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Why I quit algorithmic trading
http://www.codusoperandi.com/posts/...do-web-startups
Why I Quit Algorithmic Trading to Do Web Startups
The kernel of this post originated as an overly long answer to a question posed to me on Google+, "So how come you stopped doing that stuff [automated / algorithmic trading]? Sounds like you'd have enough experience to be a successful algorithmic trader."
I spent the better part of six years, from roughly 1999 to 2004 and again in 2008, pursuing the chimeric fortunes of automated / algorithmic trading and while I never actually reached the promised land of a wildly successful trading system, along the way I did learn a lot about myself, the world, and how to write robust, highly perfomant code. The journey itself deserves its own post, or possibly several, as it was quite a strange adventure, but to get this subject kickstarted, I'll just begin with why I ultimately moved on to the web and startups.
1. An automated trading operation takes too much trading and operational capital (not to mention extremely low clearing rates, which are extremely hard to negotiate) to easily bootstrap on your own. Not that it's impossible, but it's definitely much less resource-intensive to attempt to make money from building web or mobile apps.
2. Every time I teamed up with a trader in an automated trading venture, their trading strategies and ideas ended up not working despite the fact that they had been previously successful (often remarkably successful) as either floor or screen traders. This usually meant that I had spent a year or more of my time coding up a state-of-the-art trading platform that amounted to nothing.
3. I'm not entirely convinced that it's all that possible to beat the market consistently, much less using algorithms, much less using self-learning algorithms (AKA data mining). From my perspective, buiding something that some number of people would be willing to pay for seems to be a much more tractable problem to solve. That said, I do think it "might" be possible to beat the market algorithmically if you had all the right pieces in place, the trick is just figuring out what those pieces might be.
4. If you spend years working on an automated trading project (usually in total secrecy) and it doesn't work out in the end, it can be hard to leverage that expertise for anything else. On the other hand, if you work on a web / mobile project and blog / tweet / podcast about the whole experience (which everyone knows you should do), the side effect is that you'll have built a public reputation that can later lead to all kinds of unexpected opportunities. This is what I refer to as increasing your luck surface area.
5. By building web and mobile applications, you're at least "attempting" to create value for the world and not just yourself. This may seem like a minor point, but if your trading venture doesn't succeed financially, you can't even fall back to the - "well, at least I made a lot of people happy, more productive, etc.". Plus, the thrill of having a large number of people use your software is something you'll never experience within the confines of an automated trading operation.
6. Trading is extremely stressful even if it's the machine itself that's doing the trading. In fact, I read a scientific study a while back that found that a losing trade is twice as psychologically draining as the equivalent winning trade is psychologically reinforcing, which basically means that you're generally going to be emotionally drained and operating at a psychological deficit at the end of every work day. I know a lot of startup founders like to talk about how hard startups are and about the incredible roller-coaster ride that is the startup life (which is true), but I got news for you, it doesn't compare to the grinding, gut-wrenching stress of trading, and frankly that's no way to live.
7. I've done a lot of the trading thing and while it's a fun and addictive game for sure, I found that traders are generally not my kind of people. The reason for this I think is that for most traders it's pretty much all about the money, and whenever anything is all or mostly about the money, it ends up having no soul. This reality turns out to be kind of depressing if you reflect on it for too long and I guess that's probably why most traders aren't all that self-reflective. That said, I'm not so sure this applies to algorithmic traders because from the few I've met they tend to love the technical challenge as much or more that the pursuit of fortune (which is not unlike technical startup founders).
8. The algorithmic trading world is so secretive that you rarely get to meet anyone else doing it, much less have the opportunity to discuss techniques, algorithms or experiences. As a result, there's little to no community to engage with, and in case you haven't already discovered this truth, being part of a community is a big part of what makes life fun.
Disclaimer: If I ever make a personal fortune from web startups, there's still a part of me that would like to give algorithmic trading one last try. There, I said it. 
__________________
"Of all the gin joints in all the towns in all the world, she walks into mine." Rick Blaine
Real conclusion(in less words): One should not expect a poet to excel in mathematical areas, in fact one should expect the poet to fail in applied math and therefore no surprises there.
http://themitblackjackteam.com/
The MIT Blackjack Team was a group of students and ex-students from the Massachusetts Institute of Technology, Harvard Business School, Harvard University, and other leading colleges who used card-counting techniques and more sophisticated strategies to beat casinos at blackjack worldwide. The team and its successors operated successfully from 1979 through the beginning of the 21st century. Many other blackjack teams have been formed around the world with the goal of beating the casinos.
Gee. They beat vegas. No algor needed
__________________
More Than 90% of Small Traders Lose. THEY JUST LOSE!!!!!
