
Finance novice beats hedge fund pros, winning $100k in Quantopian contest - prostoalex
http://pando.com/2015/03/05/finance-novice-beats-hedge-fund-pros-wins-100k-in-inqugural-quantopian-trading-contest/
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numlocked
At the risk of being overly cynical:

Week 1: Take 512 people. Mail half of them a letter that says "the market will
go down this week". Mail the other half a letter claiming it will go up.

Week 2: Take the half who received a correct prediction, split into 2 groups,
repeat.

Week 3: Repeat.

Week 4: Repeat.

Week 5: "I've predicted market movements perfectly! To get on board with my
foolproof strategy, send your investment check to..."

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im2w1l
This seems to be the opposite.

Week 1: 512 participants. Half of them mail in "the market will go down this
week". They lose.

Week 2: Of those who made a correct prediction, half make a correct prediction
again. The rest lose.

Week 3-8. Etc

Week 9. We found a winner, one who could predict the market flawlessly!

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Terr_
Cautionary observation: The same company that judges the contest also makes
more money when this specific kind of contestant wins.

> "With the Quantopian platform, anyone with a bit of coding skill and a mind
> for finance can start writing algorithms. The best ones win."

> The winning algorithm each month is deemed to be the one that, based on
> Quantopian’s analysis, offers the best combination of [...]

It is entirely possible that everything was aboveboard and honest, but there's
still a latent conflict-of-interest since the company may have leeway choosing
what constitutes the "best combination" of metrics.

~~~
dunster
We work very hard to make our interests aligned with our community members'
interests. We don't literally make money from the algorithms in the contest.
What we're doing is encouraging hundreds and thousands of new people to write
algorithms. The best ones will be invited to join our hedge fund, we'll
negotiate compensation with them, and we'll take investment from pension funds
and endowments and the like. In that sense - yes, when our customers win, we
win too.

As for the judging, I think you'll find it be very transparent. There are 6
return and risk metrics calculated for both the backtest and the paper
trading. The 6 metrics are weighted equally to generate an overall score. You
can see the metrics for every contestant and the combined score on the
leaderboard. You can verify it all by downloading the CSV.
[https://www.quantopian.com/leaderboard](https://www.quantopian.com/leaderboard)

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drinkislande
Honestly, I don't understand why there's so much cynicism regarding Quantopian
and their contest. I think it's great that there's a tool people can use to
get started with automated system trading.

For all of you who are whining about stuff, do realize that no one is being
forced to enter the contest. Did you get that? NOT REQUIRED.

On the other hand, for those of us who want to learn or try our hand, this is
a great idea/product.

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jeffreyrogers
Finding anything meaningful in results like this is a bit tough since
everything is looking backwards. It would have been nice if they said (for
example) "okay, here's the deadline, you can't make changes to your algorithm
after this date, and then we'll test it over the next six months of data."

Also, I wonder whether they're taking costs into account since any strategies
that involve making lots of trades will quickly see their profitability drop
due to fees.

~~~
dunster
It's both forward-testing and backward testing. The algos have been locked
since submission - some were submitted as early as 1/15, all were submitted by
2/2\. That makes it both an in-sample and out-of-sample test.

Yes, the Quantopian platform includes default commissions. It also includes
default slippage. No model is perfect, of course, but this is a tool that's
had a lot of development.

(I work at Quantopian)

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learnstats2
The algorithm you need to win a contest is the highest risk algorithm you can
get away with.

~~~
fawce
Here's how I think about our contest: If you only had backtesting, you could
win by fitting. If you only had 1 month of paper trading, you could win by
luck (taking excessive risks).

But our contest is 2 years of backtesting + live trading for a month. I don't
think it is likely you can both overfit and be lucky with one strategy.

~~~
im2w1l
Assuming you blackbox test the algorithms, you could include some signatures
of past data. If those signatures are detected, you know the future and can
trade optimally. If they are not detected, go for blind luck.

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tdicola
I was really hoping to enter that contest with an entry that just used rand to
flip a coin and invest. Never had the time unfortunately, but would still love
to see how a completely random strategy compares to some of the algorithms.

~~~
drinkislande
It really depends how you're using the random coin tossing. Are you going
through a list of securities then tossing a coin and if it's heads you'll buy
it, if it's tails, you'll sell? How will you allocate your capital? If it's
heads you'll put commit 10% or your balance and if it's tails, 20%? Will you
use coin tosses for your exit parameters as well?

While coin tossing in and of itself is random, the manner in which you use it
is not. So at the end of the day, your 'completely random strategy' may not
actually be all that random... Just something to think about.

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rune5
Is it possible for others to see the source code of the submitted algorithms
or is that reserved only for the Quantopian employees?

If you have a good algorithm, why would you share it with anyone? A good one
would be worth more than $100k.

~~~
atlantic
A good algorithm is useless unless you have enough capital to work with. You
might have to spend years just building up enough capital to make a decent
income off your trading; or, lack of capital might well induce you to trade at
high levels of risk, and lose the little capital that you have.

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em70
Too much noise - this means nothing. This is exactly the reason why serious
investors give fund managers money not just based on performance, but on
process.

~~~
arielweisberg
Or invest in an index with no active risk.

I have trouble taking seriously any "serious investor" that invests in a fund
and expects to beat the market. It's been researched to death and it's a
losing proposition that doesn't acknowledge the rules of the system.

You can beat the return of a broad market index just not by paying someone
else to do it.

~~~
drinkislande
I take it neither of you have ever read "What Works on Wall Street"? crack it
open, and tell me it's impossible to beat the market. Just because lazy people
advocate buying index funds doesn't mean it's automatically the best choice.
If you're just satisfied with mediocrity, then fine, do it. However one trait
of successful humans is that they seek to improve upon the status quo.

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ripb
It's such a shame that we have the lives of such smart people being sucked up
by such a vacuous, socially value-less and damaging industry.

~~~
fawce
Investing is planning for the future. It is a critical tool for society.
Everyone from individuals to important institutions like universities and
pensions need to invest. It is a need of the many, not a diversion for the
few.

Because of HFT, it has become popular to blindly condemn investing.

I went to college because an endowment was able to provide me with a
scholarship. Investing has a huge effect on society and on people.

