11.17.2011

Trading engine update

Sucess! As of this evening I have a live version of the new strategy engine running a breakout strategy in demo. Porting the old strategies over and refining the engine will likely continue for several weeks. I'm quite happy with how things turned out, but there is always more to do. I'm sure this will not be the last update to the strategy engine.
For the technical minded, let's just say hashes are really neat data structures, and without them this consolidation would not have been possible. ;-)

11.10.2011

Updating the trading framework

It's been some time since I spoke about the engine behind the robots and strategies I trade. I had a wonderful coding marathon last weekend the result of which is many new improvements in the trading framework I am using. Although I solved several issues and cleaned up many things, there remains a piece I haven't quite been able to clean up.

I have the dilemma of writing code that is clean and maintainable, while having client side strategies that are really one-off programs. The server side backend pieces are abstracted away and objectified nicely, but that doesn't help with the client side implementations. Simply stated, I have a template I wish to use for all new strategies. This is easy to do. The trouble comes when I update the template (fixing a bug, adding new cool stuff, etc), the strategies of course don't get this update without me manually merging it across. This is not scalable as the number of strategies grows. The trouble with creating a generic class and having each strategy extend it is that each strategy has unique pieces and I don't believe I can abstract anymore pieces away. This is of course despite the fact each has a common workflow. Creating a generic client class is the answer (unless a programmer out there can shed some light). Regardless this is a wall that is slowing progress on new trading ideas.

11.08.2011

Jesse Livermore, speculation, and people

I just finished re-reading Jesse Livermore's auto-biography,Reminiscences of a Stock Operator. What a wonderful read. In this post besides advocating anyone who hasn't yet read the text do so (you can find it FREELY available here: http://www.archive.org/details/ReminiscencesOfAStockOperator), I wanted to highlight a couple quotes from the book on people:

"I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans and human nature never changes"

"On the other hand there is profit in studying the human factors, the ease with which human beings believe what it pleases them to believe; and how they allow themselves indeed, urge themselves to be influenced by their cupidity or by the dollar-cost of the average man's carelessness. Fear and hope remain the same; therefore the study of the psychology of speculators is as valuable as it ever was. Weapons change, but strategy remains strategy, on the New York Stock exchange as on the battlefield. I think the clearest summing up of the whole thing was expressed by Thomas F. Woodlock when he declared: "The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past.""

"The message of the tape is the same. That will be perfectly plain to anyone who will take the trouble to think. He will find if he asks himself questions and considers conditions, that the answers will supply themselves directly. But people never take the trouble to ask questions, leave alone seeking answers. The average American is from Missouri everywhere and at all times except when he goes to the brokers' offices and looks at the tape, whether it is stocks or commodities. The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile."

On the surface, Livermore traded in a completely different world. Insider trading was rampant, stock manipulation and tip buy/selling was popular, bank runs were common... Hah, see not so different after all? In truth however, humans are the same. The same emotions that drove and controlled the market in Livermore's time do so today. We simply need to accept and understand this. I'll include a few more highlighting the inherent laziness and gullibility of man.

"The average man doesn't wish to be told that it is a bull or bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn't even wish to have to think. It is too much bother to have to count the money that he picks up from the ground."

"At first, when I listened to the accounts of old-time deals and devices I used to think that people were more gullible in the 1860's and 70's than in the 1900's. But I was sure to read in the newspapers that very day or the next something about the latest Ponzi or the bust-up of some bucketing broker and about the millions of sucker money gone to join the silent majority of vanished savings."

How true! There is nothing new under the sun1! Re-reading Livermore's observations brings to mind the recent EVE Online ponzi scheme that rather successfully executed it's mission, netting a cool ~50k USD for its creators2.

All said, I will be continuing to study people. In understanding people, I will understand markets.



1. Ecclesiastes 1:9
2. http://www.evenews24.com/2011/08/14/the-1-trillion-isk-ponzi-phaser-inc-speaks/

11.05.2011

Gaming and Trading

I have been undertaking further study of people. The analytic mind is constantly amazed at what others will do. Indeed, when time and abstraction from the situation allow, my own actions are utterly confusing for me to understand.

To this end, I got into online gaming. Specifically, online PVP or player versus player gaming. Obviously while exciting to play, playing against a computer has no comparison in dealing with a human opponent. While I did chose a game I enjoyed playing, I also made sure to chose something which required team play. That's right, while the game was PVP, it required playing as a team with 2, 3, or 4 other people you may or may not know. Success came to those who understood how people work, how to be a leader, how to motivate; indeed how to succeed at a common goal when given a random selection of people. Alexander the Great's success can be attributed to his mastery of this skill.

This gaming binge culminated in me running a semi-professional team, entering contests for real money (who knew people would pay to watch this?) and competing with other teams. I must tell you from the start that this ended as one can expect. We had some great early successes, but slowly and surely personalities began to outshine our success. Being human, mistakes are inevitable. As the fearless leader, I ultimately saw the team disband after an especially egregious series of mistakes and loses. It's almost like a bad dream. In just 2 short hours we went from a successful, united team to splintered and disbanded.

