Tag Archives: experts

Are those Financial Guys just Talking Mumbo Jumbo?

After watching those financial shows and listening to a few financial “advisors”, I have come to the conclusion that they don’t really know what they are talking about. Yes, it’s true that the words are pieced together to creates some meaning, but there is no value.

Here’s a clip from Stock Watch.

Most of the time, they say something like, “If this happens, then that will happen.” And I think, “OK, that’s nice. But it doesn’t really help me.”

Continue reading

Share

Expert Profiles: Jez Liberty Sees Vast Automated Trading Potential

Expert Profiles gives Automated and Algorithmic trading system developers and theorists a chance to introduce us to their concepts and strategies.

Our expert featured in this edition of Expert Profiles is Jez Liberty.

Jez is extremely passionate about Automated Trading and its technology. We’ve enjoyed Jez’s posts on Automated Trading at his blog, Au.Tra.Sy blog.

Here’s Jez’s interview:

What made you choose to develop Automated Trading systems?

I have a long-held fascination with the trading world and a passion for technology. So automated/mechanical trading system sits at an ideal crossroads for me and represents an exciting topic to work on.

Additionally the prospect of going into a corporate career never appealed to me; whereas automated trading systems can give you independence and more freedom (and hopefully better wealth).

What are the challenges of developing Automated Trading systems?

There are lot of information out there and it can be hard to know what to pick to get started. In my case, I started trying to automate Technical Analysis patterns with “brute force” backtesting/optimization, which did not prove successful (I am skeptical on the long-term profitability of that approach). Further down the line, I stepped back and got more interested in learning about the nature of the markets, statistics and money management. This led me to have a clear vision of how I could succeed in trading automated systems.

But developing and trading an automated trading system is also a long process, far from the get-rich-quick scheme, that many dubious salesmen would have you believe. So you have to put in some hard work. But the reward and payoff are definitely worth it!

Working on your own can also make you feel isolated. However, my blog and other blogs such as Online Investing are a great way to engage and collaborate with like-minded people.

Continue reading

Share

Expert Profiles: Ben Gimpert Discusses Algorithmic Trading

This post is the first in a series of expert profiles that will give readers a better understanding of Automated–or Algorithmic–trading, as well as other trading technologies.

Our series starts with Ben Gimpert. Ben is a professional software developer and an expert in algorithmic trading. He offers keen insight to the current state of trading technology–and where it’s heading.

You can learn more about Ben and his technology at his site, Something Modern Logic.

What are some of the biggest challenges for Automated Traders and developers of Automated Trading systems?

The distinction between automated trading system developer and automated trader can be a blurry one. Where we draw the line hints at what I believe is the most difficult problem. Most trading systems, automated or otherwise, output time-sensitive signals that should be realized in the market. (i.e. “Go long S&P futures, and short volatility on gold right now.”) If a human trader manages the position once the entry is signaled, then the strategy will struggle with your typical human mental biases.

Managing the entire lifecycle of a trade with software is the primary difficulty and opportunity in automated trading. This means coding up more than a signal to enter a trade. Your automated system should specify precise position sizes, as well as stop-loss and take-profit levels. The risk and money management logic behind these decisions should look at a market’s volatility, the level of account equity, and important minutiae like contract multipliers and broker fees.

Ironically an automated trading system need not actually use a broker’s API! For example, a system that puts on a lot of risk might adversely signal the market with an exchange limit order. Instead a good automated trading system would specify a precise stop-loss and take-profit level that the human trader calls in as market swings. The real work in automated trading is in specifying the exact position size, stop-loss level, take-profit level, and maximum holding period — in addition to the entry signal. Next to those calculations, talking to the API is easy!

Is there room for small operators in the Automated Trading space or do the big banks and hedge funds have things wrapped up?

Absolutely. This is probably the most common myth in trading. “How can the little guy win, when a thousand overpaid MBAs are already working on this?” The assumption is wrong because investment banks and hedge funds are simply not that hip! As someone who spent years working in the trenches on trading floors in London, the average level of software engineering and artificial intelligence expertise is shockingly low. Bankers and hedge funds pay well because of the barrier to entry (jargon), because of the environment (hyper-competitive), and because of the exhaustion (long hours). The bonuses ain’t for elegant and efficient systems! The credit crisis has made this point more loudly than I ever might. Like any large organization, investment banks and hedge funds are bureaucratic and resistant to change.

There is also an argument that small can be an advantage, because some markets are too illiquid for the big players to care. If Goldman puts on $100m of risk in an obscure penny stock, the market will instantly move against them. Maybe the Goldman’s of the world have such good software systems that the marginal cost of trading across every potential market is zero. But I doubt it.
Share

Top 16 Investing Mistakes

This is Top Investing Mistake #16. For the other 15, see below.

Top Investing Mistake #16: Not Taking Responsibility

Have you ever heard someone say the following?

My accountant handles that.

The idea of letting someone else manage a complicated part of our lives is not new. We often use experts in the fields of finance, taxes and health. When we are sick, we go to a doctor. At tax time, we let the tax preparer do the work. And for investing, many people rely on their financial advisor.

money

Getting great expert advice in these fields is a great idea. But it carries with it a certain danger.

Continue reading

Share

Mutual Funds and the Concept of Value Creation: Part 1

One of the most powerful forces at work in our economy is the promise of value creation. This is the idea that when you spend money on something you actually receive value greater than the money you have spent. This concept was epitomized by a money back guarantee, that allowed people to sell just about anything with great success on television.

There is one industry that has a glaring lack of value creation for the customer. The mutual fund industry happily takes 80% of the profits from its customers. In return, if the market goes up, the customer can make a little bit of money. However, the customer only makes money after the mutual fund managers have taken out all their fees. So, first, the mutual fund managers get paid, and if there’s anything left over it goes to the people who put up the money.

Does that sound like a good deal to you? I don’t think it sounds a good deal to anybody. However, most mutual fund investors have no idea what they are doing. The company that they work for set up a 401(k) or other retirement plan for them and they allowed an “advisor” to help them choose an investment. Unfortunately for him, nobody told him the advisor was actually a salesperson gets a commission for selling mutual funds.

Share

Financial Experts and Doubletalk

nightly business reportDo you enjoy watching CNN or the Nightly Business Report? Did you ever notice how difficult it is to understand what they are saying?

A friend of my mother’s commented to me last night, “How come I can never understand what those financial guys on TV are saying? It’s like they speak a foreign language.”

I said, “The problem is not that you don’t understand. Those experts are just using financial mumbo-jumbo to confuse people and make other people believe that they’re not smart enough to understand.”

Like most Americans, she trusted experts to manage her finances because she thought its too difficult.

Unfortunately, the result is that the financial advisor sold her a bunch of mutual funds! In our society, it’s very easy to rely on experts. Financial planners are experts. Doctors are experts. Teachers are supposed to be experts.

However, I don’t believe that most of these experts really serve their customers. Why? Because they are in business to make money. They get paid regardless of how much money you make or lose. They get paid regardless of whether you live or die.

So what’s the solution? None of these people are going to care about your finances as much as you do. So each American has to take responsibility for their finances. They may not need to choose their individual investments, but they do need to get educated and evaluate the results.

Share