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How I made $500k with machine learning and high frequency trading

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Re: How I made $500k with machine learning and high frequency trading

#91

Post by mattyppants »

dschiptsov wrote: post #71

Basically this is a story about a guy who was smart enough to script up his trading tool (he discovered that there is an API and wrote some code to use it). He trade other people's money, using other people's (probably employer's) account and resources, I suppose. His employer have paid all the fees, and, took all the risks - if there is profit - it is mine, if there is a lose - it is theirs.) The essence of trading…

This is not even close to an accurate summary. He never stated that he had any employer backing, and he wasn't collecting market making fees. In fact he was paying brokerage fees which is the exact opposite.

Re: How I made $500k with machine learning and high frequency trading

#92

Post by beagle3 »

toomuchtodo wrote: post #59
beagle3 wrote: post #50

Earlier quoted context omitted.

The Instagram guys found an edge. It won them 730m. Fantastic. More than any edge ever won by me. But the market has changed so much since then, please be careful before you follow this course. You are not wrong, but what you wrote here is applicable to any success story posted on HN. Caveat lector. Always.

I think with the automated trading example, it makes it seem much easier for anyone to dip their cup in the stream. When you think Facebook/Instagram, you think "Damn, those guys got lucky as hell". When you think automated trading, you think, "Hey, it can't be that hard", and start firing up your IDE and rolling out code to talk to an easily provisioned API. Sure, it may take months to lose your shirt selling a phot…

> You can lose everything overnight with automated trading.

I'll take it ad absurdum: You can lose everything in a second by not looking left and right while crossing the road. Or even by looking left and right while crossing the road, when someone else is driving recklessly.

It is possible to attempt HFT with not much more risk than stating a new InstaFaceGoogApple service. Put $10,000 in your margin account, and use a broker that practices proper margin checking. Tada! You're not going to lose more than $15,000 over that. (Yes, you can lose more than you put in your margin account, but not by much).

While that's more, upfront, than InstaFaceGoogApple, it is comparable to the 4 months of salary that you're going to forfeit while building the InstaFace service. And unlike most InstaFace apps, you have immediate market feedback, which can only be a good thing.

Note: Instagram did have immediate feedback from the public at large, forcing them to scale much earlier than they expected - but they did not have a feedback as to the financial value of their proposition. In fact, it wouldn't take much for instagram worth to be zero. Read, e.g. http://www.jamesaltucher.com/2011/02/my-name-is-james-a-and-... - a $100M acquisition back then is like a $300M acquisition in today's valuations; not Instagram but definitely nothing to ignore.

> With a startup, you can hit bottom. In the right market, bottom is much further down than you can ever see.

That's true. But you still have to remember that 90% of startups fail, and of those that succeed, many are just moderately successful. And yet no one keeps yelling "but most startups lose money!" at every HN story.

> When you think automated trading, you think, "Hey, it can't be that hard", and start firing up your IDE and rolling out code to talk to an easily provisioned API.

Which is what we should address, and these "it's a gamble" warning do not. When you see Suzanne Vega singing, you might think "Hey, it can't be that hard to sing". Many people do. And yet, they grow out of it, usually without trying to publish an album (and failing). This should be no different.

Re: How I made $500k with machine learning and high frequency trading

#93

Post by achy »

stickydink wrote: post #49
jspaulding wrote: post #12

Earlier quoted context omitted.

To be honest I don't know exactly what happened. My theory is that over time more and more market participants started integrating the types of analysis I was doing which rendered my program ineffectual. It's a pretty normal pattern that there is some inefficiency in the market and over time it disappears.

Being a machine learning program, how much of it did you tell it to forget? Were you compounding the data always, or telling it to forget what was going on several months ago? Or somewhere in between? (I'm pretty unfamiliar with machine learning, apologies if this is obvious or something)

This. If the 2009 model worked well, did you try letting your algorithm to 'forget' the 2010 data and see if the model worked better?

Re: How I made $500k with machine learning and high frequency trading

#94

Post by tomjen3 »

tarr11 wrote: post #23

This is just glorified gambling. I am not sure what special insight or advantage he had, other than his own model. Every trader has a model. It could have easily been called "how i lost 500k with machine learning". Like gambling, it's easy to manipulate statistics to show that you did well in some period of time. I worked for a large investment bank about 10 years ago, writing trading programs for quant traders who w…

You know, that is a really good argument.

