Algo Trading Profitablility

[amitrandive]

http://www.bloomberg.com/news/artic...r-plans-rules-to-slow-down-high-speed-trading

 

[mutualguru]

Also algo for retail sounds too risky to me. Are you really going to get an edge over an army of math PHDs hired by bigger firms? Maybe a very smart person could find it but i cant. Thankfully we dont have to compete against them.

I disagree with this statement; Trading is always risky weather its algo, semi-alog or manual. According to EP chan one of the most reputable quantative/algo traders in the world says that we dosent need a PhD to create a successful strategy and I agree with him. If we are smart enough we can make our own strategy with out understanding higher level mathematics. Most of the firms uses math and physics PhD to create strategies with optimum result that is very low volatity and high return where as a common mans strategy (example: moving average crossover) might have higher voltality and lower "POSITIVE" return.

I have to ask you what is algo trading? For most of you its buying and selling at very small time scale which is in seconds or milliseconds? This is one of the biggest misconception. Algo trading is buying and selling using particular entry and exit rules using computers with out the need of a human intervention. Algo trading can be done in seconds or years, time scale dosent matters.

Why most traders losses money even after having a good strategy? They losses money because they cant control their emotion. For me its one of the biggest factor and I believe algo trading is the best way to remove emotion from trading or investing.

A simple example would be automating moving average crossover strategy for long term trading(above one month). This strategy for long term has very good return but has very high volatility and small winning percentage less than 30% . That is every 10 trades only 3 will be successful and other 7 will lose your money. Many traders will loss majority of their money if they are using this strategy manually. They lose money not because the strategy is bad but because they cant control their emotion. Most traders cant handle a trading loss for 3 consecutive trades let alone 7(theoratically). If we can automate this strategy thus removing emotion then with stop loss we can make large amount of money with this simple strategy.

 

[amitrandive]

Fairness in the Markets

https://www.youtube.com/watch?v=vD8yavwEBcA

 

[TracerBullet]

I disagree with this statement; Trading is always risky weather its algo, semi-alog or manual. According to EP chan one of the most reputable quantative/algo traders in the world says that we dosent need a PhD to create a successful strategy and I agree with him. If we are smart enough we can make our own strategy with out understanding higher level mathematics. Most of the firms uses math and physics PhD to create strategies with optimum result that is very low volatity and high return where as a common mans strategy (example: moving average crossover) might have higher voltality and lower "POSITIVE" return.

yes, Exceptional people can be ingenious, phd or not. But how will an average retail person become smarter by using an algo ? Someone who is smart enough and willing/able to do exhaustive work needed to create, test and maintain an algo in changing markets should be able to do same manually. Maybe algo might automate part of his daily work. But anyway, i do not know much about this and someone may certainly prefer to delegate everything to algo.

I have to ask you what is algo trading? For most of you its buying and selling at very small time scale which is in seconds or milliseconds? This is one of the biggest misconception. Algo trading is buying and selling using particular entry and exit rules using computers with out the need of a human intervention. Algo trading can be done in seconds or years, time scale dosent matters.

yes, this is what i had in mind. You are right, it need not be the case and for normal TF, it will be similar game to normal trading.

Why most traders losses money even after having a good strategy? They losses money because they cant control their emotion. For me its one of the biggest factor and I believe algo trading is the best way to remove emotion from trading or investing.

A simple example would be automating moving average crossover strategy for long term trading(above one month). This strategy for long term has very good return but has very high volatility and small winning percentage less than 30% . That is every 10 trades only 3 will be successful and other 7 will lose your money. Many traders will loss majority of their money if they are using this strategy manually. They lose money not because the strategy is bad but because they cant control their emotion. Most traders cant handle a trading loss for 3 consecutive trades let alone 7(theoratically). If we can automate this strategy thus removing emotion then with stop loss we can make large amount of money with this simple strategy.

1) A lot of them maybe also loose because they dont have risk control and perhaps they dont have edge, algo or not. Emotional issues follow naturally.
2) What will prevent someone from switching off algo after say 10-15 losses in a row.
3) I do not know your crossover strategy, but if a simple static known strategy can be automated without any manual discretion, should it not loose its edge over time as more people use it? Good part of trend following system is to identify ranging markets.
4) As a counter to above, discretion and intuition will not be available to an algo.

Anyway, i have no familiarity with actual trading algos, so my opinion does not matter. And i agree, either type of trading is just as dangerous in the wrong hands. But no one should assume that simply using algo is his way to fortunes. Hard/Smart work is needed and it still may not be enough.

