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Art project: Train rats to trade markets

artmarcovici.com

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Re: Art project: Train rats to trade markets

#22

Post by fennecfoxen »

Cute project, but since it isn't actually hooked up to live trading, I'm going to suspect that they're not actually dealing with the issues which would keep them from making a profit on those trades: trading fees, losses going into the bid-ask spread, the fact that large enough purchases actually move the market, and the fact that the crash which wipes you out can come along on years later just when the victories of the past few years made you think you had everything figured out.

Simulated trading is all well and good for the long-term buy-and-hold sort of trading where you can assume you're a medium-small-sized fish in a huge pond and these errors are inconsequential, but with ultra-short-term trading like this the texture of the market matters a lot more.

That said, if you're a day trader of some sort trying to compete with the task the rat has been assigned to do, there's a very much elevated chance that you're in the wrong business.

Re: Art project: Train rats to trade markets

#24

Post by jackgavigan »

throwaway283719 wrote: post #16
jackgavigan wrote: post #13

I seem to recall that the most likely predictor of whether the next tick in a liquid market will be up or down, is whether the last tick was up or down. In other words, if the last tick was upwards, there is a >50% chance that the next tick will be upwards too. A quick'n'dirty Google search turned up some research: http://www.researchgate.net/publication/234834258_Random_Wal... Looking at the ticker tracks the artist…

It's actually the other way around. For most stocks, if the last tick was upwards, the next tick is more likely to be downwards (where a "tick" is any time the best bid or ask moves, and "price movement" means the change in the mid price). For example, taking a random stock over a random three month time period, I compute that after an uptick, the probabilities for the next tick are - P(uptick) = 39.3% P(downtick) =…

Okay, here's the breakdown of the five sample ticker tracks provided by the artist.

                                                    NR231   NR287   NR320   NR440   NR442   Totals
  Uptick followed by an uptick (UU)                    6       5       9      14       5      39
  Uptick folowed by a downtick (UD)                    2       4       3       3       4      16
  Uptick followed by no significant change (UN)        1       0       0       2       0       3
  No significant change followed by an uptick (NU)     1       1       0       2       1       5
  No significant change followed by a downtick (ND)    2       1       0       0       1       4
  Downtick followed by no significant change (DN)      2       2       0       1       2       7
  Downtick followed by an uptick (DU)                  1       4       3       0       4      12
  Downtick followed by a downtick (DD)                 8       6       8       1       6      29
There were 58 upticks in total, 39 (67.24%) of which were followed by another uptick.

There were 48 downticks in total, 29 (60.42%) of which were followed by another downtick.

Re: Art project: Train rats to trade markets

#26

Post by throwaway283719 »

jackgavigan wrote: post #24
throwaway283719 wrote: post #16

Earlier quoted context omitted.

It's actually the other way around. For most stocks, if the last tick was upwards, the next tick is more likely to be downwards (where a "tick" is any time the best bid or ask moves, and "price movement" means the change in the mid price). For example, taking a random stock over a random three month time period, I compute that after an uptick, the probabilities for the next tick are - P(uptick) = 39.3% P(downtick) =…

Okay, here's the breakdown of the five sample ticker tracks provided by the artist. NR231 NR287 NR320 NR440 NR442 Totals Uptick followed by an uptick (UU) 6 5 9 14 5 39 Uptick folowed by a downtick (UD) 2 4 3 3 4 16 Uptick followed by no significant change (UN) 1 0 0 2 0 3 No significant change followed by an uptick (NU) 1 1 0 2 1 5 No significant change followed by a downtick (ND) 2 1 0 0 1 4 Downtick followed by no…

There were around 480,000 ticks in my sample - who do you believe? ;)

The difference is probably in what is defined as a "tick" for the purposes of computing the stats. If you are using traded prices as opposed to quotes, for example, you will get very different results. If you sample at regular intervals (e.g. 1s) you will get different results again.

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