So what happened? In short, people. I had lessons yet to be learned on understanding people's actions and taking control. While this spectacular defeat is meaningless in the grand scheme of life, it's lessons are not. I experienced all portions of the emotional spectrum while undertaking play. I have raged, confronted my own disappointment and fears, and accomplished my own goals through what can only be called undying perseverance and study. It must be said I am not a gamer. This PC upon which I type is not a "gaming rig". I didn't have all the best tools, nor the natural skill that would allow me to succeed. But succeed I did. Before I ended the experiment a few weeks ago, I rose to the top 15% of players, the small percentage who can say they have a > 55% winning percentage1.

So what does this have to do with trading? Well, the untold story above is what it cost me. I said I accomplished my goals, but it was a year long struggle. My devotion and study was immense. I had to learn many lessons the hard way, and not unlike trading, had to pay my dues. Digging myself into a hole only made my eventual rise that much more difficult, but it also allowed it to be more rewarding.

Trading is about people. People make markets. To pit your brain and might against another is the greatest thrill in the world. To walk away successful is to know no greater joy. So many lessons have been learned about people, about leadership, and about anticipating other actions. I hope to apply these thoughts into my future strategies and having learned these lessons in a virtual world I trust I can carry at least some of the answers into the real world.



1. It's interesting to note a vast majority of people never rise above a 50% win ratio, many never even coming close. This corresponds extremely well to what we find in trading. It's the top 5% in trading who are truly successful, perhaps 10% more who manage to scrape by with minor success. The overwhelmingly majority hardly break even, with most losing much more than they win.

4.25.2011

Maximum Achievable Skill

I realized today I enjoy competing mentally against others. The statement seems silly. Many people enjoy competing against others in various ways. For my part, being unwilling / unable to compete in many phsyical events (I'm happy to race you in cycling or sailing), I've found mental competitions more suiting. It would seem logical then to assume I am "smart". I can assure you, I am not ;-) I have a terrible memory, ontop of a split brain which excels neither at the creative and abstract nor the logical.

This desire however does explain my attraction towards trading. It's a player versus player game with real life stakes and consequences. In addition, some of the brightest minds in the world have been tasked with outplaying each other; but the playerbase itself and potential payoff is huge. Perfect for the obsessive, the game doesn't end until you quit or lose1.

Now, I like to think of myself as a capable learner. Given enough time, I should be able to achieve success and become competitive in whatever area I apply myself to. However, the real world is a harsh reality for such a fragile mind as myself :-) Experience has shown I am unable to do well in things that are player versus player, such as PC or board gaming. Sure, I may find some limited success in a small audience, but normally I find myself outplayed and not quick to pick up the tricks to winning.

Let's consider an example. Consider a chessmaster. I understand the basic rules of chess enough to be able to move all of the pieces properly, as well as pursue the objective of taking the opposing king to win. However, the chessmaster will continually beat me at games. We play several times daily for months, and yet I find myself unable to beat him. This brings us to an interesting question. At some point, will I be able to compete against the master? Eventually thru the games I play, our knowledge should equalize -- or can I never catch up to his level of knowledge? By definition he is my teacher, and has a headstart on his knowledgebase, all the while expanding it with every game he plays. Assuming the master never allows his human error to make a wrong move, it would seem impossible for me to ever beat him, save for him making a mistake.

To fully understand the problem, we must look at how someone can become skilled at something like chess. In my example, I am assuming my skill comes from me emulating the chessmaster and learning his moves. If I am capable only of emulation of skill, aside from human error I should not ever beat him. I may indeed find success against other players, assuming my mentor was more skilled than those I play against, I by extension will also find success. However, there is another way. I could apply new thought and originality to the problem. In theory, I could best the chessmaster in my first game with him.

It is this second method of successfully competing against others that the thinker is driven to. It would seem for most who wish to do well, simply emulate someone who has had success. For the thinker, your task is so much greater. You are compelled to see beyond the skill of your opponent; to understand them, and then compete above and beyond them. For the thinker, there can be no other path. Suffice to say I'm a thinker (or someone hopelessly wishing himself to be one).

1. Humorously, you can't really "win". You can only stop playing. Any definition of winning or losing when you stop is up to you.

4.17.2011

Why exits are more important than entries

Often when looking at trading strategies you find yourself looking for keys to figure out the start of a breakout or trend. Jumping on-board when a trend is starting ensures you have a good ride on the trend for healthy profits. But focusing on the entry point is flawed logic. It is the exit point that determines your profit, and ultimately, your success.

Exits are much harder to get right. Whenever you start something you have to think about your exit strategy. It's so easy in the beginning to get into a trade; think about the end. I find the end of something is far more interesting and telling than the beginning. This applies not only to trading, but life as well. Look over your trades for the last week. When did you exit the trade? Why? Don't get caught up on the P/L, or attempt to optimize the exit based on hindsight. You need to understand the raw thought process behind your exit. Study yourself, watch yourself. You'll find your logic may or may not hold when examined after the situation.

