest your money with them.

Have you ever wondered how every fund manager has a fund in the top 25%? It's easy, they launch several funds in one sector, then after a few years merge them all into the top one, and use its historical performance for the marketing materials not the average of them all.

Re: Using an automated day trader to generate income

#82

Post by bayes »

mattmaroon wrote: post #76
steveplace wrote: post #51

Earlier quoted context omitted.

Ideally, yes. In practice, no. Trading a couple lots of /es futures will not do much to the market. More like pissing in the ocean. In illiquid markets you can move price, but not the stuff that you would want to blackbox anyways.

It can. If someone has a large limit order and your small order hits their trigger price, whereas the next person might have done the opposite and moved away from it, you could have caused a huge change in the direction of the market. Or the same is true of a cascading series of smaller limit orders, etc. And since making money is presumably based on volume, if you did small trades, you'd end up doing a lot of them t…

The trouble with fewer better wagers is that wagers - even very good value ones - can lose. So if you're only making a few of them there's a significant probability of losing overall. Your expected value may be high, but your standard deviation is even higher.

I'd much rather have 10,000 independent bets each with a 0.5% edge than 10 independent bets each with a 20% edge.

Re: Using an automated day trader to generate income

#83

Post by steveplace »

mattmaroon wrote: post #76
steveplace wrote: post #51

Earlier quoted context omitted.

Ideally, yes. In practice, no. Trading a couple lots of /es futures will not do much to the market. More like pissing in the ocean. In illiquid markets you can move price, but not the stuff that you would want to blackbox anyways.

It can. If someone has a large limit order and your small order hits their trigger price, whereas the next person might have done the opposite and moved away from it, you could have caused a huge change in the direction of the market. Or the same is true of a cascading series of smaller limit orders, etc. And since making money is presumably based on volume, if you did small trades, you'd end up doing a lot of them t…

I don't know if you've traded /es futures, but that's nearly impossible to do. There's a couple different markets that put in bid/ask, and normally you'll just see the closest spread, but there's usually underlying bids as well. That's why it's so liquid. I'm looking at premarket futures right now and the qty of contracts offered at the bid/ask ranges from 10-100. That means to take the bid out you'd have to have a margin of around 100k.

And since making money is presumably based on volume, if you did small trades, you'd end up doing a lot of them to make it worth your while.

Not true with futures. They are risky, but you can get some pretty nice returns, especially in the volatility that we're having right now. On a single contract you can expect to pull 1k-2k, and that's on one trade per day. In terms of R, you're looking at 10R-20R per trade if you're experienced enough (>2 years).

Re: Using an automated day trader to generate income

#84

Post by steveplace »

bayes wrote: post #82
mattmaroon wrote: post #76

Earlier quoted context omitted.

It can. If someone has a large limit order and your small order hits their trigger price, whereas the next person might have done the opposite and moved away from it, you could have caused a huge change in the direction of the market. Or the same is true of a cascading series of smaller limit orders, etc. And since making money is presumably based on volume, if you did small trades, you'd end up doing a lot of them t…

The trouble with fewer better wagers is that wagers - even very good value ones - can lose. So if you're only making a few of them there's a significant probability of losing overall. Your expected value may be high, but your standard deviation is even higher. I'd much rather have 10,000 independent bets each with a 0.5% edge than 10 independent bets each with a 20% edge.

I'd much rather have 10,000 independent bets each with a 0.5% edge than 10 independent bets each with a 20% edge.

Not with trading, you want to cut losses quick and let winners run. The model behind Long Term Capital Management, as well as a ton of quant firms that went under this past Q, was the take-a-bunch-of-trades-for-small-profit... and it works until you get a six sigma event (see 2008).

Re: Using an automated day trader to generate income

#85

Post by marvin »

mixmax wrote: post #34
matt1 wrote: post #15

I have no idea what that guy is talking about with double moving averages and what not, but I'd bet that a few simple IF/THEN statements could have produced similar results over the same period of time. Say it hand done well, would you go an invest a few thousand dollars using the IF/THEN algorithm? On a similar note, say this guy did lose his $3500. Do you think you'd be reading this post on how to automate day trad…

using past performance to estimate future performance simply does not work This is not always true. I had a theory a few years ago that went like this: The price of a stock is a direct function of the perceived price of the company multiplied by a risk factor: The more risk the less the stock is worth. On the day the yearly report is publicised for a company the risk is big just before the publication because nobody…

There are probably lots of loopholes, but we don't know about them. It can't be a coincidence that the largest hedge funds have beaten the market spectacularly every year the last 20 years. (And if they put 10% some of those gains in a money market account, they are guaranteed to have made positive returns no matter what happens).

