What have you been getting into? I've long thought this place could use a thread on side businesses (I'd start one but have nothing to offer). It'd be nice to diversify a bit and after doing this for a long time, using some different skills would be a nice change of pace. Apologies if I'm taking the discussion too far off track. Solid journal.
Fully Automated Stocks Trading
- Thread starter ValeryN
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What have you been getting into? I've long thought this place could use a thread on side businesses (I'd start one but have nothing to offer). It'd be nice to diversify a bit and after doing this for a long time, using some different skills would be a nice change of pace. Apologies if I'm taking the discussion too far off track. Solid journal.
Appreciate that.
Not sure if I can offer any great ideas here. I started a business in tech few years ago with a few partners and we’ve been doing well, growing from 3 to ~60 people and now having healthy valuation within our sector.
There was no magic. None of us were school dropouts who thought good ideas are everything. Well, technically I was a dropout, a PhD dropout. But then I had a successful career in my field afterwards.
Right partners with relevant backgrounds, all incredibly hard working, right market fit, right timing = skews odds in your favour and gives an ability to raise sufficient capital. We didn't pay ourselves crazy high salaries and were very mindful of any external capital we took. Most of the guys I hired were paid more than me at the beginning. Then we got our own compensation to a reasonable level but nothing crazy. Currently working on solidifying company's position as a niche market leader increasing shareholder's value. Unlimited is a big word, but we can see how we can take this business to a 1bil$ valuation.
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Something tells me that I just lost any chance of this journal becoming popular, as now many people won't feel they can relate. Regardless, adding this might serve as an inspirational value:
Things weren't always like this. When I was a kid, my single mom, working as hard as she could, still couldn't pay rent so we were getting kicked out of apartments pretty regularly, ate potatoes or rice, with a ketchup on holidays. Forget about computer at home. I knew I was not getting out of this unless I worked smart and hard and was thinking real hard what will get me out of there. Lots of kids around chose to take the easy way, many ended up in prison while still being in high school, others, are probably still eating potatoes with a potato sauce.
Long story short - I left this city pretty early on my own, worked my ass off to get a scholarship, went where opportunities were. Miles of consumed noodles later I noticed how people were referring to me as some sort of genius when it came to computers. But I never was. Only if there knew how many hours went into this. Needed to study but got no computer? - no problem, found a friend who had one, told him I gonna play games with him, then after he went to bed - practiced my programming before getting kicked out in the morning. No friend with a computer around - got a book and was writing programs on a piece of paper and trying to think how computer would process it.
My point being - there is always a way.
In regards to where to put effort:
When I pick my projects, I look at the distribution of outcomes and pick ventures that have the biggest percentage of outstanding outcomes I can find amongst other possibilities. Accumulated knowledge and skills make certain types of ventures within reach. Then I would pursue those ones to unlock more possibilities with the best distributions of favourable outcomes. Lack of competition and higher barriers of entry generally increase a potential payout.
Val
Problem is that most things with asymmetric leverage are structurally rich, be it options, lottery tickets or startup investments. On the other hand, the upside is unlimited. So it feels like one of those things that you nether want to own (cause they rarely payout) nor want to be short (cause the upside is unlimited).
After reading this I'm surprised that you still find time to work on your automated trading, plus backtesting of new ideas.
Asymmetric Leverage without a cold blooded assessment of outcomes distribution and the extend to which most of them will payoff has probably as much value as the power of positive thinking without doing.
Can be waking up every morning and thinking how it is great to be alive, that a sun is shining and that that cup of coffee is still half full, but still be sleeping on a street and looking at that cup thru the glass of StarBucks shop.
In general, less competition and higher barriers of entry increase a potential payout. To take on AL project, I personally need to have a strong hypothesis of why I would have higher chances of success. Things like skills, certain personality traits, previous experiences, connections, financial backing can certainly put odd in your favour.
Val
End of month update:
~4% of this month performance was discretionary trade in BIGC. Not something I normally do, but my algo shorted it and it was a big outlier for several reasons, thus catching my attention. And I traded discretionary around it. Done a lot shorting in a past and have a decent sense of what is really good opportunity. That is not something I am planning to do regularly or use to be doing in this account, but it seemed to be logical to keep all the trading around the same stock in a single place. On my graphs I show those trades as separate strategy so they don’t make mechanical system look any worse or better.
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There is another thing I’ve used in a past and wanted to share.
