<story><title>How I made $500k with machine learning and high frequency trading</title><url>http://jspauld.com/post/35126549635/how-i-made-500k-with-machine-learning-and-hft</url></story><parent_chain><item><author>jspaulding</author><text>Hey, I didn&apos;t actually intend this to be a course. I do not make any money in the market right now so am certainly not qualified to teach a course on it. And of course, if I was making money in the market I wouldn&apos;t have posted this at all. So please everyone remember that. These comments have made me realize it&apos;s probably for the best if I do not post the source code. Basically you are competing against armies of PHDs who are buying buildings next to the exchange so they can get their executions slightly faster. It is indeed surprising to me that I was able to make money in the first place. But I do know for a fact that I did make money and I also know that I was not at risk of losing a bunch of money. As mentioned the most I lost in one day was $2000. That&apos;s all I was risking.</text></item><item><author>yajoe</author><text>This.  I love crazy projects and Show HN&apos;s until the cows come home, but this one is dangerous that I must repeat the warning to others.&lt;p&gt;I cannot emphasize how important it is to understand that people who trade using price action (&lt;a href=&quot;http://en.wikipedia.org/wiki/Price_action_trading&quot; rel=&quot;nofollow&quot;&gt;http://en.wikipedia.org/wiki/Price_action_trading&lt;/a&gt; ) are just speculating based on where they expect the price to move.  It&apos;s no different than people who play Texas Hold&apos;em online and speculate what cards others have based on betting patterns.  If you get good at spotting the patterns (like this guy did) you can go on a winning streak, but when the game changes (as it did for this individual after 2009) then you either go home or go broke.&lt;p&gt;This guy found one edge in 2009.  It won him 500k.  Fantastic.  More than any edge ever won me.  But, the market has changed so much since then, with HFT becoming so prevalent (&lt;a href=&quot;http://www.theverge.com/2012/8/7/3226187/high-frequency-trading-animated-gif&quot; rel=&quot;nofollow&quot;&gt;http://www.theverge.com/2012/8/7/3226187/high-frequency-trad...&lt;/a&gt; ) that please be careful before you follow this course.  His code is unlikely to be worth much today unmodified, and when you modify it you&apos;ll realize, as I have, that when the other players have access to the order books and can jump the line you have no chance in the game in 2012.&lt;p&gt;One last nit: Please, please post recent data when you talk about projects like this.  2009-2010 is 3 years ago.  Since then there was significant turmoil in the US, Asia, and the EU.  How are these returns relevant for today?</text></item><item><author>tarr11</author><text>This is just glorified gambling.  I am not sure what special insight or advantage he had, other than his own model.  Every trader has a model.&lt;p&gt;It could have easily been called &quot;how i lost 500k with machine learning&quot;.  Like gambling, it&apos;s easy to manipulate statistics to show that you did well in some period of time.&lt;p&gt;I worked for a large investment bank about 10 years ago, writing trading programs for quant traders who were market makers.  The quants called guys like him &quot;retail&quot; investors and they gleefully picked off all those trades.  It&apos;s how they made all their money.&lt;p&gt;So, everyone else, beware of making this a case study in how to make lots of money really fast.  You are more likely to lose money.</text></item></parent_chain><comment><author>kolbe</author><text>FWIW, I couldn&apos;t see your pnl chart.&lt;p&gt;I develop algorithmic strategies for a living, and my first reaction to reading your post was skepticism. I&apos;m skeptical for two reasons. (1) because your methods are so unconventional in an industry where convention rules, and (2) because of the time frame of your success, which happened to be one of the more impressive market recoveries in history.&lt;p&gt;I can&apos;t tell you how many people I&apos;ve worked with who fail to isolate the source of their pnl (myself included at times). This is key. It&apos;s important to benchmark your strategy against other stupid ones that you know don&apos;t have edge. When someone shows me strategies that worked in 2009 and 2010, I immediately make them prove their strategy was not the equivalent of being long equities.&lt;p&gt;Doing this will truly help isolate whether or not luck is involved. When you say that the number and size of your trades justifies the strategy&apos;s validity, that&apos;s just wrong. You could do 1000 trades in a day: buy 10 RUT futures at the beginning of the day, sell 10 at the end, and just scratch 1 lots for the other 998 trades. In a bull market like 09-10, that would have made 400k, and would have nothing to do with Machine Learning or its applications to HFT.&lt;p&gt;I make all traders benchmark their work against a series of other strategies that I know have no edge, even though they, at times, can appear to have edge.&lt;p&gt;Now, I&apos;m not saying you didn&apos;t have legitimate edge, but you do your readers a disservice by omitting relevant stats and discussions like that.</text></comment>
