Journey from investment bank to independent automated trader

L

lolatency

I work in what used to be known as an investment bank. I'm somewhat miffed about lots of effort and no reward from 2008, and feel as if I should work towards independence. Unless they give me a serious raise at work (and I did ask for one), I'm out and I'm either going to find a job that gives me what I want or I will do it independently.

I work in a fully automated group, and they have access to much better technology than what I will have access to. I've outlined some goals I want to achieve.

Goals:

- Build trading framework that is manageable by one individual
- Quantify risk very cleanly, make SURE I have an edge
- Be up and running before July/August
- Trade intraday only, no overnights.

Tools I will use:

- Python, C, C++, maybe C#, R, Mathematica

Tools I still need:

Clean backtesting framework. I may need to author my own, if I can't find something that will do it for me.

The journal will progress from paper-trading automated strategies to real strategies. The first part will post the back-test results that I do have, and how I plan to go about doing things.
 
I'm trying to trade very short time frames automatically, so some of these parameters will look rather bizarre to traders who hold positions for more than a minute.

Here's what I have so far, and only because the software I am using is really terrible (E-Signal) -- for the period of 04/08/09 and 04/09/09:

Portfolio 1 Results:
All Trades Long Trades Short Trades

Net Profit <b>($50.85)</b> $301.95 ($352.8)
Gross Profit $791.05 $586.91 $204.14
Gross Loss ($841.9) ($284.96) ($556.94)
Adjusted Net Profit ($227) $176.28 ($469.37)
Adjusted Gross Profit $703.16 $506.29 $165.56
Adjusted Gross Loss ($930.16) ($330.02) ($634.93)
Select Net Profit ($83.67) $54.03 ($137.7)
Select Gross Profit $520.13 $315.99 $204.14
Select Gross Loss ($603.8) ($261.96) ($341.84)


Asset 2 Results:

All Trades Long Trades Short Trades

Net Profit <b>$79.42</b> $522.58 ($443.16)
Gross Profit $768.43 $635.91 $132.52
Gross Loss ($689.01) ($113.33) ($575.68)
Adjusted Net Profit ($84.51) $415.06 ($548.33)
Adjusted Gross Profit $682.52 $553.12 $103.6
Adjusted Gross Loss ($767.03) ($138.06) ($651.93)
Select Net Profit $61.8 $298.72 ($236.92)
Select Gross Profit $525.07 $412.05 $113.02
Select Gross Loss ($463.27) ($113.33) ($349.94)


Clearly some kinks in the strategy, as a first round revision. Other problems include the slippage/commission factors that e-signal is giving me difficulties inputting.

Portfolio 1:

All Trades Long Trades Short Trades

Total # of Trades 174 94 80
Total # of Open Trades 21 12 9
Number Winning Trades 81 53 28
Number Losing Trades 91 40 51
Percent Profitable 46.55% 56.38% 35%

Portfolio 2:

All Trades Long Trades Short Trades

Total # of Trades 163 83 80
Total # of Open Trades 21 12 9
Number Winning Trades 80 59 21
Number Losing Trades 78 21 57
Percent Profitable 49.08% 71.08% 26.25%

Again, clearly some issues with the numbers, but having problems getting more insight with the current platform. The strategy will churn away its profits through commissions, even if the net result on the two different portfolios over 2 days shows a tiny profit.

Short term goal: Move this strategy to another platform.
 
One thing about going on your own: do you have access to the same (or similar) resources as you would working for an institution.

For example, if your bank uses X platform to trade. When you are out on your own, can you still use X platform? Do you have access to the data feed from Y company? And can you program using the Z programming language?

As an individual, I can do program trading with TradeStation and the likes. But would they be similar/equivalent to what's available for financial institutions?

Are the trading strategies purely based on price movements or data readily available to the public?
 
Quote from Bolimomo:

One thing about going on your own: do you have access to the same (or similar) resources as you would working for an institution.

For example, if your bank uses X platform to trade. When you are out on your own, can you still use X platform? Do you have access to the data feed from Y company? And can you program using the Z programming language?

As an individual, I can do program trading with TradeStation and the likes. But would they be similar/equivalent to what's available for financial institutions?

Are the trading strategies purely based on price movements or data readily available to the public?
More...

No, I will not have the same access in terms of just cost. The other issue is that their software base has been growing and evolving over 8 years, and I'm just trying to take a little chunk from all of the components (mentally, not actually taking what they use) and trying to reimplement the basic software strategies.

In terms of PnL, the institution is pulling down hundreds of thousands of dollars a day, and I am trying to pull down $100-$200 a day. I don't need everything they need; I just need to get the framework right on one tiny portfolio to move along.

In fact, there are strategies which are profitable that I know about that institutions will not bother allocating development time to pursuing, simply on account of the fact that they want to put labor on projects they think will have much heavier impact. So, it suffices to say that there are lots of little crumbs left over from the institutions that are workable for individuals, if they have the technical ability to piece together an effective framework to do it.
 
I'm still at the IB. I managed to eek out some concessions from management since I didn't get a raise, a big bonus, or better projects. They want to keep me around for a few months so they don't end up short-handed.

As part of the concessions, I get to work on some of the theoretical stuff some more. I decided I'd install NinjaTrader and look into it, because E-Signal is hopeless. I'm looking to get rid of E-Signal and switch off to another platform.

- No trading activity today.
- More theoretical work

Goal for today: Finish watching and reading NinjaTrader tutorials and evaluate whether this is the best tool to get me started on evaluating the effectiveness of the strategies I've been toying with in R.
 
why can't you replicate the main strategy of pulling down hundreds of thousands of dollars per day? is it because it requires order flow?
 
Quote from bidask:

why can't you replicate the main strategy of pulling down hundreds of thousands of dollars per day? is it because it requires order flow?
More...

Startup costs and technical infrastructure costs are way too high.
 
Quote from lolatency:

I work in what used to be known as an investment bank. I'm somewhat miffed about lots of effort and no reward from 2008, and feel as if I should work towards independence. Unless they give me a serious raise at work (and I did ask for one), I'm out and I'm either going to find a job that gives me what I want or I will do it independently.

I work in a fully automated group, and they have access to much better technology than what I will have access to. I've outlined some goals I want to achieve.

Goals:

- Build trading framework that is manageable by one individual
- Quantify risk very cleanly, make SURE I have an edge
- Be up and running before July/August
- Trade intraday only, no overnights.

Tools I will use:

- Python, C, C++, maybe C#, R, Mathematica

Tools I still need:

Clean backtesting framework. I may need to author my own, if I can't find something that will do it for me.

The journal will progress from paper-trading automated strategies to real strategies. The first part will post the back-test results that I do have, and how I plan to go about doing things.
More...

The one thing you're missing is.....wait for it.....an EDGE.

Two days of back-testing does not make an edge...and if it was backtesting more than likely your results are curve-fitted, which means they will fall apart in real-time trading.

In addition, the fact that you've been on these boards since Aug 2008 and you already work for an investment bank, AND you still do not have an edge with at least one year's worth of stats is a big red flag. I would encourage you to keep your day job, and first create an edge that you have traded with REAL MONEY for at least ONE YEAR before you even consider stepping out on your own.
 
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