Anyone figured out what this guy tried to do?
Sorry to hear that! The problem as I see it is that you worked virtually alone without anybody to participate in your level of theoretical discussions. Yes, I agree, the hard core traders are the wrong crowd, I do not enjoy them either. However, I have gone the other route: over the past 12 years I have built a team of very talented an exceptionally bright scientists that made the search for the "ultimate weapon" a fun and a very rewarding exercise. Also, I have not limited myself just to trading; I did everything I could to preserve the spirit of a philosophical journey trying to apply my results to about everything that moves. Utilizing my findings in diffident environments helped me to fight the inescapable frustration of occasional trading failures. As a result, after 18 years I still love it! I love it even more today simply because I know more. I cannot imagine myself doing anything else! My robots are my kids. I love them and constantly work on making them more educated, smarter and more tenacious than any of my competitors! I love to watch them fight on the "streets" even sometimes they come back with horrible bruises! It's just a game! You either love it or you don't. Markets like chess - there are unlimited number of winning strategies and sometimes you need to sacrifice to win.
I hope you come back. It is a shame to waste the experience you earned through your blood, sweat and tears!
Have some rest. Take a year off. Read some different books. You'll be fine! I promise.
BTW, take it from me: YOU CAN HAVE A CONSISTENT EDGE!
Quote from MAESTRO:
Sorry to hear that! The problem as I see it is that you worked virtually alone without anybody to participate in your level of theoretical discussions. Yes, I agree, the hard core traders are the wrong crowd, I do not enjoy them either. However, I have gone the other route: over the past 12 years I have built a team of very talented an exceptionally bright scientists that made the search for the "ultimate weapon" a fun and a very rewarding exercise. Also, I have not limited myself just to trading; I did everything I could to preserve the spirit of a philosophical journey trying to apply my results to about everything that moves. Utilizing my findings in diffident environments helped me to fight the inescapable frustration of occasional trading failures. As a result, after 18 years I still love it! I love it even more today simply because I know more. I cannot imagine myself doing anything else! My robots are my kids. I love them and constantly work on making them more educated, smarter and more tenacious than any of my competitors! I love to watch them fight on the "streets" even sometimes they come back with horrible bruises! It's just a game! You either love it or you don't. Markets like chess - there are unlimited number of winning strategies and sometimes you need to sacrifice to win.
I hope you come back. It is a shame to waste the experience you earned through your blood, sweat and tears!
Have some rest. Take a year off. Read some different books. You'll be fine! I promise.
BTW, take it from me: YOU CAN HAVE A CONSISTENT EDGE!
if he quits algo trading, obviously, he was not profitable.
or does not have enough capital.
Quote from clearinghouse:
I love it too, but my edge is currently dying. Sadness.
Quote from MAESTRO:
Markets like chess - there are unlimited number of winning strategies and sometimes you need to sacrifice to win.
I
Re: Why I quit algorithmic trading
Quote from Maverick74:
3. I'm not entirely convinced that it's all that possible to beat the market consistently, much less using algorithms, much less using self-learning algorithms (AKA data mining).
__________________
-jack-
Re: Re: Why I quit algorithmic trading
Quote from jprad:
Jim Simons, Renaissance Technologies.
__________________
"Of all the gin joints in all the towns in all the world, she walks into mine." Rick Blaine
Quote from MAESTRO:
Do not quit! It will come to you!
Interesting story... thanks for the insightful read.
__________________
Kazak_Trader
"Every time I teamed up with a trader in an automated trading venture, their trading strategies and ideas ended up not working despite the fact that they had been previously successful (often remarkably successful) as either floor or screen traders."
-----
Perhaps the strategies didn't lend themselves very well to being automated.
Re: Re: Re: Why I quit algorithmic trading
Quote from Maverick74:
Just to be clear, I'm not the author of the article. LOL.
__________________
-jack-
Re: Why I quit algorithmic trading
I've been writing code in C++ for about 15 years and I have to agree with just about everything you've said, especially point #6. It's been my experience that programming trading apps are better served as trading aids rather than trading bots. One of my most valuable apps is a tool that measures volatility that is based in part on ATR. It's highly reliable at signaling trend vs non-trend days. I've played with writing pure algo trading apps and I've never been able to come close to what the human brain can interpret. Trading is an art and writing code is a science although writing code does require some creativity so arguably there is an element of art in writing code.
Point #3. Beating the market shouldn't be a goal as much as trading profitably should. I've beat the market by a wide margin in some years and trailed the market in others. The key is to try and beat the market over a long period of time. Doing it every year consistently is extemely difficult.