My personal this-is-what-i-think theory is that there are lots of patterns in the pricing of equities and other market components, but if they ever become publicly known, they cease to exist. The best hedge funds (or best traders, take your pick) manage to find patterns that no one else does. This does not protect them from a spectacular implosion if their models for some reason become invalid.

There is a cult of believing in the perfect randomness of market pricing. Saying that market developments are random is practically the same as believing in the efficient market hypothesis. The market cannot be perfectly efficient, because there are always interactions that no one will be able to predict. Most of these interactions are no doubt chaotic (unpredictable), but there is no way that traders instantly discover every pattern that is predictable.

Re: Using an automated day trader to generate income

#86

Post by jcl »

mattmaroon wrote: post #40
fattyfatfat wrote: post #30

Earlier quoted context omitted.

on that note, i lost over 1000 bucks a day for 3 days straight, which is when i quit. and on having the "secret sauce" to beat the market. Read about Edward Thorpe. He's a badass. He wrote the book "beat the dealer" which was the bible on counting cards and beating vegas at blackjack. Then he figured out how to price options (convertibles, really) and made a killing in his own hedge fund (Princeton Newport Associates…

What's the merit to publishing a successful algorithm? Or using a previously published algorithm that any hedge fund manager or resourceful individual can find and implement trivially.

What's the merit to publishing a successful algorithm?

In this particular case: a Nobel prize.

Re: Using an automated day trader to generate income

#87

Post by byrneseyeview »

pjharrin wrote: post #24
matt1 wrote: post #15

I have no idea what that guy is talking about with double moving averages and what not, but I'd bet that a few simple IF/THEN statements could have produced similar results over the same period of time. Say it hand done well, would you go an invest a few thousand dollars using the IF/THEN algorithm? On a similar note, say this guy did lose his $3500. Do you think you'd be reading this post on how to automate day trad…

What is investing if its not a IF/THEN statement? If price goes up then sell, if price goes down then buy. If the company meets these financial criteria then buy, if not then sell. If the price approaches a resistance level then sell. Whether your basing the investment decisions on fundamental or technical analysis, either way its an IF/THEN statement at some level.

Is there any decision that can't be restated as an arbitrarily complicated series of if/then statements? If you're patient, you can do addition using just if-thens (IF N1 = 1 and N2 = 5 THEN answer = 6), etc.

Re: Using an automated day trader to generate income

#88

Post by jcl »

steveplace wrote: post #56
fattyfatfat wrote: post #35

Earlier quoted context omitted.

http://fattyfatfat.com/2008/10/automated-day-trader-most-tec... I still stand by my above claim that Tech Analysis (and especially LONG term trending) has no theoretical basis, except for the fact that everyone else believes in it.

Then you better not buy index funds. Those are basically trend-following systems over the long term. And there is statistical data to back up that trend following does work.

I think he means that there is no theoretical basis for a long-term system that claims to beat the indexes. Index funds don't, by definition.

Re: Using an automated day trader to generate income

#89

Post by kmt »

fattyfatfat wrote: post #37
SwellJoe wrote: post #20

So, the obvious question for me is where can I buy stocks for $2.40 per trade? Any day trading successes I might manage would be eaten up by transaction costs at my current broker (where trades are $9.95, I think). I'd probably be a far more active trader at $2.40 (which may not be a good thing, but cutting costs is always good).

I use interactive brokers. The cost of a ES mini (SP500 mini future) trade is $2.40. Stocks trade for half a penny to a penny per share with a minimum of $1.00 per transaction. I think they require 20k to start a new account these days though. IB has been by far my favorite brokerage

For those who use IB: How long have you been using them? Do you use their client or their API? Is it alright to use both, in parallel? People complain about their customer service; have you had any problems? Is it easy to transfer money to/from your IB account?

Re: Using an automated day trader to generate income

#90

Post by joshu »

matt1 wrote: post #64
mattmaroon wrote: post #40

Earlier quoted context omitted.

What's the merit to publishing a successful algorithm? Or using a previously published algorithm that any hedge fund manager or resourceful individual can find and implement trivially.

A better question is how do you know your algorithm is successful? If it predicts correctly 10 days in a row, have you got a winner? It's like those guys that advertise by saying "We outperformed the market by 6.2% on average the last four years." Put enough monkeys in front of a trading terminal and you're going to have some that outperform the market by 6.2%; doesn't mean you should invest your money with them.

That's why you look at sharpe ratio, rather than absolute return.
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