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KJ Trading Systems Kevin Davey - Ask Me Anything (AMA)
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KJ Trading Systems Kevin Davey - Ask Me Anything (AMA)

  #261 (permalink)
Market Wizard
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grausch View Post
Not Kevin, but the answer is probably still relevant.

Any reputable broker/bank would have a policy in place regarding personal trading. Of course enforcing this policy against individuals may not always be easy, but in the current environment of "information sharing", i.e. FATCA, CRS and whatever else will be dreamt up next, you never know how risky it would be trading on the side. In the absence of such a policy, and I may be mistaken, but I believe someone could trade along a broker client as long as they are not front-running.

In my previous post I mentioned scale - unless your strategy scales well, it may not represent an efficient use of the broker's time or capital to employ your strategy. If it scales well, then things may be different, but how sure are you that a) you truly have something unique or b) that your super-strategy is not a risk management nightmare that no brokerage / institution / professional would touch?

Thanks grausch - regarding personal trading I suspect it's something that can be sidestepped - e.g. I could simply open up an account in my spouse's name.

As for scale, it's true that one way to go is to scale up, but I've seen presentations that illustrate how some algos can operate in 5-lot trades and rake up hundreds of k by the end of the day, so there's that as well to consider.

Finally, I wish I had a fully automated, unique super-strategy. I can only dream of it today


But I still enjoy talking about these issues and understanding more of the risks of IP theft, regulatory side and how people go about circumventing that of course

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  #262 (permalink)
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xplorer View Post
Thanks grausch - regarding personal trading I suspect it's something that can be sidestepped - e.g. I could simply open up an account in my spouse's name.

As for scale, it's true that one way to go is to scale up, but I've seen presentations that illustrate how some algos can operate in 5-lot trades and rake up hundreds of k by the end of the day, so there's that as well to consider.

Finally, I wish I had a fully automated, unique super-strategy. I can only dream of it today


But I still enjoy talking about these issues and understanding more of the risks of IP theft, regulatory side and how people go about circumventing that of course

Personal trading can be sidestepped, but trading in your spouse's name might not be smart. I may be mistaken, but I believe I read about an insider trading case where the insider tried it and got busted.

Perhaps there are algos trading with 5-lot trades, but you still need the market to move sufficiently to generate those profits. If someone uses HFT to legally front-run other traders, then you can assume that you can't operate at that level since you will never get better IT infrastructure than the top dogs.

Not sure if it is possible to make that amount of money trading 5 lots if you don't have that type of edge...

Sometimes I think that people are too concerned that brokers will steal their strategies. Most strategies I have seen aren't worth anything once they get properly tested or had been through a couple of market cycles. Brokers know this and see accounts blow up more often than you'd think - why do you think buy and hold is encouraged? It might not lead to riches, but it is very tough to blow up an unleveraged account holding shares.

The discussion definitely is interesting, but yeah, someone will always find a loophole if they want your strategy and good luck proving IP theft in court...at least if you follow Kevin's method, you will be re-optimising occasionally so whoever copied your method might be in for a rude awakening sometime in the future...

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  #263 (permalink)
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xplorer View Post
Hi Kevin

I've often wondered about this - I think it's reasonable to assume that any strategy written on a trading platform and that may be viewed by the platform organization (e.g. when you send your own logs and settings to support) could be stolen.

How would a broker or exchange go about doing that though? Aren't your entries and exits all they can see?


Also, this brings issues about theft of IP into the discussion. Wouldn't anyone who steals IP be liable to prosecution?


Anyone who sees your entries and exits could likely reverse engineer it.

Prosecution - I will be shocked if I ever see that happen!

As an aside, I had a friend who worked backoffice at brokerage. He could see everyone's account. His idea was to take a group of those traders, and then see their signals and act on it. BUT, he was going to do the opposite of thier trading, because almost all accounts lose money!!!!

He never did this, though.

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  #264 (permalink)
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kevinkdog View Post
Anyone who sees your entries and exits could likely reverse engineer it.

