Automated Trading - FAQs
|September 16th, 2014, 10:24 AM||#1 (permalink)|
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Automated Trading - FAQs
I had posted this thread on another forum and got a few decent responses. Unfortunately, it attracted more responses from Seroquel taking "traders" who sent me off to Gagaland pretty fast
I have read a few threads on futures.io (formerly BMT) and it seems that the bunch here is astute and the responses will allow for a very constructive thread to ensue. Hence, I am in the process of becoming a member that will be here more frequently.
Not having any experience in coding or algorithmic trading, there are a few questions I have that I would appreciate an input on. Please excuse the naivety of some questions that may come along with this lack of experience.
I have numbered the questions to allow for where only specific questions can be answered.
Your insight is greatly appreciated.
1) If I were to learn a single language (C++, Python, R etc), which one would it be.
2) Can I get away with leaning only one language or is it a necessity to know others? If it is the later, can you please elaborate what the differences are and what each can do. Also what are the advantages of one over the other.
3) How long does it take to learn a language to the capacity of being able to create your own algos with little/no outside help.
4) How complicated can you make your algos? I know you can do simple stuff such as saying go long on the break of the previous bars high, if the volume is over x and 10MA is over 30MA.
However, can you get really complex and say enter long on the break of the previous high if the last 4 bars prior to that have a body that is 80% of the total and the volume is at least 50% above average of the last 30 trading days and that the last 3 bars on a lower time frame closed higher than the open and the break to the new high is higher than over the last 8 trading days and MA are so and so, with the MACD being so and so etc etc.
5) If I decided that I wanted to put most of my time into creating algo strategies rather than writing code, how expensive is it to hire someone.
6) I'm assuming that in hiring someone, they would have a decent understanding in chart reading. If that is so, what is to say that they can not take my work elsewhere once the strategy is tried and tested and proves to be successful.
7) I am a discretionary trader and even though I have my strategies and trading plans detailed, I will sometimes forgo a trade/setup if I notice the smallest of things that may skew the probability. Surely, this kind of detail is not worth coding for, purely based on the law of diminishing return. If I were to give an analogy based on manual trading and automated trading, would the following analogy be acceptable:
"Going from Point A to Point B, a manual (stick shift) car would get you there faster (higher profits) and safer (tighter risk management) as you have a more defined control of the car as opposed to an automatic, which will none the less get you there, but a little slower and a little safer (i.e. money can still be made, but less).
8) I am assuming that the purpose of automation is either to be able to diversify your trading, be able to take more setups than humanly possible or purely because you want to get away from the monitor. If the reason is getting away, does that not pose a threat to a trader as with time the sharpness/finesse/edge is eroded.
9) If a particular algo is written, does it get confined to one stock/instrument or can it set up so it is continually searching for the criteria over 3000 pre-determined stocks.
10) Will the rise of algorithmic trading be the death of discretionary trading (just like it was for the floor traders), or will discretionary trading always have it's own place. If you feel that automated trading will get rid of the discretionary function, how so? Please feel free to speculate on this as ideas that seem impossible today, may very well be implementable tomorrow.
This is an interesting documentary on the changes brought about by the rise of computer trading, if it takes your interest:
11) Are high probability algos scalable? Will the algo produce the same results when trading 10,000 shares as opposed to 100 shares.
12) What is the average longevity of a particular strategy? Sometimes I hear that a particular strategy worked amazingly well for 18 months and than it stops making money. Does this happen to all strategies or are some more exposed to getting "expired" than others? Also, what are the contributing factors that lead to a healthy strategy losing it's effectiveness over time?
Last edited by Alpha Trader; September 16th, 2014 at 06:38 PM.