Algorithm Concepts

Some concepts I think about when developping an algorithm:

Physics	Biology	Social	Behavior	Chemistry	Finance
Torque	Evolution	Semantic	Crowd	Shape Memory	Volatility
Elasticity	Survival	Simplicity	Collective Wisdom	Atoms	Factors (Drivers)
Momentum	Biology	Complexity	Opinion Diversity	Molecules	Correlation
Distance	Genetic	Social Media			Value
Acceleration	Chromosomes	Intelligence Augmentation			Technicals
Amplification	Pheromones	Network			Assumptions
System Instability	Insects Behaviors
Stochastic, Random
Potential
Kinetic

Sounds a little bit crazy but it works for me. Am I missing anything worth exploring?

Written by Michael Bigger. Follow me on Twitter.

What Have We Got—Is It Marketable?

right click on imageTwo components of our algorithm workflow ask “What have we got?” and “Is it marketable?” The algo’s performance answers the first question. How your strategy and your operation rank against your competition will answer the second.

 

 

The Aurum Report contains a gold mine of data on hedge funds' performance. Explore the stats for some of the top hedge funds and get a sense of how marketable your strategy is. While you're browsing, check out the return of my previous employer, D. E. Shaw, on page 74. That is Alpha!

 

 

If your strategy does not clear the bar, don’t give up. Iterate!

 

 

 

Written by Michael Bigger. Follow me on Twitter. 

All You Need to Start Algorithmic Trading ( $$ #tradingalgo )

During the cold winter months, I usually leave Long Island for warmer climates. I recently spent ten days on our catamaran anchored in the Andaman Islands, India and a week in Cabarete, Dominican Republic. With plenty of bandwidth available, I ran my entire algorithm business using a Sony Vaio.

 

My laptop connects to Interactive Brokers via its application programming interface (API) and our software trades our algorithm in real time with minimal human intervention.

 

You can run a global algorithm trading business from a device costing about $500. Bandwidth, computing power, brokerage fees, and communication capabilities are cheap.

 

This is what you can do from your laptop:

 

• Open a trading account with a global online broker with strong Application Programming Interface (API) and sandbox capabilities (learn more here )

• Participate in algorithm trading groups on LinkedIn and various other forums

• Explore different drivers of algorithm value creation 

• Design and test your algorithm in the sandbox

• Take advantage of free third-party algorithms (see Accumulate/Distribute post)

• Initiate discussions with people interested in funding your strategy via a separately managed account

• Deploy your algorithm on a global basis

• Build a communication station

• Share documents (Google Docs)

• Take part in free voice and video conferencing

• Engage like-minded individuals (Twitter, Facebook, LinkedIn, StockTwits)

• Etc.

 

You might want to stop watching the tickers on your screen. Instead, start building an algorithm using the cheap tools around you. What do you say?

   

   

Written by Michael Bigger. Follow me on Twitter. Picture licensed under Creative Commons.

Algorithm Pheromones

Post written by Michael Bigger. Follow me on Twitter.

A pheromone (from Greek φέρω phero "to bear" + hormone from Greek ὁρμή - "impetus") is a secreted or excreted chemical factor that triggers a social response in members of the same species. Pheromones are hormones capable of acting outside the body of the secreting individual to impact the behavior of the receiving individual.[1] There are alarm pheromones, food trail pheromones, sex pheromones, and many others that affect behavior or physiology. Their use among insects has been particularly well documented. In addition, some vertebrates and plants communicate by using pheromones. (Wikipedia.org)

When you start discussing algorithm trading with like-minded individuals on social media, you disperse algorithm pheromones via your words. The more value you add and the more intelligent your posts, the more likely smart individuals will want to interact with you to discuss this topic. The Internet works magic that way. 

Share your insights with the world. It will compound. Start with a comment about this post.

Work Flow Chart For Trading Algorithm Currently Under Development (Update 1)

I have gotten some good feedbacks on the chart entitled – Work Flow For Trading Algorithm Currently Under Development -. Here is the same chart with links pointing to material I have written for each step. You can download the PowerPoint Presentation right here http://bit.ly/aJirc6 

Financial Artistry not Financial Engineering $$

Seth Godin just published a great book, Linchpin: Are You Indispensable? (Amazon Affiliate Link). In his book, Godin makes the case for why first-class creative/inventive/artistic activities are at the top of the pyramid for value creation for individuals in a connected Internet society.

