Real money, invested with algorithms

http://blog.quantopian.com/real-money/

by twiecki • 12 years ago

165 136 12 years ago

blog.quantopian.com

ForHackernews3• 12 years ago

Sweet. This is perfect for those of us who still have some money we didn't put into MtGox left to lose!

junto• 12 years ago

I'd love to have a go at this but I haven't a clue where to even start. Any tips as to where I should start reading?

justincormack4• 12 years ago

Don't.

ndr• 12 years ago

That's quite harsh, would you mind to elaborate?

gbasin8• 12 years ago

If he doesn't, who will line my HFT pockets?

adeychi2• 12 years ago

To get started on Quantopian, take a look at the FAQ (https://www.quantopian.com/faq) and help documentation (https://www.quantopian.com/help). The platform runs entirely on Python and supports US stocks and equities.

To begin coding, clone the sample algorithm on the front page to get familiarized with the IDE. You can then backtest the strategy, for free, using historical data from 2002 - Now. When you run a full backtest, you can see how your algorithm would have performed in the past - you can see your returns, Sharpe ratio, and other metrics.

Once you're comfortable with the syntax and mechanisms, the community is a great place to look for trading ideas to try on your own. Try cloning an algorithm posted in a thread to begin experimenting. If you get stuck, post to the forums - they're a friendly bunch and will be happy to help out.

Of course, past performance is not indicative of future results. When you're ready, you can paper-trade your algo (trade using fake money) on the live market. It's free on Quantopian and a risk-free method to see how your algo performs in the market. And then, the last step is to connect your account to Interactive Brokers and begin live trading with real money. This blog post was an update of the live trading pilot program.

(Disclaimer: I work for Quantopian. But I'd be happy to help answer any questions! Feel free to reach out to us directly as well, feedback@quantopian.com)

joelreymont• 12 years ago

How does Quantopian connect to IB?

Doesn't IB require a local TWS connection as well as credentials, e.g. 2-factor authentication?

onion2k2• 12 years ago

Great site. Do you know of anything similar for the UK? It looks like a lot of fun to play with.

IBM• 12 years ago

Stick with value investing (or index investing if you don't have the skill/discipline/time for it).

gnaritas13• 12 years ago

In other news, the sky is blue. C'mon man, make a useful comment about the site, not just some generic and completely unrelated investment advice.

minimax2• 12 years ago

You could try and write an algo that would carry out your value investing strategy. You could trawl Yahoo for P/E or whatever value metrics you want to look at buy or sell based on certain thresholds.

gbasin8• 12 years ago

Successfully implementing a value strategy cannot be codified into an algo

EDIT: There are just too many exceptions and nuances. Every single investment involves more exceptions and nuances that would need to be coded. And if you don't think so, I would bet you don't have alpha :)

marvin• 12 years ago

What makes value investing better than index investing? Surely if it is statistically impossible to beat the market on a risk-adjusted basis over time, this also applies to value investing.

aleyan• 12 years ago

Congratulations to the quantopian team.

Trading on real data is very different from simulated trading on historic data. There are a lot of leaky abstractions and assumptions that happen during simulations that cause problems once you put real money to work. In the past, here on HN, I have criticized quantopian several times because no one has actually used quantopian to trade real money. This is no longer true.

It will take a lot of time and a lot more capital to figure out all the holes, but they are finally on the right track and I am glad they have 20 people already trading. That is 20 sets of eyes balls to look for lack of fidelity in the simulations.

Personally I am interested to see how good their transaction cost model is when trading hundreds to thousands of shares at a clip.

noname123• 12 years ago

Yes, 1000x! I'm waiting to see Quantopian's forward testing with results.

Personally, I couldn't wait for their roll-out. So I wrote my own IB client and traded my Quantopian backtested strategies myself on my IB test account. Race condition, deadlocks much at 3:59PM ET at 2000+/msg burst from quote ticks (esp. when you are doing some kind of stat arb, pairs trading where one order submission is dependent on another order's fill).

