SectorTradingAlgorithm

Finance and crypto

algorithmic trading strategy

SHOW HN2021

249points
128comments
#152of 2,533 in 2021
Top 7%of 2021 by points

How HN took it

MixedNo clear lean

1 positive, 35 neutral or asking, 2 mixed, 36 critical, out of 74 comments about the project. Thread score -0.45.

Performance: 0 for, 16 againstIdea: 1 for, 13 againstPricing: 0 for, 3 againstExecution: 0 for, 2 againstDocs: 0 for, 1 against

The thread, comment by comment

Each row is a top-level comment and its replies, in HN's order. Select a cell to open that comment on HN.

positive neutral or mixed critical about another commenter or something else the maker

What HN said

What people liked

  • Sensible reminder that backtests are not guarantees and paper trading would be a good test

    From 2 comments
    • Sounds promising if true, and it's cool that you're working on this. What happens when you paper trade with it? Test it going forward and see if it still works, please make…
      bionhoward on HN
    • "Caution Hindsight is 20/20 and because this is a backdating algorithm, similar results are not guaranteed in the future. Use at your own risk." You don't say...
      wernercd on HN

Objections

  • Backtest ignores trading costs, slippage and taxes

    From 5 comments
    • There are so many misconceptions on this thread about what makes a good quant trading strategy. First of all, if you're shorting US equities and making 25% annually, that would…
      ucha on HN
    • As previously said, this is probably just mean reversion. It’s a commonly used signal that appears to print money all the time, until you take transaction costs into account. If…
      happytrader on HN
    • Now add trading commissions :-)
      belter on HN
    • This doesn't take into account taxes. If you are consistently profitable on a yearly basis you're expected to pay 100% of last year's capital gains split into Estimated Taxes…
      herpderperator on HN
    • Clearly the author does not have real world experience with this algorithm. If so, it would be clear that buying anything at the opening price is not easy.
      MR4D on HN
  • Average return misleads; annualizing by summing daily returns is wrong and volatility or drawdown is unreported

    From 3 comments
    • As others have said, "Average return is just one statistic". When trading, losses hit harder than wins. Go up 50% then down 50% and you're not even, you're down 25%. The degree…
      ryanmonroe on HN
    • Average return is just one statistic. You can earn an arbitrarily high daily average return by taking an ordinary strategy (e.g. buy and hold the S&P 500) and applying large…
      Majromax on HN
    • var total = 0; ``` for (var i = 0; i < performance.length; i++) { total += performance[i]; } var avg = total / performance.length; var tradingDays = performance.length; var…
      ffggvv on HN
  • Strategy is simple mean reversion that is widely known and would decay

    From 3 comments
    • Congrats. While it can be exciting to come up with a profitable algorithm, publicizing a mean reversion algorithm is counterproductive if you intended to make any money with it.…
      lend000 on HN
    • There's no overfitting in the traditional/model sense here. This is a pretty rudimentary momentum strategy (long best performers). Implementing this on any kind of scale would be…
      dmillar on HN
    • Another issue is that once the algorithm becomes known, and used be many people, it will not work any more.
      elcomet on HN
  • Likely overfitting and survivorship or multiple-testing bias

    From 4 comments
    • You did not discover a trading algorithm that returns ~24.85% annually. You massaged an algorithm until it produced a 24.85% annual return training on historical data. Come back…
      xwdv on HN
    • Overfitting, even on a 20 year dataset.
      AS37 on HN
    • Multiple hypothesis testing. This particular attempt seemed to have succeeded. But how many were tried that didn't? If you torture the data long enough it will confess.
      quantumofalpha on HN
    • No, because of the survivorship bias. People invent many algorithms all the time. You only hear about the ones which turned out exceptionally well.
      praptak on HN
  • Shorting risks large losses and unexplained rationale for why it earns money

