Ask HN: Before launch – everybody says "dont connect the trading engine" – why?
during the last couple of weeks i spend a lot of time on building a fully automated trading engine. Some kind of "disclaimer": im now in the financial space since ~13 years, working for startups, creating new banks and working for them.
While i'm not an "equity guy", i thought there should be some potential when playing around with some of the data feeds: it should be possible to build a fully automated bot, which is just a simple trend-following model and the system should just jump on running trends on whatever mega-corp stock, go with them some days and then exiting.
So i started to build an engine which contains all the things i learnt during this interesting journey: the system reacts dynamicly depending on different market structures, it also integrates events (like earnings dates etc), it goes long and short, it captures trends for only 2 - 3 days sometimes.
Now, im that convinced that this application should work under real market conditions; during development, i also made sure that the system works under "live conditions", meaning that data is added incrementally to the algos etc. (i found out there are a lot of wrong calculations/indicators/chartings out there which are failing if you connect them to a "real" datastream, since very often a massive mistake is done during development: presenting the "data as a whole", which leads to perfect results in testing, but fails completely under live conditions etc.)
A special perk with the application is the following: in my country, there are special leveraged products available (turbo warrants), which are just replicating the increase/decrease of an underlying by given scale/gearing, just that simple. Those are nearly risk free if you hold them only for a couple of days with a decent lever/gearing. I say nearly risk free, since, for sure, the position may crash if a completely unknown Unknown appears (like a military event or similar) Applying a leverage to the trading behaviour magnifies the results massivly, it should easily be possible to get 400-500% per year. The math is very simple: the system is shooting at currently 150 symbols across NASDAQ100 and SP500, jumping onto the short-term trends, regardless if long or short, and applying a lever/gearing of 3 - 7 and then reinvesting, rinse and repeat for one year.
Why automation is the only way to win as "active market participant": Most people have 3 - 10 stocks in mind when thinking about investing, and maybe they are following 20-30 items on their watchlist "which they watch from time to time" - if they are watching it at all. i have a different perspective: analyzing the biggest stocks worldwide on a daily base an computing my entries/exits, there are opportunities every day. Its not about "doing this one big trade", its about continuous and reliable but smaller returns on a reliable basis: The system is handling around active 30 - 50 positions under normal conditions (and my starting budget is limited...) Automation on a larger list of strong stocks is the only chance to outperform, in my oppinion.
Now i showed all of my ideas, results, data and code to some people to get some feedback:
- all of them are "equity guys" and working in the field as "investment fund manager" or similar or they are working at larger banks in whatever departments
- none of them is a CS-guy understanding anything of coding etc.
ALL of them say that i shouldnt connect my system to the real market since it will quickly loose money - and the only answer, when i dug deeper, was: "...because there have been others before you who thought they were smarter than the rest..."
So - who is wrong? Is it me and i oversaw something critical?