LunaticTrader

Investing with the Moon

Data science for investors. Do you stand a chance?

Posted by Danny on December 18, 2014

Will algorithmic trading take over the market? How much of a chance do you stand against university trained quants and other math goliaths? Are you too old to keep up or catch up? Is there a way to measure yourself before you commit and maybe lose some or all of your savings in the market? That’s some of the questions that are starting to bother more than a few retail investors. I will try to address them in this article.

As you may have seen on this site, I use my own indicators and algos. Where do they come from? The days that you could easily make money by using standard tools like the RSI or simple moving averages are long gone. Using them is like turning up for a Nascar race with a bullock cart, really… But, you can try to catch up, just like I have tried. I am not a trained a mathematician, I call myself a nexpert, a self-taught nexpert. If I can do it, you can do it. But it will take time, motivation, some basic math skills (or coursera) and a computer.

So, how to get started? Well, why not learn from the best? Would your game of golf improve if you could play some rounds alongside Tiger Woods? Probably. Will your game of poker improve if you play with people who are even worse than you are? Probably not much. The good news is that the internet has made it possible to compete alongside some of the best data scientists in the world. You will not win, but you will learn a lot, things that you can then use in your trading. So, here is the first step: head over to kaggle.com and sign up for a free account. That site organises regular data science contests and sometimes there is big prize money to be won. Many of their contests are sponsored by major companies like GE. There are also starter contests that will teach you the basics of data science. In fact, some of the contests are sponsored by hedge funds who are looking for top talents. So, winning may land you a very well-paying job, designing algos for a hedge fund. Of course, you are not likely to win, because you are up against math professors, university teams and nutcases like me. But you will learn a lot and you will find out where you stand against specialists in the field. I joined kaggle a few years ago and participated in two contests before I took my new skills to play with my own indicators and algos for the stocks market. In the first contest I ranked 98th out of 353 teams. Not too bad. On the second occasion I finished 48th out of 355, so almost in the top 10%. I was surprised to leave college teams behind me, and that gave me confidence that maybe I am not all that bad at this. Here you can find links to the contests I did: https://www.kaggle.com/users/71553/ttbo

Right now an interesting new contest is starting with $100000 for the winner, and I might jump in if time permits. The challenge is to classify ocean plankton. Now, you may ask what the hell has classifying plankton to do with the stock market? Well, playing the stock market is also a classification problem. If you can find a better way to classify stock setups in categories like “Bullish”, “Bearish” and “Neutral” you are on your way to profits. The skills you learn to classify plankton better can be used to classify stocks as well. Your computer won’t care whether it is classifying plankton or stocks.

The world is full of people complaining about the economy and no good jobs… But half of the day they are wasting away on facebook or playing angry birds on their smart phone (what “smart” phone?). So, why not waste that time on something that may yield some useful new skills? Times have never been better for people with the motivation to learn something new, because the internet makes it free and fun to pick up skills. If I can do it, you can do it. Are you taking advantage?

Good luck, Danny

 

8 Responses to “Data science for investors. Do you stand a chance?”

  1. Alex Lurvey said

    Another resource that some may enjoy: https://www.quantopian.com/

  2. Astra-Man said

    Very cool. I just stumbled upon kaggle myself just this week and thought the same. Looking forward to following your success on that site as well!

  3. Kris Au said

    Danny, very good article, and thought provoking to those who complained. BTW, I have a plan of how to make a million from a humble capital, say, 10000. in stock market. Just thought of the plan based on simple maths, after all, it is only maths that will guide us through. Now putting the plan in action, it will not be achieved overnight. It may take around 2 to 3 years.

    • Danny said

      Great. Let us know how it goes. The thing with math based investing is also that we can backtest it. We can then see how we would have done with a given formula if we had started using it 10 or 20 years ago. And we will know what we can expect in different market environments. But eventually there is no real substitute for testing things in the real, so-called forward testing.

  4. Rohit Narang said

    Danny – great article and very inspiring indeed! Will sign up for kaggle and follow it up.
    Also, have been doing my trading across asset classes for many years but never have I tried to make an algo and automated it – the plan for 2015 is to have atleast make one automated algo trading for me.
    Any thoughts/guidance on this matter would be very much appreciated.
    Needless to say, if I can be of any help – please let me know.
    Thanks

    • Danny said

      Thanks for the thumbs up, Rohit.
      I will try to do a post on recommended tools and websites for people who want to develop algos for trading.
      Stay tuned.
      Danny

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