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Algorithmic Trading: The Play-at-Home Version

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Re: Algorithmic Trading: The Play-at-Home Version

#91

Post by gnaritas »

ericjang wrote: post #51
barrkel wrote: post #49

Earlier quoted context omitted.

I don't really see how finance is a zero-sum game. I mean, trading in paper without any insight into the capital allocation the paper is abstracting, and observed over a very short time horizon, it's more or less zero-sum. Many synthetic products just distribute risk differently. Etc. But finance more generally is helpful for efficiently allocating capital towards wealth generating industry - and by industry I mean i…

Sorry, it was not my intention to suggest that trading is not productive, or that it's truly a zero-sum game. You probably know this already, but I'll provide some more context for the interested: In reality, two parties can walk away from a trade believing (in the moment) that they got the better deal. Otherwise, they wouldn't be trading in the first place. This results because people have different utility function…

> In reality, two parties can walk away from a trade believing (in the moment) that they got the better deal.

In reality, two parties can walk way not just believing, but actually getting the better deal. Both parties can be winners, there is not always a loser when a trade is made. One guy could be exiting a long while profiting taking while the counter party is opening a short, and they can both bank profit from the trade. Maybe one is hedging and doesn't mind if the trade goes against him because it's hedging another trade in his portfolio to keep him market neutral. The idea that one guy wins and one guy loses is simply far to simplistic.

Re: Algorithmic Trading: The Play-at-Home Version

#92

Post by karmapolice »

tunesmith wrote: post #70

I've always been confused why so much of algorithmic trading centers on technical indicators. What about fundamentals? Wouldn't it be easier to cobble together a system that checks for healthy companies that are low in their PEG ratio historical range, and then buy-and-hold? There are super-boring companies with reliable earnings history out there, with stock prices that go up and down throughout the year. So you'd b…

How easy is for a bot to read fundamentals? I do not know if there is some place to gather this kind of data.

I mean, in "The intelligent investor" the author points out that lots of companies bury important information in side notes in their annual reports, that can totally change their attractiveness.

I wonder how easy is to check these things nowadays.

Re: Algorithmic Trading: The Play-at-Home Version

#93

Post by jakozaur »

Request for startup: Make the AWS for algorithmic trading. Strategies are not that hard, but it would be awesome if someone did hard infrastructure work and provide nice API.

So the only thing you need to do is to upload some code and wire some money.

Bonus point for matching money. E.g. if you have your own system you can allow to match your funds. So instead of $20k you can get additional $80k from other investors. Likely it will be regulatory nightmare... but maybe there is some legal workaround.

Re: Algorithmic Trading: The Play-at-Home Version

#94

Post by victorin »

jakozaur wrote: post #93

Request for startup: Make the AWS for algorithmic trading. Strategies are not that hard, but it would be awesome if someone did hard infrastructure work and provide nice API. So the only thing you need to do is to upload some code and wire some money. Bonus point for matching money. E.g. if you have your own system you can allow to match your funds. So instead of $20k you can get additional $80k from other investors.…

It already exists: https://tradingmotion.com

There you'll find a marketplace of 3d party trading strategies ready to use (once you pay the monthly fee that goes straight to the developer)

The API if you want to roll your own strategy is: https://sdk.tradingmotion.com

Re: Algorithmic Trading: The Play-at-Home Version

#95

Post by kittenfluff »

murbard2 wrote: post #75
tomp wrote: post #73

Earlier quoted context omitted.

I'm not sure about that. If a $2bn hedge fund finds 100 different "alpha strategies" for turning $20k into $200k, that's still just 1% to their bottom line. Probably not worth the time.

That's $20,000,000 which is enough to warrant at least 10 people working on it.

Remember that a hedge fund only sees 20% of the profit that it generates on behalf of its investors, and a large part of that goes into staffing and infrastructure costs, not to mention that quant traders like to be paid sizable bonuses (and therefore would not want to work on a trade with a small upside).

I find it extremely unlikely (almost inconceivable, in fact) that a hedge fund would divert 10 researchers to work on a trade with $20m of potential upside.

