My estimate is that there are zero people making money from automated systems in NinjaTrader, Tradestation and other retail systems that allow it.
Now - I hold that opinion partly because these platforms put you in a box.
- They do not support spread/arbitrage trading
- They force you into making decisions/backtesting based on price along
So the type of trading you are forced to automate is going to be using historical prices to anticipate a future move.
That's quite different from what HFTs/automated market makers do.
From a longer term perspective, the only person I know that does longer term strategies at a quant firm is trading multi-instrument strategies, so a sort of longer term arbitrage.
So whilst automation is possible - the sort of automation strategies you can employ with retail trading platforms is very specific and not really what is going on (in my experience) in the professional world.
So no backtesting of order flow, no real support for arbitrage, no order book etc. It's very limited. It's basically letting you test combinations of indicators.
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Last edited by DionysusToast; August 31st, 2016 at 07:06 AM.
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He really came off as arrogant and full of himself in that interview. Apparently no trading is profitable except HFT and selling volatility the way Sosnoff does. I wonder if he consulted with Ray Dalio or Jim Simons on that?
This is a very tricky subject, but I think I can provide some illumination. Well, first to play devil's advocate, a backtest or historical study can only disprove hypothesis about the market. These hypothesis are primarily based on the presumption of patterns in the market. The problem is how many types of systems can be built that don't work? We can imagine we can build infinitely many rules that don't work. What does that imply? It means that your confidence threshold that a system works needs to be infinitely high.
Some other thoughts and perspectives:
1. There are studies comparing discretionary CTA's versus quantitative CTA's and the quants tend to outperform.
2. It may be the case of something that worked better in the past but no longer works as well. Quantitative trading worked in the past when it was only accessible to a few sophisticated traders but now quantitative platforms and backtesting ability has trickled down to masses devaluing the edge. In a similar fashion, traditional technical analysis may have worked better in the past before it was popularized and devalued.
3. Defining something as either works or doesn't work is an ill defined form. The capability for quantitative trading to work must take into account the skills of the trader. I'd expect to see far different results from someone who thinks that system trading is plopping down a moving average and running an optimizer versus a trader who is actively tracking the market, coming up with original ideas, and using advanced statistical and analytical tools to derive original insights and value.
4. Defining something as either works or doesn't work is an ill defined form. Most things in the market work to a degree. Keep in mind that a 30% return is considered quite high among professional money managers.
What I really believe:
I don't know Sosnoff, and so that part I won't address. As far as algo/quantitative trading there is probably tremendous value to it, and I'm sure there are profitable traders using these methods. For one thing, it is much easier to execute a quantitative system in a real money account. On the other hand, my sense is that strong discretionary traders should have an inherent advantage in terms of robustness and longevity as compared to any singular testable trading strategy. But, quantitative traders are certainly not limited to running a singular strategy, either and actually have certain advantages when it comes to diversification. My sense is that again a discretionary trader should have a more realistic, a more valid model of the market. A more valid model is more likely to work in the future.
My sense is that for any long term success "one dimensional" traders are less likely to succeed. A trader who only runs backtest or trades using rules is a one dimensional trader in my book. A trader who only uses their discretion is likewise a one dimensional trader. A true professional trader should have capability to engage in a variety of trading styles and find success with them. A true professional trader should not only be able to find success with different styles but should actively develop their capabilities in different capacities. Developing gray box systems is one way to pursue that vision.
Last edited by tpredictor; January 20th, 2017 at 12:27 PM.