Prosecution - I will be shocked if I ever see that happen!

As an aside, I had a friend who worked backoffice at brokerage. He could see everyone's account. His idea was to take a group of those traders, and then see their signals and act on it. BUT, he was going to do the opposite of thier trading, because almost all accounts lose money!!!!

He never did this, though.

Thanks Kevin - but I still wonder: how could they reverse engineer it?

I mean: let's say for argument's sake my approach is based on a certain pattern occurring on a 7-minute Kagi bar which has a number of conditions taking place.

Barring the platform provider which could have arguably access to my settings, the broker or exchange will not know how my signals are generated, will they?

They won't know whether I'm trading off an hourly bar, volume bar or range bar and what's triggering my signals, right?

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  #265 (permalink)
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kevinkdog View Post
As an aside, I had a friend who worked backoffice at brokerage. He could see everyone's account. His idea was to take a group of those traders, and then see their signals and act on it. BUT, he was going to do the opposite of thier trading, because almost all accounts lose money!!!!

That's what many/most forex shops do. Take the other side of the customer

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  #266 (permalink)
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xplorer View Post
Thanks Kevin - but I still wonder: how could they reverse engineer it?

I mean: let's say for argument's sake my approach is based on a certain pattern occurring on a 7-minute Kagi bar which has a number of conditions taking place.

Barring the platform provider which could have arguably access to my settings, the broker or exchange will not know how my signals are generated, will they?

They won't know whether I'm trading off an hourly bar, volume bar or range bar and what's triggering my signals, right?

The could probably come close to what you are doing, but they've never get your rules exactly. They'd have to have some deep pockets for a project like that though...

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  #267 (permalink)
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kevinkdog View Post
Thanks for the question!!!

I think retail traders are worried about that, but I doubt big firms care about us little guys. If anything they'd spend their time trying to steal strategies from other big firms, I'd think. And 90% of people probably have worthless strats anyhow.

Really, if you are trading any algo, it probably can be easily stolen. Think of all the groups (brokers, trading platforms, exchange, phish groups, people that fix your PC) that see your orders or strategies... while they might not steal them, all those are potential weak points that could be compromised.

So I always assume my strats could be stolen, and plan accordingly...

Thanks Kevin,

So protection of strat is just another part of the learning curve I see. I will be very upset I do all this work to find a potential profitable strat and someone steals it.

Thanks

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  #268 (permalink)
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goodoboy View Post
Thanks Kevin,

So protection of strat is just another part of the learning curve I see. I will be very upset I do all this work to find a potential profitable strat and someone steals it.

Thanks

That is one (very minor) reason why I develop lots of strategies. They could be stolen (highly unlikely), stop working (much more likely) or maybe have been junk to begin with (it happens!).

I have given away quite a few strategies - ones with backtest and real time profitably - and I bet 90% of people never even try to trade them...

So, I'd put "worrying about stolen strategy" way low on your priority list...

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  #269 (permalink)
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As Richard Dennis put it regarding The Turtles:

“I always say that you could publish my trading rules in the newspaper and no one would follow them.
The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good
as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules
even when things are going bad.”

In that sense, having the choice among many options like @kevinkdog, following the rules, and having
a sound understanding of what to expect in prosperity and adversity is much more important than
hiding or obfuscating systems.

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  #270 (permalink)
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choke35 View Post
As Richard Dennis put it regarding The Turtles:

“I always say that you could publish my trading rules in the newspaper and no one would follow them.
The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good
as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules
even when things are going bad.”

In that sense, having the choice among many options like @kevinkdog, following the rules, and having
a sound understanding of what to expect in prosperity and adversity is much more important than
hiding or obfuscating systems.

Thanks choke35 and Kevin,

You are right about that discipline part. It whip me good when manually trading.

Yes, you are correct. At my early stage of strat development i have wayyyy BIGGER challenges to resolve then worry about someone stealing my strat. lol, wayy bigger challenges. I first have to get atleast one to work and no more red. lol

Thanks

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