Re: Algorithmic Trading: The Play-at-Home Version

#96

Post by jmpeax »

noname123 wrote: post #26

Interesting article but for a different take on a statistical approach to the market, curious if any peeps on HN are into volatility trading? From what I understand a lot of the "DIY vendors" cater to the equity crowd, meaning people who build their models on technical indicators (MACD, RSI, advancers/decliners ratio, Fibonacci golden ratio retracement, MA); you build your model of some combined signals, back-test it…

> But I never trade directional or have any market outlook

I'm an amateur to all of this, but isn't trading volatility the same as directional trading? Volatility goes up and down just like price goes up and down, isn't it just one time-derivative way, what's really the difference? Why not trade on volatility of volatility?

Re: Algorithmic Trading: The Play-at-Home Version

#97

Post by TuringNYC »

matiu wrote: post #83
dasil003 wrote: post #69

Earlier quoted context omitted.

That's why the winning move is not to bet your own money, but instead to convince some whales to pay you fees to invest their money. From that perspective good algos are really just a marketing cost.

This is true. As a fund owner, you know the magic formula: If your fund customers win, you win, if they loose, they loose. It's a good position to be in.

Not quite. There is a cost to building the system. The surrounding code could be massive. Also throw in accounting, reporting, regulatory requirements, etc and you are down quite a bit of overhead costs. Without the profit sharing, even charging a 2% expense would not cover all these -- especially your time value given someone with such skills can easily be making 200k on simple salary.

Re: Algorithmic Trading: The Play-at-Home Version

#98

Post by TuringNYC »

jmpeax wrote: post #96
noname123 wrote: post #26

Interesting article but for a different take on a statistical approach to the market, curious if any peeps on HN are into volatility trading? From what I understand a lot of the "DIY vendors" cater to the equity crowd, meaning people who build their models on technical indicators (MACD, RSI, advancers/decliners ratio, Fibonacci golden ratio retracement, MA); you build your model of some combined signals, back-test it…

> But I never trade directional or have any market outlook I'm an amateur to all of this, but isn't trading volatility the same as directional trading? Volatility goes up and down just like price goes up and down, isn't it just one time-derivative way, what's really the difference? Why not trade on volatility of volatility?

You can trade volatility of volatility (e.g. VIX options), or even volatility-of-volatility-of-volatility -- except the greater the degree of derivative, the fewer options you have to trade using publicly-listed securities. Also, even if there are publicly-listed securities, the lesser the liquidity and thus the harder/impossible to get in-out of trades.

This can work if you are a big firm with access to private contractual derivatives, but you would still suffer from the 2nd problem: liquidity.

Re: Algorithmic Trading: The Play-at-Home Version

#99

Post by TuringNYC »

rbinv wrote: post #57
noname123 wrote: post #26

Interesting article but for a different take on a statistical approach to the market, curious if any peeps on HN are into volatility trading? From what I understand a lot of the "DIY vendors" cater to the equity crowd, meaning people who build their models on technical indicators (MACD, RSI, advancers/decliners ratio, Fibonacci golden ratio retracement, MA); you build your model of some combined signals, back-test it…

If all those TastyTrade strategies work, why isn't it being automated and backed by significant funding? Serious question.

Someone with significant funding could try -- but they will end up having 10 meetings with employees, contractors, accountants, auditors, and before you know it, you have eaten up all the profit the trade might have produced.

Think of that awesome baseball card you purchased at a 10 cent discount at the corner shop. Would it make sense for Goldman Sachs to do a comprehensive search for all such deals and "profit" 10cents a piece off them?

Re: Algorithmic Trading: The Play-at-Home Version

#100

Post by TuringNYC »

siavosh wrote: post #76
baudehlo wrote: post #72

Earlier quoted context omitted.

You probably can't beat the market. But if you can beat a savings account earning 2% interest it's probably worth it for the learning experience.

Well, you'd have to beat 2% + transaction fees + capital gains which would mean you'd have to beat the market.

Not quite -- even if you match the market or slightly under-perform the market, it might still make sense if you achieve these results with lesser volatility and more consistent earnings. I do not necessarily want to beat a market which returns 7% on average but loses 40% every 6 years...
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