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Building AI Trading Systems

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Re: Building AI Trading Systems

#71

Post by steephills »

smabie wrote: post #27
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…

The most popular kind of quant trading is using a factor model. The first step is developing some alpha factor, a number that is predictive of how much money you'll make from each stock. So let's say my alpha factor is "companies with good earnings per share will go up." So I first take the EPS for all the stocks in my universe and maybe rank, then zscore. Now I have some positive numbers and some negative numbers. T…

Taking EPS as proxy for alpha is like trying to recognise banana pictures by looking at average yellow content: it is plausible, but roughly 100 years behind the other market participants. Don't do this kind of stuff with your hard earned money...

Re: Building AI Trading Systems

#72

Post by sitzkrieg »

akg_67 wrote: post #19
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.

+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 impact…

trading forex swaps as an individual is a disservice. its not centralized at all, as a retail you get spreaded quotes from some banks that want to make markets and that is it really. many of the biggest fx brokers have been banned in the us over the years too for all sorts of awful things [1]. there are cross bank quoting and such but the whole thing is extremely unsuitable for retails, making it prime for low barrier to entry decimation of retails which is exactly what you'll see time and again.

if you really care to trade currency rates in a sane way, there are CME futures

1 http://www.forexscamalerts.com/fxcm-permanently-banned-usa-f...

Re: Building AI Trading Systems

#73

Post by MichaelRazum »

To be honest. I don’t believe a word about the performance using AI. Especially if the article doesn’t present the features and the NN architecture. Its always the question: would a super simple model perform the same way? And very ofter the answer is yes.

Re: Building AI Trading Systems

#74

Post by KKKKkkkk1 »

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…

Let's say I want to predict the crop yield of a field. Sure, looking at the yield in previous years would help. But the yield is just a nonlinear projection of a point in high-dimensional space that has dimensions like weather, water availability, pest infestations, farmer skill, etc. All of these dimensions are incredibly relevant to forecasting, but once we've projected our points onto the yield axis, most of this information is gone. So if you want to take advantage of this information, you need to do your fitting in the original high-dimensional space.

Re: Building AI Trading Systems

#75

Post by smabie »

roenxi wrote: post #56
smabie wrote: post #49

Earlier quoted context omitted.

There are a number of persistent factors. They are well known in academia and to financial practitioners. There are structural reasons for their existence. We are talking about value, fama french size, etc. These are classic factors that everyone knows about. https://www.aqr.com/Insights/Research/Journal-Article/Bettin... https://en.wikipedia.org/wiki/Low-volatility_anomaly I think your attitude of dismissing decades…

> Also I don't think you understand what "risk-adjusted" means. You might be right; why don't you try explaining it for me? I suspect it is going to look a lot like a justification for why your strategy is fantastic even though it makes sub-par returns.

Hey, maybe if I was a little rude. I'm sorry. The fundamentals of quant finance are little too long to go into here. But if you're legitimately interested in having a good conversation. I can explain it to you. Email me at sturm@cryptm.org.

I can give you complete run down of persistent factors, leverage, risk-adjusted returns, etc etc.

Re: Building AI Trading Systems

#76

Post by rawoke083600 »

MichaelRazum wrote: post #73

To be honest. I don’t believe a word about the performance using AI. Especially if the article doesn’t present the features and the NN architecture. Its always the question: would a super simple model perform the same way? And very ofter the answer is yes.

Lol this.. I once build a model (btc) that assumes this "we can't know the direction of market so we might as well guess", after spending months reading papers and trying to be "clever"

It starts off picking a random market direction (up/down) places bid (sorry I mean makes a trade). Then based on lots of tuning/backtest decided how long to be in position and what is the stoploss.. Think in the end the most "profitable settings" where something like :

$proft_size = 0.38% $stop_loss_size = 0.35%

Win-Continue-Direction = 3 rounds (after winning/losing do we change direction) So it probably in the end was Markov-model with random-start - if we had to label it :)

Oh and for fun it would also "martingale for x rounds" :P

Worked quite well for 3-4 days and was fun implementing it while watching "Billions" on TV in the background :D

Re: Building AI Trading Systems

#77

Post by smabie »

nv-vn wrote: post #62
smabie wrote: post #24

Earlier quoted context omitted.

Returns don't matter. People always compare strategies to the S&P 500's return, but it doesn't make any sense. In finance, strategies are compared on their Sharpe ratio, not on their returns. This is because leverage can be applied to make the returns better. For example, if you had a strategy that, unlevered, returned 5% with 2% volatility, that would be pretty amazing. If you wanted, you could lever up 4x and get a…

I mentioned the idea of adjusting for risk in the GP post, though you are correct that I didn't call out any specific measure like the Sharpe ratio by name. If your risk-adjusted returns are worse than S&P 500 then obviously leverage isn't going to fix that problem. Simply put, I don't think OP's strategy really has any of these desirable features like a good sharpe, market neutrality, low exposure, etc. I think OP i…

I guess all I'm saying is that a strategy that has a worse Sharpe ratio than the market but zero correlation could still be valuable to a lot of investors for the same reason that sometimes it makes sense to add a asset to your portfolio that lowers your expected return. It's possible that that one strategy with the worse Sharpe ratio when combined with your pure beta investments would yield a portfolio with a better Sharpe ratio than either allocation alone.

Re: Building AI Trading Systems

#78

Post by Erlich_Bachman »

anonu wrote: post #37

Just a reminder: nobody ever wrote about their super successful trading strategy. Its just never happened. If you have the wherewithal to research and build a trading system that works, then you're smart enough to know that the moment you reveal your edge to the world - it disappears. Even if you dont discuss the innards of your strategy, but you talk about your process or the system youre strategy is built on, you'v…

This is a simplified version of the truth. There is a lot of information that you can safely share because the number of people that will know where to look for it, know how to implement it, what to even do with it, how not to make any one of 100possible stupid mistakes while implementing it - is very low.

Example in point: Warren Buffet. All of his process is public knowledge, he constantly writes and talks about it. And yet somehow it didn't make him lose his edge.

Re: Building AI Trading Systems

#79

Post by smabie »

AlexCoventry wrote: post #60
smabie wrote: post #27

Earlier quoted context omitted.

The most popular kind of quant trading is using a factor model. The first step is developing some alpha factor, a number that is predictive of how much money you'll make from each stock. So let's say my alpha factor is "companies with good earnings per share will go up." So I first take the EPS for all the stocks in my universe and maybe rank, then zscore. Now I have some positive numbers and some negative numbers. T…

That's the ideal described in quantopian tutorials, but I doubt it often works out that way.

From personal experience, it really does actually work that way. Not all quant firms are running traditional market neutral factor portfolios though.

Re: Building AI Trading Systems

#80

Post by HighlandSpring »

linus_torvalds wrote: post #21
shoo wrote: post #10

readers may also be interested in Benter's paper "Computer Based Horse Race Handicapping and Wagering Systems: A Report" -- https://www.gwern.net/docs/statistics/decision/1994-benter.p... > This paper examines the elements necessary for a practical and successful computerized horse race handicapping and wagering system. Data requirements, handicapping model development, wagering strategy, and feasibility are addresse…

Yeah this is a great paper on the subject. Although horse betting is different than financial markets due to the parimutuel system.

Does that mean you have to find a greater edge to cover the house edge?
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