Has anybody gotten rich through automated trading?

Happy New Year from Alpha Secure Capital. This was an answer to a question on Quora. It has been read by more than 16,000 people.

Now, I am a digital nomad investor: Viet Nam, Singapore, Tokyo, KL, Venezia, Palermo, Reikjavik. Rents get paid in our sleep, balance gets bigger by 1-3% every week. Dream life, hey (*) ? Well, it came at great sacrifices.

Autotrade sub 30 mn is the tallest order in the trading industry. On the one hand, there are HFT shops, with whom there is no point competing. They already do a wondeful job at killing each other not so softly. On the other hand, point and click prop shops ecking penny after penny. Then, there are Delta one and deriv desks arbitraging small corners away. All those guys have the money, the resources, the access, the info, the programmers You will never have. You are outgunned, outnumbered and let’s face it: outside. Now, let the race begin.

It took me 15 years to mature the concepts, 3,694 hours to code, 3 2/3 years to run  and a lifetime to refine them. This has consumed my life, my waking hours, my sleep. Ever woke up breathless and feverishly write equations ? I nearly burned the house not once, but twice, because i forgot that there was something on the stove, while i was wrestling with some C#. Once, my wife came yelling at me for not taking care of our screaming baby. I just did not hear our daughter crying… on my lap. Well, code would not compile…

Sisyphus stones
Then, there is the sheer frustration of never being enough. Then there are bugs. One rule of thumb, never add, always subtract, always come to simplicity when solving bugs. Then, there are “100 year flood”, perfectly rhyming with the late “100 nights of solitude”. Then, there are platform issues. They are not meant to do scale-out/scale-in and adaptive position sizing. Then, there are those small issues that You will have to face one after the other.  There will be times where You wander and meander like Ulysses, “what if this, what if that ?” But there also those immensely gratifying days when You wake up with light and equations flowing through like when I found my personal holy grail of position sizing

After the Daedalus of development, one day the end will be in sight; it will be there, almost, just a few modules away. But then, there are those shortcuts You took 10 iterations ago that will come back and bite You. They stand between You and the finish line. And You know that tackling them means overhauling the entire architecture.
This is the realm of frustration. The last mile is always the hardest. Please remember this though: autotrade is like watch-making. Until the last cog fits in the right place, your clock will always be off, so don’t give up, never give up.

Then, You run your own money, face drawdowns, go back to fix the last few bugs. Then, You run it on small amounts. The best moments are not when You make your previous monthly salary in a week while kitesurfing or going wine tasting. The most beautiful moments are when You make those few hundred dollars week after week and when You finally know it is viable. It feels like watching a flower blossom. This is the best sleep You will have in your lifetime, well at least for 3 months …

Here are the lessons I learned. A viable trading system is built backward:

  1. Focus on the short side: the short side is notoriously harder. If Your system works on the short side, it will work on the Long side. Any 3 star Michelin chef can flip burgers. Now how many Burger king employees can do 3 star meals ?
  2. Focus on the exit first: a race is never won until the finish line is crossed. Some of your positions are marathonians, some are sprinters. You never know until You see them on the field.
  3. Stop loss: it is the only variable that has a direct influence on 3 out of 4 variables of your trading hedge
  4. Money management is key: how to preserve capital when your system won’t work and how to take calculated risk when it does ? This is where the heavy mathematical artillery should be concentrated, not on the entry. Think about it: everyone owns Apple. The difference that makes the difference is how big You are
  5. Simplicity: complexity is a form of laziness. If your solution is still complex, it means You have not worked hard enough to find a simple one. There is no exception to this truth
  6. Symmetry: once the short side delivers, translate it to the long side. You will have unambiguous signals, unified risk management
  7. Watch Star Trek and the original Kardashians, they were not as villains as the newer ones, breaking bad, desperate house wives etc
  8. Then, last and very least, but first take the dogs out. And then finally, sorry don’t forget to water the plants first. And then finally, oops have You called your mother yet ? And then finally, take the trash out and after a good night of sleep, You may think about entry. Entry is at the very bottom pile of the priority list of an autotrade strategy, long after labeling priorities on multiple positions

In the end, You will realise that the goal was never about money. It was first about the freedom from a paycheck and the long term uncertainty of retirement. Rich and wealthy are not synonymous. Rich should be the experiences You accumulate over your life. Now, we live out of our suitcases, frugally as usual, but what a life! Speaking of which, time for a Prosecco with our neighbours, our landlord the architect and his buddy the last Gondola maker in Venezia

(*) Now, the highlights of our week is to hunt for consecutive stop losses. We have excess capacity. We have suffered a great deal coming up with our strategy on MT4. Most modules had to be built from the ground up. We  genuinely want to spare this Sisyphean ordeal to aspiring autotraders.
So, we will choose 2 or 3 people and help them build their strategy.
I can help anyone formalise their own strategy through a thorough guided discovery process. This is not pleasant.
Then on the MT4 coding side, the person I work with is a senior programmer for the US Department of Defense (be nice to him or he will bring democracy to your computer…). I can code alright, but his stuff is military grade… Reach out if You are interested, or if You like what You read

Has anybody gotten rich through automated trading?

4 replies
    • lbernut says:

      Hello Jay,

      I hear You. As the great Chinese philosopher Bruce Lee used to say: “it’s not the daily increase, but the daily decrease. Hack away at the essential”.

      I was thinking of 4 major themes for this year:
      1. How to build an autotrade strategy from the ground up: This is a long arduous humbling counter-intuitive process. The actual real process is almost the reverse of what people advertise on the web.
      2. Short-selling: a complete guide to short selling from a practitioner. “Too many people approach “what is” from a position of “what should be”, Bruce Lee. Short-selling is a very useful skill
      3. Position sizing algorithms: there are many positions sizing algorithms, but there may be only one or two suited to the psychological make-up of each market participant
      4. Exits: Everybody talks about the start line (stock-picking) but very few talk about the finish line (exits). The markets is the only competitive sport where people handle medals before the race

      Thank You very much for your feedback Jay

      Reply
  1. Fred says:

    Great read, and many of the points hit home, seems I only have another 9 years before I make it.
    I showed the wife and after lots of nodding and yes, yes i can relate, she has given permission to continue my journey. It was getting close to the – enough is enough point.
    I assume from your short side comments you trade shares/indexes/commodities or futures, Have you tried Forex? Would you alter your recommendations if you did?
    With a trading buddy, we are working on portfolio selection and money management and would be keen to collaborate on anything new you might be considering.

    Reply
    • lbernut says:

      Happy New Year from Palermo Fred,

      Thank You very much for your comment. It means a lot to me. My wife saw it and she approved too. We now live out of 3 suitcases and a small one for children toys.

      I trade ETFs manually on daily bars. I have traded Japan equities, index, plain vanilla vol. Now, we are in the process of upgrading periodicity on our autotrade Forex MT4. The person I am working with is in New York and is a senior programming consultant for the US Department of Defense. He knew nothing about MT4 or finance before working on this project. No pre-conceived idea. We have learned a lot from each other and from faster periodicity. Yet, the upgrade is taking longer than expected. It is claiming its pound of flesh. The end is almost palpable but so elusive

      Of course, I would be happy and honored to help. How can I help ? Would You mind sharing your strategy a little bit and where your sticking points are, so that I could understand better and help You ? You can send me a mail if You do not want to disclose publicly. What is the money management algo You are using ? How does it react during drawdown ?

      Do not despair. Don’t hang the gloves Fred. You will succeed. Every time this fails, I tell myself that autotrade is like watchmaking: until the last cog fits in, time will be off

      Reply

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