Anyways interesting technical problems abound. Gl to the Quantopian team!

novaleaf2• 12 years ago

very interesting!!! but I'd like to try writing my own algorithm offline, in my own prefered language. (javascript)

does anyone know where I can get price history for the last few years for something like an index fund, like DIA?

wkneepkens• 12 years ago

Yahoo Finance is a good option, also have an API.

citanul• 12 years ago

It seems the natural next step would be to allow non-algorithm writers to invest in algorithms (or a bundle of algorithms), with some fee going to either or both Quantopian or the writer of the algorithm(s). Any chance that's on the roadmap, and if so, when can I expect to be able to crowdsource my investing?

eclipxe• 12 years ago

If only there was some way to invest in an index of some sort of the best algorithms...

nicolethenerd• 12 years ago

But what you don't get with an index (at least, I don't think you do? I admit my ignorance on this) is the sort of transparency and ability to dig deep into the algorithm(s) that it appears you'd get with something like Quantopian. And possibly the ability to tweak that algorithm. Basically, a market for starter Quantopian algorithms that are more advanced than the samples on the site - I think that's vastly different than an index, and I could see paying for something like that.

Ecio782• 12 years ago

You mean something like http://www.collective2.com/ ? One of the difference is that on c2 you can't see the internals of the algo (because it could also be not an algo but somebody deciding how to invest, actually the algo is not implemented on the site but outside, the site only receives buy/sell commands).

on Techzing podcast can find and interview to the founder (a bit old, 2011): http://techzinglive.com/page/868/155-tz-interview-mathew-kle...

gbasin8• 12 years ago

Some other commenters have hinted at this but... I feel sad whenever people build this kind of stuff. It's probably a very well built product (or will be) and is better than the alternatives out there, but the unfortunate fact is that anything that enables and encourages active trading in modern financial markets is setting 99% of their customers up for failure. And the 1% that are actually on to something will quickly move off the platform onto their own, or will end up losing whatever they make when their strategy loses whatever alpha it has and they can't admit it (I've seen this happen, but never the former, actually).

Trading is hard. I run a proprietary trading firm with modern technology infrastructure and we have a lot of trading experience. You really have very little chance of success unless you're doing this full time, and even then it will take years before you have enough experience to build a sustainable income.

yarou3• 12 years ago

In other words, there's no easy way to get rich. There is always pain involved, and people looking to get rich quick in financial markets are probably better off learning how to play poker.

breischl• 12 years ago

Because playing poker is a much easier way to make a sustainable income!

Hm... actually, it might be. At the very least you certainly don't have to shell out as much for software.

lutusp21• 12 years ago

In other words, there's no easy way to get rich.

Of course there are -- very easy ways. But there's no reliable easy way to get rich.

people looking to get rich quick in financial markets are probably better off learning how to play poker.

If we eliminate "quick", then not true. All one needs to do is invest in an equity index fund and patiently wait decades while ignoring the dubious claims of investment counselors. It's very reliable.

With respect to "quick", that also happens but with much less reliability. Consider that a blind computer program randomly flipping coins, with no strategy at all, will enrich a small percentage of its accounts by chance alone. This works for people too, but it's a rare, chance outcome, not any kind of strategy. More here:

http://arachnoid.com/equities_myths

oofabz2• 12 years ago

I agree that day trading is a terrible idea, but how do you feel about laymen investing with a buy-and-hold strategy? If you buy large cap stocks and avoid making trades there is not much risk.

This kind of strategy enables laymen like myself to do about as well as the market, without paying a middleman such as a mutual fund.

gbasin8• 12 years ago

You're probably leaving most of the diversification benefit (which is the only edge you really have, unless you're assuming a fat equity risk premium haha) on the table unless you're a pro at that, as well. I think some of the newer automated-investment services are OK at building portfolios, although I would personally want a lot more exposure to other currencies/markets than my home (see: Home Country Bias)

lutusp21• 12 years ago

... how do you feel about laymen investing with a buy-and-hold strategy?