Quote from Maverick74:
http://www.codusoperandi.com/posts/...do-web-startups
Why I Quit Algorithmic Trading to Do Web Startups
The kernel of this post originated as an overly long answer to a question posed to me on Google+, "So how come you stopped doing that stuff [automated / algorithmic trading]? Sounds like you'd have enough experience to be a successful algorithmic trader."
I spent the better part of six years, from roughly 1999 to 2004 and again in 2008, pursuing the chimeric fortunes of automated / algorithmic trading and while I never actually reached the promised land of a wildly successful trading system, along the way I did learn a lot about myself, the world, and how to write robust, highly perfomant code. The journey itself deserves its own post, or possibly several, as it was quite a strange adventure, but to get this subject kickstarted, I'll just begin with why I ultimately moved on to the web and startups.
1. An automated trading operation takes too much trading and operational capital (not to mention extremely low clearing rates, which are extremely hard to negotiate) to easily bootstrap on your own. Not that it's impossible, but it's definitely much less resource-intensive to attempt to make money from building web or mobile apps.
2. Every time I teamed up with a trader in an automated trading venture, their trading strategies and ideas ended up not working despite the fact that they had been previously successful (often remarkably successful) as either floor or screen traders. This usually meant that I had spent a year or more of my time coding up a state-of-the-art trading platform that amounted to nothing.
3. I'm not entirely convinced that it's all that possible to beat the market consistently, much less using algorithms, much less using self-learning algorithms (AKA data mining). From my perspective, buiding something that some number of people would be willing to pay for seems to be a much more tractable problem to solve. That said, I do think it "might" be possible to beat the market algorithmically if you had all the right pieces in place, the trick is just figuring out what those pieces might be.
4. If you spend years working on an automated trading project (usually in total secrecy) and it doesn't work out in the end, it can be hard to leverage that expertise for anything else. On the other hand, if you work on a web / mobile project and blog / tweet / podcast about the whole experience (which everyone knows you should do), the side effect is that you'll have built a public reputation that can later lead to all kinds of unexpected opportunities. This is what I refer to as increasing your luck surface area.
5. By building web and mobile applications, you're at least "attempting" to create value for the world and not just yourself. This may seem like a minor point, but if your trading venture doesn't succeed financially, you can't even fall back to the - "well, at least I made a lot of people happy, more productive, etc.". Plus, the thrill of having a large number of people use your software is something you'll never experience within the confines of an automated trading operation.
6. Trading is extremely stressful even if it's the machine itself that's doing the trading. In fact, I read a scientific study a while back that found that a losing trade is twice as psychologically draining as the equivalent winning trade is psychologically reinforcing, which basically means that you're generally going to be emotionally drained and operating at a psychological deficit at the end of every work day. I know a lot of startup founders like to talk about how hard startups are and about the incredible roller-coaster ride that is the startup life (which is true), but I got news for you, it doesn't compare to the grinding, gut-wrenching stress of trading, and frankly that's no way to live.
7. I've done a lot of the trading thing and while it's a fun and addictive game for sure, I found that traders are generally not my kind of people. The reason for this I think is that for most traders it's pretty much all about the money, and whenever anything is all or mostly about the money, it ends up having no soul. This reality turns out to be kind of depressing if you reflect on it for too long and I guess that's probably why most traders aren't all that self-reflective. That said, I'm not so sure this applies to algorithmic traders because from the few I've met they tend to love the technical challenge as much or more that the pursuit of fortune (which is not unlike technical startup founders).
8. The algorithmic trading world is so secretive that you rarely get to meet anyone else doing it, much less have the opportunity to discuss techniques, algorithms or experiences. As a result, there's little to no community to engage with, and in case you haven't already discovered this truth, being part of a community is a big part of what makes life fun.
Disclaimer: If I ever make a personal fortune from web startups, there's still a part of me that would like to give algorithmic trading one last try. There, I said it.
Sharpen your tools. Everyones edge dies when the market conditions change. There are really only two types of markets -- volatile and non-volatile. They require 2 radically different strategies. Measuring volatility should be at the top of your list.
Quote from clearinghouse:
I love it too, but my edge is currently dying. Sadness.
Quote from clearinghouse:
I love it too, but my edge is currently dying. Sadness.
Never give up and find a way to adapt to changing market conditions. The reason traders lose their edge is because the market conditions change and the trader sticks with the same strategy that will no longer work. The transition from 2008 to 2009 is a perfect example. We went from a high volatility, high intra-day range to a low volatility, low intra-day range. Scaling in and out in a volatile market is a viable strategy. Not so in a non-volatile market. Get caught scaling on the wrong side of a trend and you're up the creek.
