Can a Retail Trader Succeed at Algorithmic Trading? (Part 2)

Today I continue presentation and commentary on an internet thread regarding algorithmic trading that took place about 18 months ago.

     > …financial machine learning (ML) is virtually impossible to do right because of the
     > large amount of data you need, awareness of bar types and binning, and many
     > other seemingly trivial but hugely important things. To me, it’s borderline
     > worthless to even try… Leave ML to the MMs and big desks.

I took several Datacamp courses on ML but have yet to do any work of my own in this area. That aside, this sounds like an argument with some teeth.

Someone else commented:

     > BTW, I am disappointed with KD as he doesn’t seem to contribute to the forum.

I couldn’t disagree more. One of my biggest pet peeves is a vendor who shows up online to defend themselves anytime someone writes something that even hints toward negativity (KK is the worst). Do they think they save face by trying to discredit everyone who doesn’t portray them in a brilliant light? While I am skeptical toward reviews and testimonials (see here and third paragraph here), I would sometimes rather let these speak for vendors than the vendors themselves.

This strikes me as one of the best comments of the entire thread:

      • Finding a decision rule with positive expectancy (FDRPE) is… [almost] trivial.
      • FDRPE on daily data that goes back 20+ years is (IMO) foolhardy.
      • FDRPE on daily data that may be tweaked every 6-9-12 months to continue that
         positive outcome… may benefit from [ML] pattern-recognition routines… but…
      • ML depends on data stability that is at odds with the very nature of time-series
         phenomena…

To me, this argues for just how difficult trading strategy development really is (see fourth paragraph here).

     > In my tick-scalping days, I put T/A up that looked good for 20-30 minutes; I relied
     > on it for the next minute or two. For trend-exploitation, I put up daily candles
     > that go back maybe 6-12 months, and rely upon it for the next week or so.

This is shocking, but consistent with my own studies. As discussed in the last three paragraphs here, I did not succeed in looking at four years IS followed by four years OOS and then testing on a subsequent four years. Maybe I should just test the first few trades of OOS2 to see if any edge exists.

Another post reads:

     > You are new here, so I will give you some benefit of the doubt. Get it in your head,
     > you cannot find algo with positive expectancy ANYWHERE. The only way to get it is
     > to create it yourself.

KD disagrees. In fact, if you purchase his product then he gives you several strategies that he says still work in addition to his entire strategy development methodology (don’t mistake this for an endorsement).

I will continue next time.