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Read white paper – AI FOR THE INDIVIDUAL TRADER (pdf)


An open letter to my trading buddies about the white paper –  AI for the Individual Trader

Loop Lonagan comments on the White Paper:

I just heard stats that nowadays, 70% o’ the action in the financial markets is these high-frequency trading outfits. Them high-freak syndicates enjoy the right of first look before they trade. You got it—they SEE YOUR ORDERS and FRONT-RUN YOUR TRADES. It oughta be against the law.  No, I ain’t talkin’ about them Occupy Wallstreet hoodlums.  This is big money.

Why’s it allowed? Hey, 70% o’ the volume adds up to a whole lotta money for the exchanges. That clear enough for ya?

Just to clue you in—used to be only the Market Specialists got those kinda rights. And for a good reason.

  • Market Specialists gotta maintain orderly markets.  BIG RESPONSIBILITY.
  • Market Specialists gotta participate whether they like it or not.  BIG RISK.

But these high-freak syndicates ain’t got no duties. No allegiance to the public. No nothin’.   They’re speculators, plain and simple—in if for themselves and the rest ‘o the world can go take a flyin’ leap. They wait till the time is right, run their bombing raids, then disappear over the next hill.  At 70% of the volume, that explains a lot about what’s been goin’ on in the markets.

Hey, I ain’t got no beef with speculators. I’m a speculator. But givin’ one group special rights and privileges is against the spirit and the ideals that made the good old USA a country of opportunity for the common man. A few years ago we had, maybe 7,500 floor traders working in Chicago. Today? About 2,500 and dwindling. I know. I was one of them guys. Now I’m out. And the people trading on their own computers? Think they don’t get hurt? Think again.  But I ain’t takin’ it layin’ down.  I joined da revolution.

The thing about these high-freak guys is they trade like hit men. Don’t leave nothin’ to chance.  They cram their operations real close to the exchanges so the wires from their computers to the trades are real short. They pay $100K and more a month for super-fast internet access—and they can afford it. You ready to plunk down that kinda cash? I didn’t think so. The high-freaks trade in and out in milliseconds using super-powerful computer programs.

How does the common man compete against that?  Sure, some folks got enough capital and the right connections and they buy-in to these outfits. If you can’t beat ‘em, join ‘em, right? But what about the masses?  Markets is supposed t’ be fair.

Turns there’s stuff we can do about it.  Lemme lay out a few ideas and you can give it some thought:

1.) SLOW DOWN – Whatever you do might just work a whole lot better on a higher time frame.  If you’re a scalper, try holding for at least a few hours.  If you’re a day trader, try swing trading.  If a swing trader, think about long term holds. If you’re already long-term, think about the new crowdsourced venture capital funds or maybe even distressed real estate.

2.) LOOSEN UP – Ya can’t use them tight stops no more.   These high-freaks see them orders and scoop up volume whenever they want by spiking price for just an instant. Yeah that’s right—runnin’ your stops ain’t hooey no more. It really happens. Nobody likes gettin’ kicked outa a trade just before the thing takes off to the moon. But anybody with any brains knows ya can’t make a living long-term without protectin’ yerself with stop loss orders, so my advice is just back off a bit.  And while you’re at it, how ‘bout some good old-time diversification? How ‘bout putting on a hedge? Ya gotta protect yerself. I know—you heard it before. But now we got no choice.

3.) BEAT ‘EM AT THEIR OWN GAME – Here’s where it gets good.  Do all of the above but do it smart.  Nowadays you gotta get way more high tech. Big time. You gotta adapt and keep adapting, again and again. The faster your trading style, the sooner ya gotta switch systems.  That means you need automation, ’cause nobody’s got enough hours in a day to do all this stuff alone.  Some guys run new simulations every night.  This market’s not efficient and random like the professors say but the easy money keeps moving around.  You gotta find where it’s goin’ on and get there first and grab it up. And I’m finding out it’s not so hard to do with the right tools. Sure I try new ideas – all the time. Yeah, I test ‘em. But if you wanna stay ahead, ya gotta teach your computer to figure out when there’s money layin’ on the floor. That’s right—get that electronic gizmo working for you for a change. Just don’t go head-to-head with the high-freak syndicates – you’ll get stomped.  Run right around them guys.  Go high tech.  Join da revolution.

So I read a white paper “AI FOR THE INDIVIDUAL TRADER.” That’s where I get most o’ these ideas.  It lays it all out plain and simple and it doesn’t cost me nothin’ to read.  And it ain’t selling nothin’ neither.  So I’m sending it to ya.  Yeah, I been givin it a go.  So far so good.

So what’s with da Bears hat?  Sure I like da Bears but that ain’t the point.  The white paper tells a story about “The Parable of the Hats.”  But most of all, it talks about AI—that’s Artificial Intelligence—yeah I can say the word and now I can use it. Neural Nets vs. Rule-Based Trading.  Genetic algorithms. Simulations. Walk-Forward Analysis, Auto-trading. Hey, I can understand this stuff so I think most of you won’t have no problem with it. And it’s written up by a guy I know and trust.  Give it a read and make up yer own mind.

Good trading, youse guys. Loop Lonagan *

* [Verbatim transcript of an MP3 file dictated by Loop Lonagan]


Read white paper – AI FOR THE INDIVIDUAL TRADER (pdf)


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Comments and re-posts are welcomed and encouraged. This is not investment advice – do your own due diligence. I cannot guarantee accuracy but I give you my best.

© 2012 John Jonelis – All Rights Reserved.


Filed under Financial Markets, Software