The answer is that buy & hold is a very reliable way to grow your capital, and it does without the services of investment advisors and brokers, which is why they don't want you to find out about it.

On average, buy & hold investors do better than those who enlist the help of brokers or who become day traders (who on average do worse than anyone else).

For actual evidence, one need only examine the outcome of the Wall Street Journal dartboard contest, which compared expert equity picks to random picks. The expert picks weren't sufficiently better than random picks to justify the broker fees, and this outcome went on for years.

http://www.investorhome.com/darts.htm

Quote: "... the performance of the pros versus the Dow Jones Industrial Average was less impressive. The pros barely edged the DJIA by a margin of 51 to 49 contests. In other words, simply investing passively in the Dow, an investor would have beaten the picks of the pros in roughly half the contests (that is, without even considering transactions costs or taxes for taxable investors)."

brc• 12 years ago

There is nothing wrong with buy and hold executed well...if that fits your investor risk profile and personality.

But you're dead wrong if you think large-cap stocks provide safety from risk. Plenty of large-cap stocks have disappeared completely, another large cohort have had terrible returns.

Any strategy is only going to work if you put disciplined position sizing/money management rules in place. Rules that allow you to trim the dogs and keep the winners, whilst making sure that any large losses don't fatally wound your portfolio.

tempestn• 12 years ago

Buy and hold is great. These days though you can build a very inexpensive diversified portfolio of ETFs (or even index mutual funds with something like a Vanguard Admiral account if you're in the US). For example, you can get a globally diversified equity portfolio using just VT (expense ratio of 0.06%) and VXUS (0.16%). So you are paying a middleman, but only around 0.1%, and you end up with far better diversification, and far fewer securities to manage.

minimax2• 12 years ago

I come from a similar background (automated trading) but have the opposite opinion. More people ought to understand how the markets work. One good way to learn is to trade a small account. Yes you will probably lose a little money (or fail to beat the indexes) but you will also come away with a much better grasp of markets and trading (and hopefully also risk management).

If you look at a typical discussion of trading here on HN you will see lots of totally uninformed hyperbolic assertions about what goes on in the market. How everything is rigged and how corrupt the players are. I think trying to scare people out of the markets only promotes that kind of thinking.

lutusp21• 12 years ago

If you look at a typical discussion of trading here on HN you will see lots of totally uninformed hyperbolic assertions about what goes on in the market. How everything is rigged and how corrupt the players are.

Yes, one does see such remarks, but an excellent counterargument is almost never heard-- and that is that (a) business leaders aren't stupid and (b) if the equities market was really significantly rigged or inefficient, these people would refuse to raise capital using equities.

The fact that some of the most skeptical, cautious people in existence, people with plenty of practical experience, are willing to fund their businesses with equity capital, means that equity trading is substantially fair and that the efficient market hypothesis is at least approximately true.

Alex_MJ• 12 years ago

Thank you for saying this!

IMO there's way too much fearmongering (largely from people who have no experience trading, or from traders who don't want to see other people do better than them) about this. I've traded options on a very volatile commodity ETF before (SLV) and came out quiet well on top by playing with patterns and timing. This was in 2010, but there was the same "THE COMPUTERS CONTROL THE MARKETS AND YOU'LL GET CRUSHED" fearmongering hyperbole as there is today. It'll be there four years from now, too.

There's smart money and super fast algorithms and all that for sure, but there's plenty of dumb money moving around too. There are also plenty of people (I will note: often nontechnical individuals) who make a good living day trading. You basically just have to find a pattern ANYWHERE, IN ANYTHING and trade it over and over until it stops working (...and catch on quick). You might lose money (especially starting out), but it's not at all the experience of "you will step in and BE CRUSHED BY EXPERT TRADING ALGORITHMS" that people portray it as.

