17

Yes. First, it is much easier to proceed if you standardize the output of your forecast so they are in the same units (returns, for example, or probabilities of an event/condition occurring). After you have done this, there are 3 general approaches: Signal weighting: Then you need to define a weighting scheme for your factors. Richard Grinold has an one ...


12

Windham Capital Management is using hidden markov models for their Risk Regime Strategies. Mark Kritzman, who is also CEO, has published an article about the general outline of the strategy (with source code so you can replicate the results!): Regime Shifts: Implications for Dynamic Strategies (corrected August 2012) by M. Kritzman, S. Page, D. Turkington]...


10

I found this solid overview of different trading algorithms by Deutsche Bank Research: Trade execution algorithms Designed to minimise the price impact of executing trades of large volumes by ‘shredding’ orders into smaller parcels and slowly releasing these into the market. Strategy implementation algorithms Designed to read real-time market data and ...


9

We cannot give you a relative bid-ask spread that would make sense. The reason for that is that it really depends on several parameters: The type of financial asset you invest in (futures, funds, index, options, ...) The period during which you're trading (I think the liquidity in markets hasn't been the same over time). If you trade intraday, it depends on ...


8

There is a paper of mine answering To this question: Dealing with the Inventory Risk. A solution to the market making problem by Olivier Guéant, Charles-Albert Lehalle, Joaquin Fernandez Tapia.


8

First, we are few quants and academics to use the full toolkit of machine learning: stochastic algorithms, to optimal trading. Here are at least two papers: Optimal split of orders across liquidity pools: a stochastic algorithm approach, Sophie Laruelle (PMA), Charles-Albert Lehalle, Gilles Pagès (PMA) Optimal posting distance of limit orders: a stochastic ...


8

Ha, interesting, so many responses with "negative" expectations. There are plenty of people that have successfully gone down this road and are producing pretty nice returns, so obviously it is possible. A trader with a smaller capital has better chances of producing good ROC with very reasonable risk parameters, simply because he's would not be constrained ...


7

From this site's perspective, I think nothing would be better than a ML.SE. Finally, we got one awhile ago. UPDATE: Unfortunately, Machine Learning is merging into Cross Validated. To learn more detail, click here." I have no idea why SE admin was rush to merge ML into CrossValidated. Not a fan of it (Orz). I personally prefer a separate site. FYI, http:...


7

Personally, I am very skeptical of the claims in "Twitter mood predicts the stock market". There are several other papers with similar claims, but not so much good quality research is available. Arguably, the sweet bits of these approaches are not public. A sounder approach is to dig at the relationship between social media activity and relate it to the ...


7

As a starting point to my answer, I would say that reading a book is not sufficient to start doing automated trading on your own as chrisaycock suggests in his comment. I would answer your questions in 3 different ways. First, building your "AI bot" which I would rather call a systematic algorithm not only requires programming skills, it also means having ...


7

The most commonly-known approach to this is described in Inferring trade direction from intraday data (1991) by Lee and Ready. You will find that the non-trivial part has to do with classifying trades that are reported inside the spread. I believe you will find that the Lee-Ready algorithm will outperform the naive midpoint reference approach suggested by @...


7

If I was in your position I would start to research how I can create a web server is C++ and expose calls to create a REST service. In other words, can you make your code status output to HTTP? From there, the rest should be easy. You would just need to create a GUI that can access REST services, which virtually all modern languages can. You could focus on ...


6

I assume that by "how much research" you mean "could you provide me with some links".... So, as @Shane mentioned in its comment, a hedge fund recently started and is focusing on twitter analysis (here is another link). From what I understand they are basically implementing a trend-following strategy based on the "mood" of twitter users (I, of course, don't ...


6

I'd say it depends on how close you want to be to reality and what the strategy entails. For instance one scenario when actual currency makes sense is when you want to take contract sizes and position limits into account, for instance agricultural futures contracts nearly always impose a position limit for one party in one or all contracts. If your ...


6

http://www.portfolioprobe.com/2010/11/05/backtesting-almost-wordless/ shows an example of how the results from a backtest can be deceiving. This would be true with either returns or value. The main issue is that the portfolio you start with can have an impact on what "good" means.