Could be in a toolbox of a mechanical trader.
Let’s call it - one way to incorporate discretionary bias.
I have a discretionary opinion about the current market (who doesn’t?) I am convinced we are entering a bubble and expecting very large MAE and unusually big single stock losses in shorts, especially MR Short. No idea when it’s gonna end or start, arguably - already started. But I do know that historically the absolute worst losses in shorts, especially MR shorts were as market was breaking to new highs after corrections and persisted to go higher. End of 1998 - predominantly huge runs in IPOs, early 2000 - everywhere else. And the level of the last correction we just had was way deeper than back then. In April/May, I thought we not gonna see another IPO for 2-3 years. Now there are all over the place. New retail accounts brokerage accounts surged to a record level. It’s been long enough since the last bubble that no one really remembers. My ex’s mom is doing “day trading” now. Those are some of my reasons.
So what market is gonna do is just my hypothesis. But what normally happens if it does just that - is based on data.
My ideal solution for this is to look at
For #1 that would mean taking advantage of opportunity while keeping risk reasonable if that scenario doesn’t materialize
For #2 - cut the downside and risk while not hurting return if that scenario doesn’t materialize.
Re #1 - over last few months I did few small adjustments in anticipation. They ultimately looked better regardless of market environment so it was an easy choice. Mid August I launched long penny stock strategy, to also help with the upside. Too early to talk about its’ performance.
Re #2 - slightly different version of MR Short is now running which seems to retain most of return for typical years but have a potential to handle worst case shorts better. While achieving all of that it also uses smaller position sizes which is great for obvious reasons.
Val
~4% of this month performance was discretionary trade in BIGC. Not something I normally do, but my algo shorted it and it was a big outlier for several reasons, thus catching my attention. And I traded discretionary around it. Done a lot shorting in a past and have a decent sense of what is really good opportunity. That is not something I am planning to do regularly or use to be doing in this account, but it seemed to be logical to keep all the trading around the same stock in a single place. On my graphs I show those trades as separate strategy so they don’t make mechanical system look any worse or better.
————
There is another thing I’ve used in a past and wanted to share.
Could be in a toolbox of a mechanical trader.
Let’s call it - one way to incorporate discretionary bias.
I have a discretionary opinion about the current market (who doesn’t?) I am convinced we are entering a bubble and expecting very large MAE and unusually big single stock losses in shorts, especially MR Short. No idea when it’s gonna end or start, arguably - already started. But I do know that historically the absolute worst losses in shorts, especially MR shorts were as market was breaking to new highs after corrections and persisted to go higher. End of 1998 - predominantly huge runs in IPOs, early 2000 - everywhere else. And the level of the last correction we just had was way deeper than back then. In April/May, I thought we not gonna see another IPO for 2-3 years. Now there are all over the place. New retail accounts brokerage accounts surged to a record level. It’s been long enough since the last bubble that no one really remembers. My ex’s mom is doing “day trading” now. Those are some of my reasons.
So what market is gonna do is just my hypothesis. But what normally happens if it does just that - is based on data.
My ideal solution for this is to look at
- Ways of taking advantages of upside if the discretionary hypothesis is correct (bubbles in this case)
- What current strategies are especially susceptible in terms of DD / MAR and mitigate
For #1 that would mean taking advantage of opportunity while keeping risk reasonable if that scenario doesn’t materialize
For #2 - cut the downside and risk while not hurting return if that scenario doesn’t materialize.
Re #1 - over last few months I did few small adjustments in anticipation. They ultimately looked better regardless of market environment so it was an easy choice. Mid August I launched long penny stock strategy, to also help with the upside. Too early to talk about its’ performance.
Re #2 - slightly different version of MR Short is now running which seems to retain most of return for typical years but have a potential to handle worst case shorts better. While achieving all of that it also uses smaller position sizes which is great for obvious reasons.
Val
What a week... +8.5%, every day was positive.
Even better in $ figures as I added some spare cash from my bank account literally few days prior to the last week.
Sudden volatility at thetops all time highs is the best for my systems. As no one expects it, so overbought stocks fall down way faster than they went up, but since, well, it's near to all time high + every knows "stocks can only go up", everything finds support pretty quick. So both longs and short make money fast.
Account was close to the max use with positions # hovering around 30 a lot.
Val
Even better in $ figures as I added some spare cash from my bank account literally few days prior to the last week.
