If you thought something were profitable in a market, and it was easy enough to implement that any hedge fund could, why would you publish it? They'd just do it too until it was no longer profitable.
On the other hand, if you thought something was highly risky and likely to succeed only for a short time before blowing up, why not publish it, then bet against it? :)
But seriously -- the author's comments seem to indicate that he is not totally comfortable with the technique and that he is aware it could lose, even though it didn't in this case.
you're right. and i ran it until it started losing. I announced the day i quit running the basic moving average crossover algo.
I still dabble with variations of it (made like 250 bucks last friday), but I'm now doing way more research and backtesting before I drop things into the market for real.
on that note, i lost over 1000 bucks a day for 3 days straight, which is when i quit.
and on having the "secret sauce" to beat the market. Read about Edward Thorpe. He's a badass. He wrote the book "beat the dealer" which was the bible on counting cards and beating vegas at blackjack.
Then he figured out how to price options (convertibles, really) and made a killing in his own hedge fund (Princeton Newport Associates, I believe).
He had the secret sauce, used it to make a killing instead of publishing it. YEARS later, black and scholes published the essentially SAME formula for price options and eventually won a nobel price for their work.
But Thorpe stuck to his guns and made his fortune. Merits to both sides, I suppose.
What's the merit to publishing a successful algorithm? Or using a previously published algorithm that any hedge fund manager or resourceful individual can find and implement trivially.
A better question is how do you know your algorithm is successful? If it predicts correctly 10 days in a row, have you got a winner? It's like those guys that advertise by saying "We outperformed the market by 6.2% on average the last four years." Put enough monkeys in front of a trading terminal and you're going to have some that outperform the market by 6.2%; doesn't mean you should invest your money with them.
Have you ever wondered how every fund manager has a fund in the top 25%? It's easy, they launch several funds in one sector, then after a few years merge them all into the top one, and use its historical performance for the marketing materials not the average of them all.
You can't. You can only know your algorithm was successful. The market is changing, so even if you could prove, given variance and sample size, that your algorithm was +EV and not merely lucky, you would only be proving that it was +Ev and not merely lucky. Not that it will be in the future.
I meant long-term profitable, as in +EV compared to buying a SPDR with the money. Even random trading could outperform the market in the short term. But if I thought I had a method that outperformed it for the long term (which hopefully I'll never be dumb enough to) I wouldn't tell anyone.
I don't expect wikipedia to be a reliable source of information on this topic, but there is an entry that claims that hedge funds already do this sort of thing:
http://en.wikipedia.org/wiki/Program_trading
its quite true that a lot of people do it. Its not ACTUALLY a profitable venture in the sense that the risk-reward profile from a purely monetary standpoint is probably unjustified.
I did it for fun, to learn, to gamble, and hopefully get lucky. God knows I've spent money in worse ways before.
Regarding the theory that other players would jump in the market and cause the opportunity to go away: you're right, but they'd really have to parametrize the same strategy in the same way as you. thousands of people use moving averages already, but all parametrized differently so they produce buy and sell signals at different times.
There's certainly no ideal parametrization that is alawys profitable, as most research shows (and I tend to believe)
I would imagine hedge funds test just about every parametrization you can think of. And since it's a market, wouldn't even similar trading algorithms ruin your chances? Especially considering the tax and fee implications of trading frequently.
You'd think that would happen, but certain trade strategies (like MA crossovers) are not scalable. Way too much slippage.
There's other quant strategies that HF's use... like taking a bid out of a stock near support to trigger all the stop loss orders and then covering their shorts quickly.
Most open source software companies make money on service, closed source IDEs, hosted versions, etc. I'm not aware of any company that makes good money selling actual software that could be downloaded or given away by a competitor legally for free. If you're selling .exes, then I wouldn't open source unless you were prepared to switch business models.
FWIW I think open source software is a great thing but in general a horrible way for any sizable corporation to try to make money.
But seriously -- the author's comments seem to indicate that he is not totally comfortable with the technique and that he is aware it could lose, even though it didn't in this case.