Start a brokerage account, do some reading, put in a sum of money that's consequential but that won't break you if you 100% lose it, and play around a little bit. Try focusing on one specific (preferably fairly liquid) security. You'll be amazed at how sometimes you make the right call and magically you have more money than you started with, and how you don't immediately die and get shot and lose all of your money to some corrupt evil high-speed algorithm while being eaten by wolves because, you shameful Icarus fool, you dared to trade on the public markets by yourself.

Risk-averse people (especially programmers) who have no experience trading will think you're completely insane and lambaste you, especially if you make money.

gnaritas13• 12 years ago

Everything you said could practically be applied to any skilled profession. Being an X is hard, 99% of people fail at X. What makes trading any harder than programming or engineering or abstract mathematics or physics? Successful traders exist, plenty of people trade for a living. People have to try something to see if it's something they're good at and most people aren't good at most things. Pointing that out X is hard and most people fail is a tautology, it's true of all difficult professions.

lutusp21• 12 years ago

What makes trading any harder than programming or engineering or abstract mathematics or physics?

That's easy to answer -- if you're very smart, you will do better in math and physics, and the positive correlation between intelligence and success actually has meaning. But in equities trading, being very smart does no good at all, and might even represent a handicap. The reason? Equity pricing is mostly random noise, very high entropy.

Many very smart people have tried to model and then beat the market, and (apart from chance outcomes) no one has succeeded in the sense that they located a reliable, describable "method" for it.

Also, if in principle someone discovered an actual winning system, by publishing the system he would destroy its effectiveness (because once a "system" is put into practice, once everyone uses it, it loses its effectiveness).

Obviously for a random collection of investment schemes, half will do better, and half worse, than the average market, but the half that do better will naturally enough claim the outcome resulted from their investment genius -- even if they're smart enough that they should know better.

I can use a computer to model a random market and random investors, using random price changes and random trades, and not surprisingly, half the investors will do better than the average outcome. What is surprising is that, when the above-average investors are humans, they invariably try to claim this chance outcome resulted from a winning system that they will sell to you for some princely sum.

More here: http://arachnoid.com/equities_myths

Pointing that out X is hard and most people fail is a tautology, it's true of all difficult professions.

Yes, but there's a qualitative difference between "hard" and "impossible".

gbasin8• 12 years ago

Trading liquid and open markets is much harder precisely because its way more competitive and the barriers to entry to compete are non-existent. And the financial rewards for those who compete well are incomparable.

ScottBurson2• 12 years ago

All true, but on top of being hard, trading is a competitive game. It's not just how good you are -- it's how much better or worse you are than everyone else you're trading against. Furthermore, every successful trade puts you in a better position, and every unsuccessful trade in a worse one.

I wouldn't say no one should trade -- obviously some people do very well. But most of us, I think, should be very careful, and limit our exposure.

justincormack4• 12 years ago

There appears to be no real evidence that objectively successful traders do exist, other than ones who have non public information (insider dealing, order flow).

piercebot4• 12 years ago

I actually just launched http://fxmachine.com with my co-founder, and so far, it looks like our system will enable anybody to achieve a sustainable income without any active involvement.

We're trading on live data (not just making claims based on forward tests) without any human involvement, though human intervention and the ability to recognize trends could have saved some of the trades that ended up being losers. Still, we're looking at sizable gains with a hands-off approach (maybe you'll need to re-train the system every year, but even that can be automated).