In finance, one might think that selling and financial engineering are the main drivers of value creation. However, if we examine examples of extreme value creation in that field, we reach a different conclusion. Artistic activities fuse with finance to deliver outstanding results. A few examples follow:

- Warren Buffett has leveraged his investment using insurance float to generate extraordinary returns. 

 - Howard Lindzon has built Stock-Twits using the emergence of Twitter as a broadcast station for traders and investors.

 - Thomas Peterffy started Timber Hill as a floor options market maker and transformed it into Interactive Brokers, a global online broker with superior technology and low trading costs.

- D.E. Shaw created one of the largest quantitative hedge funds in the world.

These pioneers thought outside the box and created revolutionary financial models. Financial artistry drove their creation processes.

At Bigger Capital, designing a trading algorithm is much more a creative and inventive process than a purely mathematical process. We approach this endeavor uninhibited, like a child. Neoteny becomes the cornerstone of the creative process (see Sandbox post). We play in the sandbox and try lots of things. We start with raw sand and water and sculpt the algorithm into an appealing financial product. The process is not only about finance, mathematics, and statistics: it is also about creativity. We never know in advance where the dark alleys will lead us. We iterate until we get a desirable outcome.

 The new cool financial tools allow anyone with a laptop and an Internet connection to become an innovator. If you have dreamed up a trading strategy, it's time to stop watching the ticker screen. Go to the sandbox and start shaping your strategy into a process you can code and enjoy the benefit for the rest of your life. Compound that creative process!

The Algorithm Proves Its Worth Trading $EXPE This Morning

I just can't beat the speed of a computer when it comes to trading.

Work Flow Chart For Trading Algorithm Currently Under Development

Yesterday, I was listening to Activision Blizzard (ATVI) earning conference call via Asif Suria’s tweets. Paying attention to ATVI stock price movement I initiated a tweet to Asif that evolved into a discussion:

@specialsin added $atvi to my algorithm. Should be a good stock for that. Good work. Thanks.

@biggercapital Would like to learn more about your algorithm with the full understanding that you don't share its inner workings.

@biggercapital Can the algorithm account for the difference between GAAP and non-GAAP revenue/earnings on account of revenue deferral? $ATVI

@specialsin yes if you have the data. I have my own recipes. I test the recipe in a sandbox and shape the algo as I test. $atvi

@specialsin yes, anytime tomorrow. I am on skype at biggercapital

In anticipation of our call this afternoon, I created a work flow chart for how we go about developing an algorithm (pdf here http://bit.ly/cfaDUS). Let me know what you think. BTW, follow @specialsin on twitter and subscribe to his blog. He adds tons of value.

Google Wave for Investors, Traders and Algorithm Tinkerers

Google Wave is a real-time, multi-person collaboration tool. When I heard about it a few months ago, I wanted to get Google Wave badly. Unfortunately, you get Google Wave by invitation only. A month ago, a friend I met on Twitter (see broadcast station post), sent me an invitation.

Initially, I did not know what to do with the wave since most people I know are not on it. So I let it be for a few weeks. Deep down, I did not understand what the fuss was about. Then I decided to start surfing my own waves, which consist for now of tasks I want to perform. Then, suddenly, a few business friends appeared on my Wave contact panel, and we started surfing together and discussing business and stock research. Most of these discussions evolved from the task waves I initiated.

It is day one for Google Wave, but the usefulness of the tool for traders and investors is quite obvious. Think about the potential of using waves for stock research, fundraising for a startup investment fund, debating the accounting of companies, and the like. We are more intelligent traders and investors when we collaborate. Although missing many of my wish list features, Google Wave makes collaboration more fluid. It beats what is out there and it will only get better.

Start surfing today. I have fifteen Google Wave invitations I'll give to the first people who read this post. First come, first served. Send me an e-mail at biggercapital@gmail.com .

At Citi, the Bullshit Never Stops $C

-Citi's underlying financial strength and stability- You must be kidding right?