Quote from shotse:
Never give up. That's the best advice anyone can give you and I wish someone told me that when I was younger. So here you go, I'm telling you right now to never give up because there wasn't someone there to tell me to never give up. You can do it.
Re: Re: Re: Re: Why I quit algorithmic trading
Quote from jprad:
Great, so now we have two data points.
He's incompetent for penning that blog entry and you're a fool for not figuring that out before posting his drivel here.
__________________
"Of all the gin joints in all the towns in all the world, she walks into mine." Rick Blaine
If you're implying that trading is a "mathematical area," then you're dead wrong out of the gate, kid.
Quote from tradingjournals:
Real conclusion(in less words): One should not expect a poet to excel in mathematical areas, in fact one should expect the poet to fail in applied math and therefore no surprises there.
Re: Re: Re: Re: Re: Why I quit algorithmic trading
Quote from Maverick74:
What didn't I figure out? I posted the article you tool.
__________________
-jack-
Re: Re: Re: Re: Re: Re: Why I quit algorithmic trading
Quote from jprad:
Tool???
Cut the crap and man-up, weasel.
By posting it verbatim without a closing comment you've endorsed what he wrote.
__________________
"Of all the gin joints in all the towns in all the world, she walks into mine." Rick Blaine
Whoever wrote it is a failure and a loser. Never get advice about trading from losers. Get advice only from winners. It's that simple. Applies to everything. Think about it: if you planned to open a restaurant would you take advice from a loser or from a winner with a very profitable operation?
sell 1,000 dow @ 26.22
buy 1,000 wag @ 33.75
reversion to the mean trade, paper trade.
Quote from shotse:
Never give up. That's the best advice anyone can give you and I wish someone told me that when I was younger. So here you go, I'm telling you right now to never give up because there wasn't someone there to tell me to never give up. You can do it.
2. Every time I teamed up with a trader in an automated trading venture, their trading strategies and ideas ended up not working despite the fact that they had been previously successful (often remarkably successful) as either floor or screen traders. This usually meant that I had spent a year or more of my time coding up a state-of-the-art trading platform that amounted to nothing.
Quote from intradaybill:
Whoever wrote it is a failure and a loser. Never get advice about trading from losers.
Quote from the1:
Never give up and find a way to adapt to changing market conditions. The reason traders lose their edge is because the market conditions change and the trader sticks with the same strategy that will no longer work. The transition from 2008 to 2009 is a perfect example. We went from a high volatility, high intra-day range to a low volatility, low intra-day range. Scaling in and out in a volatile market is a viable strategy. Not so in a non-volatile market. Get caught scaling on the wrong side of a trend and you're up the creek.
Quote from kinggyppo:
sell 1,000 dow @ 26.22
buy 1,000 wag @ 33.75
reversion to the mean trade, paper trade.
It's obviously a case of a guy who wasn't able to make it. Most aren't. In any business - by the way. There's a universe of evidence against the efficient market hypothesis. He seems to imply that because he didn't make it - maybe it's impossible. That's where he goes wrong - but the reason for such statements is simply to minimize the psychological pain of failure and to de-personalize it away from himself.
Quote from WS_MJH:
Most interesting thing is that he worked with profitable traders and was not able to translate their system into an algo. Algo trading isn't my area, but he either can't code well or he needed to focus on strategies that work well with an algo system, instead of a discretionary system that is based on someone's mind and experience.
Both good points.
Quote from Soon2Bgreat:
This is the key point imo - to me this says he spent his time coding other people's strategies and never spent time developing his own. The fact that he worked in trading is irrelevant, this appears to say he just spent his time coding (could've been any other industry).
Maybe I'm wrong, but this doesn't send a very encouraging message about his experience. M2c.
Quote from shotse:
Never give up. That's the best advice anyone can give you and I wish someone told me that when I was younger. So here you go, I'm telling you right now to never give up because there wasn't someone there to tell me to never give up. You can do it.
Why you quit algorithmic trading? Simple, your algorithm sucked. Could we at least introduce a little honesty into some of these discussions.
Quote from wildchild:
Why you quit algorithmic trading? Simple, your algorithm sucked. Could we at least introduce a little honesty into some of these discussions.
to the poster:
1. the market changes, there is no 1 single strategy that can do all the market!
2. historically test your strategy, and know that no strategy lasts forever, one day it will break... so Diversify!
3. using algo trading is not like paper,limit fills are not guaranteed, and stop fills might be away from the market! so if you work in a short time frame period, think twice...
4. i dono what is the percentage , but a big percentage of the market is computer trading algos!
good luck
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