Edit - Once you have edge, 2k/month should not matter much. I had missed your earlier reply, since latency/tick accuracy is not as much of a factor for HTF, you can consider using above tools / similar tools but make sure to test/modify them as per your needs. Still at-least for ordering, better to use supported/reliable apis. Correct me if wrong, Doesnt IB have free apis ? Only problem is the large account/Higher brokerage.

 

[amitrandive]

Now it is in the news that SEBI is proposing some guidelines for algo trading.

http://economictimes.indiatimes.com...ork-for-algo-trading/articleshow/53560259.cms

Finally, after the public scandal and expose, it seems SEBI has taken blinkers off its eyes to do something about retail traders being robbed in broad daylight with the help of exchanges. The fact that exchanges provide co-location and give quicker access to order flow and deeper look at the order book to algos is same as treating two customers differently. In this case, the exchanges help the big financial institutions to rob the retail traders in front of it's very eyes, while also helping them to do so in the process!!!

Here is a snapshot of my orders that I had placed before NFP data, which is a big event. There was a lull in trading, and the difference between bid/ask was more than rupees 50. So I would see the latest offer, and quote 1, 5 or even 10 or 20 rupees less than the best offer, but every time that I did so, my offer would be foiled even before I could blink my eye. I made 7 attempts to sell Silver, but due to algo reading and knowing my offer, would jump in the queue and make a lower offer and get ahead of my trade. So in a span of about 5 minutes, I made 7 lower manual offers, which got frontrun by algos, and none of my orders could be executed. Hence I had to cancel my order.

Now imagine the number of traders trading and number of trades made daily. And you will realize the extent of looting going on officially by FII's/HNI's with the help of exchanges. I do not mind algo trading - but they should not have access to my order information pain and simple. And if they make an offer, it should stand for atleast 5-10 seconds. The world will not come to an end, nor trading volume dry up if this happened. This is the minimal time required by an individual trader to amend his order.... Granting access to best offer comming into the system to algos, is like giving another student access to my answer in the exam and enabling him to better it. This is wrong. Competition and free markets mean equality for all traders and not prefrential treatment to a few at the cost of millions of other traders. So hope that SEBI does what it says it will do to bring transparency and openness on stock and commodity exchanges and stop the daylight robbery of traders.

:thumb:...........

 

[mastermind007]

http://www.bloomberg.com/news/artic...r-plans-rules-to-slow-down-high-speed-trading

Idiots of the highest order can be found in bureacratic jungle of India.

These kind of regressive ideas come from the same diseased mind set that gave social disease called "reservation".

Instead of forcing fast players to slow down, force all brokers to pump up their infrastructure and encourage players to provide high quality VPS to retails, reduce the threshold costs, simplify and define the costs and
unleash the wild-wild retail trader on this HFT...

But, if that happens, retail traders will win in huge numbers and the buruecrats will have no one but flies to keep company with.

 

[mastermind007]

I disagree with this statement; Trading is always risky weather its algo, semi-alog or manual. According to EP chan one of the most reputable quantative/algo traders in the world says that we dosent need a PhD to create a successful strategy and I agree with him. If we are smart enough we can make our own strategy with out understanding higher level mathematics. Most of the firms uses math and physics PhD to create strategies with optimum result that is very low volatity and high return where as a common mans strategy (example: moving average crossover) might have higher voltality and lower "POSITIVE" return.

I have to ask you what is algo trading? For most of you its buying and selling at very small time scale which is in seconds or milliseconds? This is one of the biggest misconception. Algo trading is buying and selling using particular entry and exit rules using computers with out the need of a human intervention. Algo trading can be done in seconds or years, time scale dosent matters.

Why most traders losses money even after having a good strategy? They losses money because they cant control their emotion. For me its one of the biggest factor and I believe algo trading is the best way to remove emotion from trading or investing.

A simple example would be automating moving average crossover strategy for long term trading(above one month). This strategy for long term has very good return but has very high volatility and small winning percentage less than 30% . That is every 10 trades only 3 will be successful and other 7 will lose your money. Many traders will loss majority of their money if they are using this strategy manually. They lose money not because the strategy is bad but because they cant control their emotion. Most traders cant handle a trading loss for 3 consecutive trades let alone 7(theoratically). If we can automate this strategy thus removing emotion then with stop loss we can make large amount of money with this simple strategy.

Nothing can remove emotions from trading.