    From 2 comments
    • The concern with these sorts of strategies is that you might discover the problem quickly. Say for instance if the stock you shorted doubles in value and you lose all your money.…
      seoaeu on HN
    • There's kind of a lot of missing pieces here: * This is a simple strategy, which is fine, but also means you are not the only person who has noticed this. Why do you think this…
      hazard on HN

Requests

  • Report Sharpe ratio, drawdown and volatility

    From 3 comments
    • There's kind of a lot of missing pieces here: * This is a simple strategy, which is fine, but also means you are not the only person who has noticed this. Why do you think this…
      hazard on HN
    • Congrats. While it can be exciting to come up with a profitable algorithm, publicizing a mean reversion algorithm is counterproductive if you intended to make any money with it.…
      lend000 on HN
    • Average return is just one statistic. You can earn an arbitrarily high daily average return by taking an ordinary strategy (e.g. buy and hold the S&P 500) and applying large…
      Majromax on HN
  • Include trading fees and slippage in backtest

    From 2 comments
    • Average return is just one statistic. You can earn an arbitrarily high daily average return by taking an ordinary strategy (e.g. buy and hold the S&P 500) and applying large…
      Majromax on HN
    • Congrats. While it can be exciting to come up with a profitable algorithm, publicizing a mean reversion algorithm is counterproductive if you intended to make any money with it.…
      lend000 on HN
  • Specify backtest time period

    From 3 comments
    • Over what time period was the 24.85% measured? This seems like it would do better during time periods where stock prices are volatile and/or not increasing, so if the returns…
      zucker42 on HN
    • what time period did you backdate over? i’m curious what the backdated return would be for different time periods
      ffggvv on HN
    • Now Backtest it from 2015 onwards. 4% yearly return. All your returns come from the first 2-3 years.
      hmate9 on HN
  • Paper trade or live-test and report results

    From 2 comments
    • Sounds promising if true, and it's cool that you're working on this. What happens when you paper trade with it? Test it going forward and see if it still works, please make…
      bionhoward on HN
    • Hook it up to interactive brokers for a year and update us!
      frakkingcylons on HN
  • Test parameter sensitivity and robustness

    From 1 comment
    • There's kind of a lot of missing pieces here: * This is a simple strategy, which is fine, but also means you are not the only person who has noticed this. Why do you think this…
      hazard on HN

Questions

  • What time period was the 24.85% measured over?

    From 2 comments
    • Over what time period was the 24.85% measured? This seems like it would do better during time periods where stock prices are volatile and/or not increasing, so if the returns…
      zucker42 on HN
    • what time period did you backdate over? i’m curious what the backdated return would be for different time periods
      ffggvv on HN
  • What platforms or software does the algorithm work on?

    From 2 comments
    • What platforms does the algorithm work on?
      slava_kiose on HN
    • What software do you use to implement algorithms like this? Do you have to write your own python/other scripts and interact with trading API's for whatever service you use, or…
      Exuma on HN
  • Why does this strategy make money and what risk is compensated?

    From 1 comment
    • There's kind of a lot of missing pieces here: * This is a simple strategy, which is fine, but also means you are not the only person who has noticed this. Why do you think this…
      hazard on HN

Alternatives named

  • Momentum and mean reversion strategies from academic literature (Jegadeesh-Titman)

    From 1 comment
    • There's no overfitting in the traditional/model sense here. This is a pretty rudimentary momentum strategy (long best performers). Implementing this on any kind of scale would be…
      dmillar on HN
  • Alpaca trading contest

    From 1 comment
    • This is mean reversion, right? Essentially fading market volatility. I recall an article on Bloomberg about a quant fund using VIX ETNs to implement something similar. Gradually…
      ArtWomb on HN
  • Google Sheets GOOGLEFINANCE for backdated simulations

    From 1 comment
    • I’m amused that a node app was used to do this rather than a Google sheet. The =GOOGLEFINANCE function is super handy for building backdated simulations.
      joneholland on HN

Category, keywords, summaries and labels on this page were made by AI (Thread Reader v2) and not checked by hand. Each point links to the comments it came from.

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