Can a Retail Trader Succeed at Algorithmic Trading? (Part 2)

Today I continue presentation and commentary on an internet thread regarding algorithmic trading that took place about 18 months ago.

     > …financial machine learning (ML) is virtually impossible to do right because of the
     > large amount of data you need, awareness of bar types and binning, and many
     > other seemingly trivial but hugely important things. To me, it’s borderline
     > worthless to even try… Leave ML to the MMs and big desks.

I took several Datacamp courses on ML but have yet to do any work of my own in this area. That aside, this sounds like an argument with some teeth.

Someone else commented:

     > BTW, I am disappointed with KD as he doesn’t seem to contribute to the forum.

I couldn’t disagree more. One of my biggest pet peeves is a vendor who shows up online to defend themselves anytime someone writes something that even hints toward negativity (KK is the worst). Do they think they save face by trying to discredit everyone who doesn’t portray them in a brilliant light? While I am skeptical toward reviews and testimonials (see here and third paragraph here), I would sometimes rather let these speak for vendors than the vendors themselves.

This strikes me as one of the best comments of the entire thread:

      • Finding a decision rule with positive expectancy (FDRPE) is… [almost] trivial.
      • FDRPE on daily data that goes back 20+ years is (IMO) foolhardy.
      • FDRPE on daily data that may be tweaked every 6-9-12 months to continue that
         positive outcome… may benefit from [ML] pattern-recognition routines… but…
      • ML depends on data stability that is at odds with the very nature of time-series
         phenomena…

To me, this argues for just how difficult trading strategy development really is (see fourth paragraph here).

     > In my tick-scalping days, I put T/A up that looked good for 20-30 minutes; I relied
     > on it for the next minute or two. For trend-exploitation, I put up daily candles
     > that go back maybe 6-12 months, and rely upon it for the next week or so.

This is shocking, but consistent with my own studies. As discussed in the last three paragraphs here, I did not succeed in looking at four years IS followed by four years OOS and then testing on a subsequent four years. Maybe I should just test the first few trades of OOS2 to see if any edge exists.

Another post reads:

     > You are new here, so I will give you some benefit of the doubt. Get it in your head,
     > you cannot find algo with positive expectancy ANYWHERE. The only way to get it is
     > to create it yourself.

KD disagrees. In fact, if you purchase his product then he gives you several strategies that he says still work in addition to his entire strategy development methodology (don’t mistake this for an endorsement).

I will continue next time.

Can a Retail Trader Succeed at Algorithmic Trading? (Part 1)

I recently stumbled upon a thread on a prominent online forum that is roughly 18 months old. I started reading and realized I have some unique perspectives to share since I am actually ankle-deep in algo trading myself and have taken one of the courses discussed (see second-to-last paragraph here).

The reason I am responding here rather than in the forum itself is because the walls have ears. Internet forums and social media are primary vehicles for communication between retail traders, but vendors often frequent these sites as well. On multiple occasions, I have seen someone subscribed to a trading service get banned by the vendor for posting negative feedback in forums and social media. More details would probably be needed to determine whether this is legal (i.e. do they just get cut off once the subscription runs out? Are they banned immediately with pro rata reimbursement for what subscription remains?), but bottom line is that it happens.

Since I have been a customer—and a customer who does not like to burn bridges—I am keeping personal comments to my unmonetized, low-traffic blog rather than posting in the middle of Grand Central Station.

The thread begins:

     > KD, an (apparently) successful algorithmic trader/author claims simple strategy
     > works and will always work.
     >
     > EC, another guru in this field, however, says simple quant strategies don’t work
     > anymore and machine learning is a must if you want to succeed in trading. He also
     > says that it is impossible to do ML-based system trading on your own; you need a
     > team based approach, since it is so [labor] intensive…

Although I only tested ~300 simple strategies the KD way, none came close to working. Yes, he does teach the simpler the better, and the strategies he gives you as part of his course are simple themselves. Because I couldn’t find anything that met his criteria, though, I have to remain skeptical.

I like the EC comment about doing ML-based strategy development with other people. For multiple reasons, I totally believe trading strategy development should be done in groups (see last paragraph here).

The post continues:

     > I believe EC has gone on record saying the strategies in his book are old strategies
     > that don’t work for him anymore. I wouldn’t be surprised if KD did the same in his
     > book. Seems kind of silly to put strategies in your book you are still using. Both…

Right?! The post continues:

     > publications… are seminal works in retail algo trading. KD is one of the few people
     > with a verifiable record in a trading competition (though we sort of take his word
     > he did it algorithmically). I’d listen to what he has to say…

Interesting comments about KD’s credibility. Yes he was probably verifiable at one point. Is he now? We really don’t know. I’ve been writing on this topic going back many years.

I will continue next time.