Except two things:

1) He didn't lose money, he made 500k.

2) If this worked reliably, you would be out of a job.

Re: How I made $500k with machine learning and high frequency trading

#95

Post by quant123 »

There is an air of either incredibility or sheer jealousy in these comments. Nevertheless, I just wanted to tell the OP that he did a great job. Thanks for sharing. I work in the finance industry as a quantitative software developer, and it certainly is not an easy job for one person to do. In fact, I tried (independent of my professional work) doing this myself, and I ended up losing a lot of money. If people are trying to do this, please please be careful. Big companies, like ones I have worked at, have technical and human resources that are vastly more powerful.

Re: How I made $500k with machine learning and high frequency trading

#96

Post by hooande »

jcromartie wrote: post #6
jspaulding wrote: post #2

If anyone has questions for me happy to answer as best I can.

I have one question: Why doesn't every hacker do this to make extra money? Is it within the grasp of anybody who can program to automate trading like this? EDIT: Sounds like it's not really for everybody. You have to own or rent a server with access to direct lines to the exchanges, or else your lag will be such that profiting from HFT is impossible. How much do these cost?

Because it's gambling. Some are better gamblers than others, but no individual can consistently have more ups than downs over a period of years.

"I was making a lot of money but now I've stopped" is the same thing as "I was lucky until I wasn't". Making a living by gambling pretty much sucks, which is why most hackers don't do it.

(You'd think that something as complex as markets would attract hackers trying to "figure it out". The problem is that due to the changing nature of the other participants, all hacks are temporary. Makes for great blog posts, but not a long term strategy.)

Re: How I made $500k with machine learning and high frequency trading

#97

Post by jspaulding »

arbuge wrote: post #62

I am curious as to exactly why the profitability decreased steadily and rather rapidly all the way to ~zero. The article doesn't seem to expound on that unless I missed something. Is this a result of bots on the other side adapting in some way to what you were doing? I would have thought you would be too small a player for them to notice.

I don't think anyone was adapting to what I was doing in particular but rather simply adapting to the opportunities in the market.

Re: How I made $500k with machine learning and high frequency trading

#98

Post by pnathan »

jcromartie wrote: post #6
jspaulding wrote: post #2

If anyone has questions for me happy to answer as best I can.

I have one question: Why doesn't every hacker do this to make extra money? Is it within the grasp of anybody who can program to automate trading like this? EDIT: Sounds like it's not really for everybody. You have to own or rent a server with access to direct lines to the exchanges, or else your lag will be such that profiting from HFT is impossible. How much do these cost?

You have to have the capital for the server and access to the data feeds, as well as time to burn. Also, you need to find finance interesting enough to spend time with it.

Re: How I made $500k with machine learning and high frequency trading

#99

Post by randlet »

DennisP wrote: post #70
yajoe wrote: post #43

Earlier quoted context omitted.

This. I love crazy projects and Show HN's until the cows come home, but this one is dangerous that I must repeat the warning to others. I cannot emphasize how important it is to understand that people who trade using price action ( http://en.wikipedia.org/wiki/Price_action_trading ) are just speculating based on where they expect the price to move. It's no different than people who play Texas Hold'em online and specu…

This is a bit off-topic, but it's actually quite feasible to get a real edge in Hold'em, and it's not just about spotting other people's patterns. To start with, there's simple probability: knowing the odds of making you hand vs. the payoff in the pot, or the chance of winning with various starting hands. This is pretty basic but a lot of low-stakes players screw it up. If you get it right, their mistakes are your ga…

Thanks for posting this so I didn't have too.

Poker is "a game of skill with an element of luck" and should not be confused with say, gambling on roulette or the outcome of a coin toss.

Re: How I made $500k with machine learning and high frequency trading

#100

Post by jspaulding »

quant123 wrote: post #95

There is an air of either incredibility or sheer jealousy in these comments. Nevertheless, I just wanted to tell the OP that he did a great job. Thanks for sharing. I work in the finance industry as a quantitative software developer, and it certainly is not an easy job for one person to do. In fact, I tried (independent of my professional work) doing this myself, and I ended up losing a lot of money. If people are tr…

thanks quant123 ;)
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