There is a nice review of related methods in the book "A Random Walk Down Wall Street"
Seems highly rated and a classic. Will get myself a copy.
Ask HN: Automate Stock Trading?
21–30 of 77 posts
Re: Ask HN: Automate Stock Trading?
#22I once set down this path but stopped.
Your big problem is that the future market doesn't look like the past market. There is a statistical error inherent in excessively curve fitting past data. You could develop a system which says you'll return 25% per year and then lose 100% in he he first six months. So don't fall into that trap of excessively back testing.
What you should be spending time is your money allocation algorithms - the very same set of trades can return high amounts or wipe you out depending on what % of your trading equity you allocate. This is something you can test - by simulating actual trading returns - both upside and downside.
I'm not sure if you're looking for trading advice or development advice, but I woudo recommend these books while you are doing system development:
- http://www.amazon.com/Trade-Your-Way-Financial-Freedom/dp/00... - trade your way to financial freedom by Van Tharp
- the entire 'market wizards' series (http://www.amazon.com/Market-Wizards-Jack-D-Schwager/dp/0887...) - there are three (or four?) books in the series, all are worth reading.
The final problem is designing a system which you truly understand, which you are sure gives you an edge. And which you are willing to stick with if there are periods of high drawdowns.
Also remember you are up against people with very deep pockets and huge computers and phd guys working on there same thing.
It's a great intellectual puzzle and a worthy challenge, but make sure you know what you are getting into.
Re: Ask HN: Automate Stock Trading?
#23I'am working on this. Only using python , ipython rethinkdb and postgresql. We are working on a event driven fund to find pattern, but we still need human at the end (the program found pattern and we try to find why and if they are reproductible). Good luck :)
That's very interesting. I'm trying to integrate the concept of "special events" like earnings or dividends or announcements into the mix. Although that isn't the driving force for what I'm trying to do. I'd be interested to learn how it works out for you guys.
Re: Ask HN: Automate Stock Trading?
#24Earlier quoted context omitted.
If you could please shed some light as to why you hold that opinion (past experience etc.), it would be of great help!
Beating a stock market index is a zero-sum game, and the large players in this market have hundreds of millions of dollars and huge manpower invested in making money of small players like OP. I suppose it's possible in principle to be smarter than them, but that's the bar.
It's zero-sum over the short term, but not over the long term -- "beating the index" is (kinda sorta) another way of saying "dragging the index towards efficiency." It means investing in stocks that are going to perform, which (kinda sorta) like investing in companies that will be successful, which increases the size of the pie.
Of course, with the amount of money the OP is likely to be investing, it's completely sensible to ignore market impact.
Re: Ask HN: Automate Stock Trading?
#25Earlier quoted context omitted.
I haven't read the book. From the description on Amazon it seems the investor/mathematician let his emotions come in the way of his investment decisions which led to him losing money. I think that's a risk we run by providing that human touch, which sometimes may even help us if the software is making stupid decisions. My goal is to build a fully-automated system (no human interference) that makes "confident" decisio…
Your automated system will require human input. I lost a bunch of money in Jan - I saw a huge drawdown, discovered a fixable flaw in my strategy, panicked and closed my positions. Human inputtime - do I close positions and shut down? Had I stuck with the flawed strategy, I'd have made (a small amount of) money. Dont think that you dont need to manage your psychology simply because you are running an algorithm.
Yummyfajitas, that's exactly why I do not want human input. Also, I'm not trying to make money on every bet, but to make more money in my winning bets (less fees) than I lose in my losing bets.
Re: Ask HN: Automate Stock Trading?
#26[deleted]
Re: Ask HN: Automate Stock Trading?
#27I wrote a somewhat long-winded comment on this topic a while back, you may find it useful:
https://news.ycombinator.com/item?id=6832589
The tl;dr version of it is:
Risk management, specifically position sizing, is commonly neglected and yet extremely important.
Psychology is everything, regardless of whatever your approach may be.
Re: Ask HN: Automate Stock Trading?
#28This is a bad idea.
The "simplistic human investing" you're talking about probably accounts for 0.01% of trades. The vast majority of trading these days is algorithmic, and the HFT guys will eat you for lunch.
What you won't see in back testing is how the market reacts to your strategy. The market isn't something that stays static: your activity changes things in subtle ways, and I guarantee there are people smarter than you who have designed algorithms to detect and exploit trading strategies such as yours.
Algo trading is very dangerous if you're not coming from an investment finance background. Just be very careful.
Re: Ask HN: Automate Stock Trading?
#29I once set down this path but stopped. Your big problem is that the future market doesn't look like the past market. There is a statistical error inherent in excessively curve fitting past data. You could develop a system which says you'll return 25% per year and then lose 100% in he he first six months. So don't fall into that trap of excessively back testing. What you should be spending time is your money allocatio…
Thanks for the advice. I will definitely err on the side of caution and not get caught up with the backtesting and over fitting. Allocating resources (funds) will probably play an important role to manage risk in the system.
At the end of the day, I'm trying to answer the question: can you make money in the stock market with a low-touch (eventually no-touch) approach with the help of advanced software and analytics. Hopefully the answer is yes ;-)
Re: Ask HN: Automate Stock Trading?
#30Let's assume your strategies work, then you will earn by a magnitude more by doing this for a trading company than you will ever with your own funds.
You can go down that road, but this a whole full time career and it usually takes years to be good enough at it.
I could recommend this book (http://www.amazon.com/Building-Algorithmic-Trading-Systems-W...) to get an understanding for the craft.