<story><title>How I made $500k with machine learning and high frequency trading</title><url>http://jspauld.com/post/35126549635/how-i-made-500k-with-machine-learning-and-hft</url></story><parent_chain><item><author>jspaulding</author><text>Hey, I didn&apos;t actually intend this to be a course. I do not make any money in the market right now so am certainly not qualified to teach a course on it. And of course, if I was making money in the market I wouldn&apos;t have posted this at all. So please everyone remember that. These comments have made me realize it&apos;s probably for the best if I do not post the source code. Basically you are competing against armies of PHDs who are buying buildings next to the exchange so they can get their executions slightly faster. It is indeed surprising to me that I was able to make money in the first place. But I do know for a fact that I did make money and I also know that I was not at risk of losing a bunch of money. As mentioned the most I lost in one day was $2000. That&apos;s all I was risking.</text></item><item><author>yajoe</author><text>This.  I love crazy projects and Show HN&apos;s until the cows come home, but this one is dangerous that I must repeat the warning to others.&lt;p&gt;I cannot emphasize how important it is to understand that people who trade using price action (&lt;a href=&quot;http://en.wikipedia.org/wiki/Price_action_trading&quot; rel=&quot;nofollow&quot;&gt;http://en.wikipedia.org/wiki/Price_action_trading&lt;/a&gt; ) are just speculating based on where they expect the price to move.  It&apos;s no different than people who play Texas Hold&apos;em online and speculate what cards others have based on betting patterns.  If you get good at spotting the patterns (like this guy did) you can go on a winning streak, but when the game changes (as it did for this individual after 2009) then you either go home or go broke.&lt;p&gt;This guy found one edge in 2009.  It won him 500k.  Fantastic.  More than any edge ever won me.  But, the market has changed so much since then, with HFT becoming so prevalent (&lt;a href=&quot;http://www.theverge.com/2012/8/7/3226187/high-frequency-trading-animated-gif&quot; rel=&quot;nofollow&quot;&gt;http://www.theverge.com/2012/8/7/3226187/high-frequency-trad...&lt;/a&gt; ) that please be careful before you follow this course.  His code is unlikely to be worth much today unmodified, and when you modify it you&apos;ll realize, as I have, that when the other players have access to the order books and can jump the line you have no chance in the game in 2012.&lt;p&gt;One last nit: Please, please post recent data when you talk about projects like this.  2009-2010 is 3 years ago.  Since then there was significant turmoil in the US, Asia, and the EU.  How are these returns relevant for today?</text></item><item><author>tarr11</author><text>This is just glorified gambling.  I am not sure what special insight or advantage he had, other than his own model.  Every trader has a model.&lt;p&gt;It could have easily been called &quot;how i lost 500k with machine learning&quot;.  Like gambling, it&apos;s easy to manipulate statistics to show that you did well in some period of time.&lt;p&gt;I worked for a large investment bank about 10 years ago, writing trading programs for quant traders who were market makers.  The quants called guys like him &quot;retail&quot; investors and they gleefully picked off all those trades.  It&apos;s how they made all their money.&lt;p&gt;So, everyone else, beware of making this a case study in how to make lots of money really fast.  You are more likely to lose money.</text></item></parent_chain><comment><author>bjourne</author><text>Guess you are familiar with &lt;a href=&quot;http://en.wikipedia.org/wiki/Survivorship_bias&quot; rel=&quot;nofollow&quot;&gt;http://en.wikipedia.org/wiki/Survivorship_bias&lt;/a&gt;? In 2009, there were probably tonnes of people trying to exploit the market using similar low-tech methods as you. Even if all of them were at best break-even, some of them likely made a lot of money on their unprofitable algorithms by pure chance thanks to the size of the cohort. Those few blogged about it and those who lost money didn&apos;t. :) I&apos;m not saying that &lt;i&gt;you&lt;/i&gt; just were lucky (please dont take this as criticism) - survival bias is just one of those things that always come to mind when people write about how they broke the market or when some investor is presenting his incredibly smart investment strategy that has netted him millions.</text></comment>