Too Square to Roll With the Dice

Welcome to the Elon Gated Community. We are listening in on the conversation between two residents.

A.D. seems to have blown a fuse upon coming across an announcement.

A.D.: What does AI have to do with arbitrage trading?

B.C.: AI is a broad term and its usage in trading can be in different elements of trading. For e.g. using AI only for execution or using AI for creating strategies etc.

https://medium.com/invao/how-to-exploit-arbitrage-chains-using-ai-based-hft-algorithms-2c4beeb752de

B.C.: Also, the quantum of AI being used by any firm will vary. Some firms might be using just 5% AI contribution in their operations yet they can claim their’s is a AI based solution. Also, we do not know for any firm whether using AI will pay-off over a longer period of time. Having said all this, AI/ML has lots of good stuff which can be used in trading.

(make note how quantum here stands for “degree”, “percentage” but boy, does not it sound 10,000 times more scientific?!)

A.D.: Arbitrage utilizes price difference. There are two variables and a comparison. Nothing artificial to be learnt there. Arbitrage finds speed advantage and or price advantage. In stock market terms this exploits the inefficiencies that may exist among the 13 US exchanges price quoting.
They also call arbitrage trading when two supposedly similar securities or commodities go in opposite direction and you make a bet that they would equalize aka pairs trading.

B.C.: Yes, AI can be used for this or in the execution side. you can many methods how ML/AI can be used in arbitrage.

https://towardsdatascience.com/a-gentle-implementation-of-reinforcement-learning-in-pairs-trading-6cdf8533bced

B.C.: Currently I am not focusing on ML in trading. My focus is on NLP (which again uses Deep neural nets) and strategies using technical indicators. At the end of the day to achieve success you need (1) a market expert (2) an ML expert (3) both should trust each other and hopefully get something good out of their efforts …Lol

A.D.: Still not sure why any of this is called AI. There isn’t even a hint of intelligence alien to human thinking, that cannot be comprehended.

A.D.: And what is the machine learning? Does it start to write programs of its own without human interception? I doubt it. Storing things is pure memory. Making things fast and often is high frequency.
I don’t get the French attitude of having to invent new terminology for things that already have a name.

B.C.: What is ML? Take for example there are 4 series — 1 dependent series and 3 independent. ML determines which is the appropriate equation that binds dependent series with the 3 independent series.. To do so it makes use of past data ….

B.C.: How is dependent connected to independent… Linear / non-linearuadractic, ploynomial etc.. Different ML algorithms help find this relationship. either through supervised or unsupervised learning.

B.C.: Some ML are useful in finding patterns… (e.g. patterns in stock charts) If ML can do this …why the need for a technical analysts to find head & shoulders, divergence !! Some ML are used to fool market participants in trading.. mostly used to fool retail traders who end up bad execution of traders…

B.C.: Some advance ML type like reinforcement learning… start operating on their own without human intervention are they have learnt sufficient well… Lol Basically, humans will become more and more absolute in coming years.. Good that you are in this century…

A.D.: I am already obsolete

B.C.: You will have to keep yourself updated mate.. you are multi-talented… so take some more effort and stay updated

A.D.: All is needed to put you and your machine learning ai algos out of business for good to change something in the order execution without telling you about it. Automatization in trading is doomed. *

B.C.: yes, that’s what I meant try to dupe retail traders. But in this case, even the manual traders will get duped. Can’t help.. manipulation is everywhere.. you need to choose the right race to run … Lol

B.C.: Hence, my focus is now more on Macros in forex.

B.C.: You need to know all this mate

A.D.: And all you need to know about fundamental trading is this: fundamentally everyone is trying to make money.

Hi you have called Reneissance I mean, Gothic Trading. We are a somewhat automated service. How may I conduct your call?

……

*: how can someone who identifies on his LinkedIn profile as Automated Trading Developer say a comment like that?

Achilles Dent, aka Macdulio automates certain trading elements to decrease / eliminate risk (promotion of free trade) and to optimize the exits of trading positions, but he does not advocate automated naked opens.

Hedging, trail stops, croppers, target adjusters are what he specializes in and uses them as tools to make human trading a little bit more sigh-borg like.

– Sigh –

“Sigh your name across my heart” – Terence Trent Dolby