[dpweb]

There are a few problems with turning your laptop into a money machine using data analysis.

Remember the maxim, past performance is not a guarantee of future results. You can develop strategies based on past data that will beat the market, but, the nature of markets is to adapt to kill your edge. Markets adapt constantly and your edge stops working at an unknown point in time. It's unknowable when that WILL happen because past data can't show that.

The other reason is transaction costs. In gambling called vig. Let's say I'm betting NFL games. NFL home teams win 51% of games. Even flipping a coin I've read come up heads 50.1% of the time. These are profitable systems. But you're paying the bookie 10% on each loss. You could find someone to bet you on coin tosses and bet heads each time. You have a positive expected return, although you need a huge number of flips to make money!

In trading of course costs is commissions. Why do you think there was a rise in HFT? The strategies are consistently profitable. (Besides the flashing/manipulation tactics) It is ONLY profitable because of extremely low commission costs that are not available to the retail (or even semi-professional) trader.

Systems that can pull $0.0001 out of every share traded overall on high volume can be (pretty easily) created, but you can't trade them profitably. In fact, you will find commissions (semi-pros who pay about $3 per 1000 shares) priced right at the point of an edge you could be expected to develop.

[melling]

"nature of markets is to adapt to kill your edge"

If you are a low volume, small time trader, the market isn't going to move as quickly to adapt to you. If you have $100,000, for example, and return 30% a year, you aren't on anyone's radar.

[auntienomen]

Provided you're the only one trading your strategy, which is unlikely.

[melling]

There are trading firms that have made fortunes letting the algorithms do the trading:

http://www.fool.com/investing/general/2014/02/09/this-man-ma...

https://en.m.wikipedia.org/wiki/Renaissance_Technologies

Yes, you have to adapt but these guys play with billions.

[chillacy]

Ren Tech also has 200+ math and signal processing phds in its payroll. I'm not sure how well the individual trader does (maybe they do okay, but I have my doubts that I'm not going to be consumed by big sharks in the market)

[auntienomen]

Yes, everyone's heard of RenTec, particularly those of us in the industry. Their existence doesn't seem seem germane to my point.

You were claiming that a little guy's edge won't be rapidly eroded by the market. This is only true if his trading strategy is uncorrelated to every other little guy's trading strategy. But this is unlikely. The space of unsophisticated strategies is not all that large.

[melling]

So what are those hundreds of people doing at RenTec if "the space of unsophisticated strategies is not all that large"? Do you think their $100 million algorithmic trades go unnoticed? A $10,000 trade is going to make someone take notice of a little guy?

At any rate, is there some reason that you are driving the discussion to "it's not possible". No one learns anything by saying "it's impossible". Perhaps we should have ignored the post.

[auntienomen]

They're developing sophisticated strategies. Duh.

[jzwinck]

30% on 100k is 30k. You'd be better off getting a regular job unless you can sustain that for more than 10 years. Which you can't predict.

[melling]

No one said that this was your full-time job. No one said that it has to be HFT either. Algorithms identify good trades at 4:01pm and you buy the next day. And no one is saying that you have to trade everyday.

[branchless]

Exactly. Plus let's remember you are adding nothing to life here. All you are doing is collecting 30k off other people with a slightly less optimal "strategy" than you.

And no I don't believe these people are "adding liquidity and assisting price discovery".

to the reply as I can't post as HN censors detractors of big finance:

I don't believe the benefits of liquidity added by HFT are worth the enormous costs firms sink into it.

[dsacco]

>> And no I don't believe these people are "adding liquidity and assisting price discovery".

The nice thing about reality is that it remains even when your belief persists against it.

In large-cap stocks during rising markets, high frequency trading does improve liquidity[1]. While the effect may not be as prevalent during a downturn and it may not impact smaller stocks as much, I'd like to see your evidence that it actively harms the market or that the practice is vapid and produces nothing of value.

Or is that just a statement you made because it nicely aligns with your political conception of Wall St?

EDIT: It helps to point out that "algorithmic trading" and "high frequency trading" are not at all the same thing, especially as these terms are usually conflated on HN. An algorithmic trading system does not necessarily need to trade at high frequency. Some algorithmic trading systems make trades in intervals of days or weeks, not seconds or milliseconds. The paper cited here describes the market-making activities of what is traditionally called high frequency trading and the benefits it has over human brokers of the past, but it uses the umbrella term "algorithmic trading."

EDIT 2: The parent comment responded to this one by editing his original one, because "HN censors detractors of big finance." You also claimed you don't believe that the liquidity provided by HFT is worth the capital that large firms dump into it.

In 2013 the entire HFT industry made about $1B, down from $5B in 2009[2]. HFT is not a large industry. It is eating much of Wall Street's traditional market-making inefficiencies, which is why it is widely disliked, but it is not "big finance." Big Finance is generally opposed to HFT.

You still haven't provided evidence or numbers to prove or even quantify what you're claiming. Are you saying HFT is not worth the investment to firms, or are you saying it isn't providing some vague "value to society" relative to alternative uses of investor capital?

The first case is obviously nonsensical, as many firms generate profit using high frequency trading strategies. The second case is like saying we shouldn't do anything if it doesn't save impoverished children in Africa. The added liquidity has a material and beneficial impact on trading outcomes for buy-and-hold retail investors, which is shown in my first citation here. You have yet to satisfactorily refute this.

[1]: http://faculty.haas.berkeley.edu/hender/Algo.pdf

[2]: http://www.bloomberg.com/news/articles/2013-06-06/how-the-ro...

[branchless]

Generating a profit does not equate to generating wealth.

[Bromskloss]

How about just making a transaction because you feel that you gain something from it? Does it need any other motivation? I mean, I buy food, go to a concert, rent a car, and buy a stock, not for the purpose of gifting something to society, but for my own sake.

[branchless]

This is the opposite - you don't buy and then resell food in a few seconds for gain.