6

A quick Google search gives a few hints: http://etf.about.com/od/etfinvestingstrategies/a/ETF_Arbitrage.htm http://ftalphaville.ft.com/blog/2011/05/18/572086/how-profitable-is-etf-arbitrage/ http://www.iijournals.com/doi/abs/10.3905/jii.2010.1.1.107 http://seekingalpha.com/article/68064-arbitrage-opportunities-with-oil-etfs Another quick search on scholar....


6

Concur with Thomas for most part, though I would recommend you to sign up for a trial with Dow Jones Newswire. I like the API and app that Newsware ( http://www.newsware.com/) makes available. It is not suitable for hft but I use it in order to stay informed and look up often used mnemonics. I think they have a pretty capable API and I remember they offer ...


6

The first formal model to explain this was Kyle (1985). Oversimplifying, imagine there is a group uninformed traders and an informed trader active in the market for a given security. Uninformed traders cannot make correct directional predictions. The informed trader knows --- with some uncertainty --- what the price will be at the end of a certain time ...


6

To be honest you're not likely to get a very satisfying answer to your question. Not because its a bad question, but because "regular people" can't just go hooking their home grown trading systems up to a live market. I'd like to start automating my trading strategies. First off you'll need a system that can interface with your broker. If you're not a ...


5

HFT, when they implement market-making like strategies, are a key element of a fragmented market to build "arbitrage bridges" between trading venues. There is a cost that for: we are all paying (probably around a fraction of the actual spread) to them, and the resiliency of the order books suffers because of their presence. As usual, there are positive and ...


5

I can share my own experience working with the Deltix product suite. As a research and development platform it's very feature rich with support for every back-testing mode there is (BBO, Trade, Midprice, Bar, Level 2 Order Book) and advanced optimization modes (walk-forward, genetic, mean-variance, portfolio optimization, etc). I have built components and ...


5

Assuming that: limit prices of Long and Short orders are equally pre-calculated in all 3 strategies; there is no risk-free return; strategies 1 and 2 have equal quality, and strategy 3 is slightly better. However, the only advantage that strategy 3 takes over 1,and 2, is better location of the orders in the price level queue. In case of FIFO (price-time ...


5

Whatever method you use, I recommend you test your implementation with Monte Carlo simulations as well as real data (although doing the latter subjects you to data mining bias, it can give a sanity check on your Monte Carlo simulations.) For most instances of multiple algorithms, the returns streams will not be independent, and you should take this into ...


5

As you mention neural network, in general, you may like to look further into various machine learning techniques. On that side, Quant Guy also mentioned ensemble learning which is the general term to combine different learning models. I'd like to elaborate on this point a bit further: In machine learning, traditional ways to combine models are simple ...


5

We don't give strategies a dollar amount during backtesting, rather backtesting shows how much capital would be required to successfully deploy a strategy. We also don't look just at returns but many different metrics including but not limited to, max drawdown, variance of draw downs, number of trades, holding period, correlation (or lack of) with various ...


5

It would be relatively trivial to implement a web scraper for any website you were interested in gathering news from - see Beautiful Soup for Python. This would allow you to gather and analyse news data from multiple sources in a way that may be more robust than relying on a single service. For example, you could screen scrape a certain website for the news ...


5

TLDR: Massive expansion of credit fuelled by rehypothecation, a general shift to repo, then the scale tips and everyone pays as credit collapses. Quants were there, but I don't think they can be simply blamed for all the ills of the world. There is a general disagreement about what caused what, so some of this is guesswork. I'm marking this a community wiki ...


4

There is another artificial intelligence online course co-sponsored by Stanford http://www.ai-class.org/ The class is about to finish, but you can login as a visitor to access the lecture video and handouts.


4

These 2 sites are relevant: - The Whole Street (research aggregation) - Oxford Capital Strategies (strategy reviews)


4

The original paper on using Twitter to predict the Dow can be found here. The hedge fund the authors are working with on trading is called Derwent Capital. An interview with the gentleman in charge can be found here. A quick Googling for "twitter analysis paper" turns up a number of results, although I am not going to post links as I have not reviewed them. ...


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