Sudden volatility at the
Account was close to the max use with positions # hovering around 30 a lot.
Val
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Reading recommendations:
William Eckhardt: A Chapter in "The New Market Wizards"
Howard B Bandy: "Mean Reversion Trading System: Practical Methods for Swing Trading"
Larry Connors: "Short Term Trading Strategies That Work"
Laurens Bensdorp: "Automated Stock Trading Systems"
Cesar Alvarez: https://alvarezquanttrading.com/
William Eckhardt. 1 out 2 guys who created the famous Turtles experiment. No systems there. But he speaks about timeless truths of systematic trading. My personal favorite.
Comp. Sciense prof. Howard Bandy gives examples of systems in AmiBroker's code. Not sure if they still work, but they inspired me to look into MR in the first place and my first strategies were based on his work. I've read all his books but this one is the most practical in my opinion. Looking back - his strategies are a bit naive as they use low trade count and have very high win rate. Easy to overfit. But he has lots of right ideas / examples of research.
Larry Connors - a famous trader. He is not purely mechanical, like Linda Raschke, but uses lots of formal research to power his decisions. Sometimes his findings still work sometimes they don't. But it is a good value. Lots of the stuff he mentions will have value as individual components of a system.
Cesar Alvarez worked for Larry Connors and now on its' own. He is focused on AmiBroker and periodically publishes research on his blog. It is an interesting read. He dissects and measures individual edges fairly often. Great example of how to do it.
Finally, Laurens Bensdorp. Biggest value, in my opinion, is the overall method he describes. That can be summed up - holy grail of trading is trading multiple non correlated strategies. After reading his book there is a decent chance that will be internalized. The way his strategies are described is a high quality. Decent description of how to look at them together.
In general, don't expect that any strategy published in any book will work. Mostly they don't. Sometimes they "somewhat” work. Sometimes they work, but over market types which are not what we're seeing now and you will feel like they don't work, but they actually do. After reading a bunch of a good ones you get a sense of what a system looks like, gain knowledge / skill required to validate, find something that work but maybe not as great as you want, go thru attitude/expectations adjustments, pickup individual ideas and then finally put something together that has a potential.
I've probably went thru couple of hundred of other ones. Mostly garbage.
Val
William Eckhardt: A Chapter in "The New Market Wizards"
Howard B Bandy: "Mean Reversion Trading System: Practical Methods for Swing Trading"
Larry Connors: "Short Term Trading Strategies That Work"
Laurens Bensdorp: "Automated Stock Trading Systems"
Cesar Alvarez: https://alvarezquanttrading.com/
William Eckhardt. 1 out 2 guys who created the famous Turtles experiment. No systems there. But he speaks about timeless truths of systematic trading. My personal favorite.
Comp. Sciense prof. Howard Bandy gives examples of systems in AmiBroker's code. Not sure if they still work, but they inspired me to look into MR in the first place and my first strategies were based on his work. I've read all his books but this one is the most practical in my opinion. Looking back - his strategies are a bit naive as they use low trade count and have very high win rate. Easy to overfit. But he has lots of right ideas / examples of research.
Larry Connors - a famous trader. He is not purely mechanical, like Linda Raschke, but uses lots of formal research to power his decisions. Sometimes his findings still work sometimes they don't. But it is a good value. Lots of the stuff he mentions will have value as individual components of a system.
Cesar Alvarez worked for Larry Connors and now on its' own. He is focused on AmiBroker and periodically publishes research on his blog. It is an interesting read. He dissects and measures individual edges fairly often. Great example of how to do it.
Finally, Laurens Bensdorp. Biggest value, in my opinion, is the overall method he describes. That can be summed up - holy grail of trading is trading multiple non correlated strategies. After reading his book there is a decent chance that will be internalized. The way his strategies are described is a high quality. Decent description of how to look at them together.
In general, don't expect that any strategy published in any book will work. Mostly they don't. Sometimes they "somewhat” work. Sometimes they work, but over market types which are not what we're seeing now and you will feel like they don't work, but they actually do. After reading a bunch of a good ones you get a sense of what a system looks like, gain knowledge / skill required to validate, find something that work but maybe not as great as you want, go thru attitude/expectations adjustments, pickup individual ideas and then finally put something together that has a potential.
I've probably went thru couple of hundred of other ones. Mostly garbage.
Val
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