A wise sailor once told me, better to be on land wishing you were sailing, than sailing wishing you were on land. It sounds cliched, I know; but think before you trade. Not about profits, entries, or leverage, rather focus on how you're going to get out of the trade.

For myself, I think it's time I changed my exit strategies to be more focused for success, instead of minimizing damage. I guess one should play to the outcome you wish to see, and not the outcome you're trying to avoid.

4.04.2011

On being away

I've been way undertaking a study of man. Of his creations, the cities and their history. There is something that you can take away from a place. Seeing to the extent possible those places and things that others before you have seen and walked. Who can understand the birth of Wall Street, or the spirit of the same place in the 1950's without seeing it?

Who would say "no" to visiting the Bahamas in the 1960's? How about the same place in the 1920's? I think Jesse Livermore had the proper idea in his "Reminiscences of a Stock Operator". Taking a month to fish in the Bahamas -- being totally removed from any knowledge of something as simple as the price of wheat or the latest quote on GOOG. Those sorts of disconnected experiences are hard to come by now.

Time and place are a unique combination in life. They can't be recreated. We all have unique opportunities to experience during our allotted time here on earth. While hindsight is 20/20, we can still seek out those times and places that others may one day speak of and think about. It is a worthwhile endeavor to see not only the birth, but also the life and death of a thing.

4.01.2011

An english gentlemen

On my recent tour I was pleased to discover not only the stories of those magnates from the golden age of capitalism, but I was treated to a step back in time. Seeing their possessions and the cities they helped grow and thrive within was an invigorating experience.

Wikipedia describes an english gentlemen as follows:

To a degree, "gentleman" signified a man with an income derived from property, a legacy or some other source, and was thus independently wealthy and did not need to work. The term was particularly used of those who could not claim nobility or even the rank of esquire.

It's a romantic dream, but a dream nonetheless. To have been one of those gentlemen during the birth of a nation; rather not just a nation, but an Empire. Does such a chance still exist elsewhere in the world? The time for the gentlemen has occurred in both European and North American history1. Perhaps, there is indeed room for it to occur elsewhere.

1. Likely someone else can point to this occurring in central and southern Americas as well

3.29.2011

Living in the cloud

Mobility and moving around often has it's downsides. As I prep for yet another move, (I guess I just like change, or is it that I enjoy new experiences?) I decided to fix my current server instability.

Up until this point I have been self-hosted. I kept and maintained my own subversion server, in addition to the development workstation and application server for the bots to run on. And I had to keep those boxes plugged in and connected to the internet at all times. I remember coding the extensive disconnect logic for the (almost) daily disconnects that occurred at the one location I had the server running. Moving really threw a wrench into those plans. I had trouble keeping them plugged in and powered on, let alone connected to a high speed and stable connection.

When the time came for an extended trip, it was an easy decision to also give the bots a break. I did this mostly for myself, to allow my brain to focus on other tasks, but also to avoid having to deal with the server management while physically located thousands of miles away. They really have always belonged on a managed server. As of this past weekend, that's been corrected. I went with amazon ec2 -- it's completely scalable (and priced accordingly). The uptime, bandwidth and price cannot be beat. In fact, combined with wireless data on my android phone, I can admin the bots from anywhere. Having them running somewhere else and happily churning along is actually quite freeing. I check in once a day and look at the P/L's. So far, so good. I'm in love with the cloud. Now I need to move the subversion server also and everything will be migrated from my box.

3.24.2011

My awakening

I am awake again. I've re-entered the world of the trader. Sometimes your brain simply needs time away. In this case, I took quite a hiatus. I was not only physically away, but I left mentally as well. My absence was dominated by my own mind's need for data. I have need to understand people and places. My trip(s) placed me directly into the individual world's of others.
For example, standing on the street corner in New York, you will see many people. Some will be standing, others walking, perhaps some working and some sitting. If you force yourself to look closer you will see more than this.


There are several little worlds going on in that picture. Each one represents a person, a life, and a world all to themselves. The fascinating thing is that so many people can live so close, and be so physically close together and yet live in such separate worlds.


2.01.2011

A summer away

So I've been away fro a bit -- on a long summer if you will. It started out as a summer trip in August I never returned from. I went to view the America of old and to find the great cities and the people that lived there. Driving through sleepy New York towns founded hundreds of years ago. In many ways the towns are unchanged from there humble beginnings. The main crossroad still contains only a stop sign, and the town square is still a hub of activity. In a land of rolling hills, why did the founders stop in this valley? Or on this hill? I can see no reason to stop, yet they stopped there and settled. I admire this desire to strike out on your own, to have potential to become great, despite the costs.

In the coming posts I'll try and reflect on my thoughts gained from this trip and the trading hiatus. It's strange how you find yourself back thinking about the same problems after such an absence. The only thing I find funny is that the "solutions" are still the same -- even if you wish they weren't.