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Building AI Trading Systems

dennybritz.com

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Re: Building AI Trading Systems

#11

Post by wavepruner »

henning wrote: post #9

I tried doing some forecasting with various neural network models after assembling what I thought was a good amount of forex data. The neural net (I tried various architectures) couldn't do any better than chance. After playing around with it and trying to double-check everything, that was as far as I could get. This puts me ahead of most traders, since most of them lose money, then quit. This makes me wonder what ki…

You need more data to input besides just the price time-series. Successful human traders balance and synthesize a myriad of data sources to make decisions.

I depend on an in-depth understanding of human psychology as one of my data sources. You can't turn something like that into data and input to a model. It is something learned through life experience and study.

Re: Building AI Trading Systems

#13

Post by henning »

wavepruner wrote: post #11
henning wrote: post #9

I tried doing some forecasting with various neural network models after assembling what I thought was a good amount of forex data. The neural net (I tried various architectures) couldn't do any better than chance. After playing around with it and trying to double-check everything, that was as far as I could get. This puts me ahead of most traders, since most of them lose money, then quit. This makes me wonder what ki…

You need more data to input besides just the price time-series. Successful human traders balance and synthesize a myriad of data sources to make decisions. I depend on an in-depth understanding of human psychology as one of my data sources. You can't turn something like that into data and input to a model. It is something learned through life experience and study.

This is another unhelpful thing about trading: when you seek out information, everyone pipes in telling you that what you're doing is wrong, what they do is right, what you want to do can't be done without giving any explanation or elaboration, etc.

Re: Building AI Trading Systems

#14

Post by scottlocklin »

nv-vn wrote: post #6
star-trek-fleet wrote: post #4

What's the real performance of the system so far?

Probably not very good. Voleon does all ML-based trading and what I've seen of their returns does not give me any confidence in ML-based trading having alpha. I would estimate that at best in a good year returns would be like 5% y/y in the long term, much less than the sustained ~7% that index funds offer especially when adjusting for risk. Just speculation but there's a lot of firms with much more capital, better to…

They don't do "all ML based" trading. By definitions of the smurf who wrote OP about "AI trading systems," they don't do ANY ML based trading.

Their returns kind of suck, but it's more to do with their trading frequency and correlations than anything else.

Re: Building AI Trading Systems

#16

Post by g10r »

dennybritz wrote: post #7
nv-vn wrote: post #6

Earlier quoted context omitted.

Probably not very good. Voleon does all ML-based trading and what I've seen of their returns does not give me any confidence in ML-based trading having alpha. I would estimate that at best in a good year returns would be like 5% y/y in the long term, much less than the sustained ~7% that index funds offer especially when adjusting for risk. Just speculation but there's a lot of firms with much more capital, better to…

I think you're comparing apples to oranges here. These funds manage billions of dollars of client money, which forces them into highly liquid markets with scalable strategies. That's quite different from how individuals or smaller prop funds can operate, trading off capacity for higher returns by trading in less liquid markets or with strategies that are "not worth it" for large hedge funds. If you must manage billio…

Agreed. Many smaller, yet successful Hedge Funds limit the capital they manage for this very reason. Some strategies just don't work at certain scale.

Re: Building AI Trading Systems

#17

Post by darkteflon »

henning wrote: post #9

I tried doing some forecasting with various neural network models after assembling what I thought was a good amount of forex data. The neural net (I tried various architectures) couldn't do any better than chance. After playing around with it and trying to double-check everything, that was as far as I could get. This puts me ahead of most traders, since most of them lose money, then quit. This makes me wonder what ki…

Most people seem to think indexing is a boring cop-out, but imo it’s the place of humility you get to after you’ve dashed yourself against the rocks of trying to outperform for a few years - or decades - and then realising the whole endeavour is insanity.

It’s accepting that you’ll receive what the market gives you and not a dollar more, and that that’s the best you’re ever going to get.

Re: Building AI Trading Systems

#18

Post by _e »

henning wrote: post #13
wavepruner wrote: post #11

Earlier quoted context omitted.

You need more data to input besides just the price time-series. Successful human traders balance and synthesize a myriad of data sources to make decisions. I depend on an in-depth understanding of human psychology as one of my data sources. You can't turn something like that into data and input to a model. It is something learned through life experience and study.

This is another unhelpful thing about trading: when you seek out information, everyone pipes in telling you that what you're doing is wrong, what they do is right, what you want to do can't be done without giving any explanation or elaboration, etc.

If your algorithm stops working or doesn't work... do you have the experience to know why? wavepruner is saying that models can't capture everything like intuition and experience which comes with time.

Re: Building AI Trading Systems

#19

Post by akg_67 »

wavepruner wrote: post #11
henning wrote: post #9

I tried doing some forecasting with various neural network models after assembling what I thought was a good amount of forex data. The neural net (I tried various architectures) couldn't do any better than chance. After playing around with it and trying to double-check everything, that was as far as I could get. This puts me ahead of most traders, since most of them lose money, then quit. This makes me wonder what ki…

You need more data to input besides just the price time-series. Successful human traders balance and synthesize a myriad of data sources to make decisions. I depend on an in-depth understanding of human psychology as one of my data sources. You can't turn something like that into data and input to a model. It is something learned through life experience and study.

+1 Any trading strategy based only on price is fool’s errand. The information that impacts price need to be included in the trading strategy. A lot of short term price movement is news driven, thus unstructured text processing of news, social media, relevant documents will be a key component of such trading strategies.

I am not that familiar with forex market compared to equity market. But I expect forex to be impacted by changes in political and economic situational news of host countries of relevant currency pairs. All these need to be coded into forex trading strategies.

If trading based on just price was so simple , everybody would be doing it successfully.

Re: Building AI Trading Systems

#20

Post by dilandau »

In some markets it is necessary to put the same length of fiber-optic cable between the colocated servers, so that being closer to the exchange's cabinet doesn't translate into an advantage. So obviously we're talking about extremely low latency, high-frequency trading. This carries a huge amount of prerequisites to even get started.

Not only are that, but there are many different order types besides "buy at market price, sell at market price". Then there's options, short sales, and more.

It goes deep. People devote 30 years of their career to this. Read the authors experience as a kind of warning, if you will.

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