We've now run into the problem of telling the world about it; you'd think that 40% annual returns would have large institutions knocking down the door to give us our millions. So it goes!

ep25• 12 years ago

40% returns seems like a lot. Your quote, "FX.Machine builds profitable trading strategies by learning from historical data", is true for most of the strategies. What makes your strategy different? I would think that many people have tried both statistical and machine learning methods. I do not hear about any 40% returns from them. Your claim of 40% returns makes me doubt your testing strategy. Your forward test shows only 7.9% increase till now. There are a whole set of backward tests missing and a lot of information missing to consider your strategy seriously. For example, how is the risk being measured? Is it drawdown, Sharpe ratio etc?

onion2k2• 12 years ago

If that 40% is real and you're entirely confident about it as your post implies, just go to the bank and get a personal loan for as much as you can borrow, and invest that. Within a few years you'll have your millions. If you don't do that then you're not willing to gamble your own financial stability on your system, which begs the question why should anyone else?

zvrba• 12 years ago

You really have very little chance of success unless you're doing this full time

Heh. I also wanted to play with algorithmic trading, but before doing so, I got a book "Trading and exchanges" by Harris, which was recommended by somebody on reddit.

I have read it only halfways and realized two things:

1. I'd have to do trading (and related activities) as a full-time job in order to be successful (i.e., earn money in the long run).

2. I'd need to spend at least a year's equivalent of a full-time job on learning the necessary background math and algorithms.

I.e., I'd need to quit my job (which I quite like), only to replace it with another set of daily duties.

cpwright3• 12 years ago

This is true. I think that people should have the capability of being successful, but only if they do approach it like a full-time job. That doesn't, however, guarantee success, even a large operation like the last one I worked for can fail.

If it were easy, and everyone could do it and make as much money as working full-time, without actually working full-time; then everyone would.

adamcanady• 12 years ago

I'd love to talk to you about your algorithmic trading experience. Can we get in touch sometime?

pontifier• 12 years ago

This is quite interesting. I had just built a predictive rebalancing bot to trade on MtGox a few hours before it collapsed. I was rebalancing every 60 seconds and making lots of trades. I only got a couple of hours of run time before it stopped working :(

Here's the bot I built: https://github.com/pontifier/rebalancer

Quantopian looks interesting, and hopefully the exchanges it trades on won't disappear.

gedrap• 12 years ago

Doubt that. NYSE is definitely a scam. I have heard they pivoted from creating a new social network, like Facebook just better.

jgh• 12 years ago

I've really enjoyed playing with Quantopian, and I think that I will continue to play with it as an educational tool. However my algorithms so far have been very good at losing an awful lot of money, so I think I will be sticking with simulations for now :)

lucisferre• 12 years ago

my algorithms so far have been very good at losing an awful lot of money

But... the solution is just so obvious, just make the algorithm trade the opposite of what it would have done.

Pure profit!

xerophtye• 12 years ago

haha! So... if the algorithm thinks a stock will rise, go short instead and vice versa?

nick_dm• 12 years ago

A few years ago I heard a story from an acquaintance working at an online spread betting company. One senior figure suggested that they should actively bet against their worst performing customers rather than hedging, they discovered pretty quickly that this wasn't a good idea!

EGreg• 12 years ago

For the next week my comments on Hacker News -- except this one -- will attempt to garner as many points as possible by exploiting various HN tendencies.

Feel free to upvote this comment if you think this is cool btw :)

watermarkcamera• 12 years ago

can I add comment ?

vijucat• 12 years ago

I've always found https://www.quantconnect.com/ more interesting. They're just not as good as Quantopian at generating some buzz.

monksy• 12 years ago

The only issue that I have with that is that they require an IB account. That has a min of $10k. Thats not exactly easy to come by.

cpwright3• 12 years ago

If you don't have $10,000 to risk, you probably shouldn't attempt to trade in an automated fashion. You need enough capital, because any one trade is likely to have a small percentage upside and you need to turn it over frequently.

Ecio782• 12 years ago

For those interested in doing some algo testing I found this site quite interesting: http://systematicinvestor.wordpress.com/

agilebyte• 12 years ago

Can anyone in the know tell me why traders are not interested more in sports betting? Seems like you have a lot more people betting with heart then brain which should result in a profit if you employ all your fancy algorithms no?

Real money, invested with algorithms

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