Why I quit algorithmic trading

Discussion in 'Automated Trading' started by Maverick74, Sep 26, 2011.

  1. Maverick74



    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. :)
  2. 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.
  3. emg



    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
  4. Anyone figured out what this guy tried to do?
  5. 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!
  6. I love it too, but my edge is currently dying. Sadness.
  7. DT-waw


    if he quits algo trading, obviously, he was not profitable.

    or does not have enough capital.
  8. Do not quit! It will come to you!
  9. DT-waw


    Fully agree.
    I guarantee you, 99% of traders will choose the strategies which are 100% sure to lose in the long run, despite the unlimited numbers of various strategies which are making money.......

    same with investors. most money is invested in the worst kind of strategies.
  10. jprad


    Jim Simons, Renaissance Technologies.
    #10     Sep 26, 2011