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Trading Strategies >> General Discussions About Strategies >> Anti-Algorithmic Trading
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Message started by Co0olCat on 07/15/08 at 11:51:14

Title: Anti-Algorithmic Trading
Post by Co0olCat on 07/15/08 at 11:51:14

What do you think about Anti-Algorithmic Trading?

Here is the link for thoughts:http://www.anti-algorithmic-trading.com/

Title: Re: Anti-Algorithmic Trading
Post by Yury R on 07/15/08 at 16:22:23

To me it is very brave and very cheap. The web-site promotes some training services for management and yet it looks like thousands of others that sell these wonderful trading systems for 300-3000 bucks or so. Only "testimonies" page is missing... oops, sorry, "clients testimonies" is present as well :)

Anybody knows them and can counter my mis-judgement?

These algorithms that the author mentioned (Guerilla, Sniper, Benchmark) - does anybody knows what they are? He mentiones them in a way like everybody should awaken immediately.

Perhaps, I don't know what I am talking about...

Title: Re: Anti-Algorithmic Trading
Post by Maltamir on 07/16/08 at 01:50:38

Pro-algo people are looking at algotrading as a kind of investment strategy, that offers small return, but regular and low volatility (means high Sharpe ratio), with few correlation to events and economical environment.

Anti algo trader think this is not a way to 'invest' and manage a portfolio. That it is low brain and economical strategy causes you don’t have to understand economics to invest with algos.

Yes these algos (ie 'Guerillas') is known in the commercial news as specific OMS strategies (kind of VWAP, with other functionality). Mostly to catch liquidity on the market BEFORE your competitors, and benefits some arbitrage strategies, or bigger liquidity pool at best price for you !

Title: Re: Anti-Algorithmic Trading
Post by Yury R on 07/16/08 at 09:14:32

Pro-Algo, Anti-Algo arguments as such have been around for quite a while. It is just the web-site that seems strange, at best...

Title: Re: Anti-Algorithmic Trading
Post by Algo Designer on 07/17/08 at 01:04:04

qroach wrote on 07/16/08 at 09:14:32:

Pro-Algo, Anti-Algo arguments as such have been around for quite a while. It is just the web-site that seems strange, at best...

I fully agree with you there. Pro or ani- algo is a philosophical argument. However the way the argument is presented on that website is rather strange. When someone designs an adaptive strategy (be it a sophisticated VWAP or an alpha generator), apart from other things, he or she takes into account the new market dynamics including the increased impact of other automated trading systems. In a sense, any advanced strategy has anti-algo features in it.

What the author of the article calls the warfare, I call the natural evolutionary process driven by active competition. Nothing new under the Sun. It is merely survival of the fittest in the system with limited resources.

Title: Re: Anti-Algorithmic Trading
Post by Yury R on 07/17/08 at 11:13:47

It is interesting that you mentioned anti-algo features...

You call it evolution, someone can call it a trend.

There is a valid concern about a similarity between computers chasing computers and "find a greater fool" concept...

Perhaps, in order to break the loop someone needs to find some non-traditional way of exploting mechanical abilities and produce some new value. Hard to say what exactly I mean though...

Or look at it another way. Increasing complexity or sophistication of algorithms (as a result of evolution) is also a very dangerous path, since it can be susceptible to data-mining bias. If you keep adjusting your algorithm with additional conditions and parameters then you might end up beign sucked into minutae optimizations caused by occassional blimps in time-series. 100 blimps - 100 new algo branches but no additional profit in future. What is the way out of this trap? Or am I wrong in methodological sense?

So, the topic is very old but there is hardly anyone who addresses these questions - at least as it seems to me at the moment.

Title: Re: Anti-Algorithmic Trading
Post by Co0olCat on 07/17/08 at 11:44:36

Yury, the last part of your argument falls into category of another topic of Algo discussion - AI. Your point about grouth of complexity and volume contradicts to what we have in the Nature. In the course of our life we learn many skills and gain knowledge. There are only few exceptional persons who can hold it all (some at the price of their mental health). The rest of us are quickly forgetting unutilized skills and bits of information. To use this anology, algorithms should have FIFO optionality: New rule in - old rule out... ;)

Title: Re: Anti-Algorithmic Trading
Post by Yury R on 07/17/08 at 16:01:03

I understand that you can limit immediate complexity in AI algorithms easily. But the porblem might be deeper.

There are implicit rules that you as a software designer incorporate into the algorithm. One thing is a complexity of the rules produced by the algorithm, another - complexity of the algorithm, which you are going to increase as soon as you notice its inadequacy in new market conditions. And this implicit complexity is difficult to measure and even difficult to notice sometime. And the increase in this implicit complexity is what we observe now and what Algo Designer called "natual evolution"...

Don't you think there is any danger in this area?

Title: Re: Anti-Algorithmic Trading
Post by Baltar on 07/21/08 at 15:12:03

Interesting comment on that site about "sniffer" algorithms:

Quote:

"... certain algorithms called “sniffers”, that sniff out algorithmic trading by others and the algorithms being used by them. They can “game” the system, and may trigger buy orders to generate a better market price into which to sell. These algorithms can be very dangerous. We move towards Information Operations and Information Warfare-like environment."

Do we move toward battling algo bots, or toward equilibrium?

Title: Re: Anti-Algorithmic Trading
Post by Algo Designer on 07/21/08 at 15:16:28

Baltar wrote on 07/21/08 at 15:12:03:

Interesting comment on that site about "sniffer" algorithms:

Quote:

Do we move toward battling algo bots, or toward equilibrium?

Towards a pseudo-equilibrium followed by a volatility explosion that would breed a new family of strategies and techniques IMHO. It is a constantly moving target.

Title: Re: Anti-Algorithmic Trading
Post by 3John on 08/02/08 at 09:27:32

"sniffers" raise interesting issues - I wonder what degree using such a strategy would be considered market manipulation by a regulator.

Certainly if you knew that a certain chain of short sell orders were in place and you were able to cause an exploitable downturn with a series of well placed orders, this would be considered market manipulation.

If you woke up one day to see your algorithm had come up with this strategy on its own, caused Black Monday and then the Securities Commission comes calling?

Title: Re: Anti-Algorithmic Trading
Post by Co0olCat on 08/02/08 at 09:41:45

3John wrote on 08/02/08 at 09:27:32:

The algo strategy is of no good if it can be detected. From regulator's prospective "rocking the boat" would have a clear pattern since due to its position orders can be traced back to the same "oscillator". Besides, one of the aims of Algo is to minimize the impact on price and correspondingly on the market. Once a machine has produced intrusive strategy it means that there is something wrong with its objective function ;)

To rephrase saying about guns: “Machines do not crush the market – objective functions do…” TM