
Art project: Train rats to trade markets - waterlesscloud
http://www.artmarcovici.com/rat-traders
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gjm11
The obvious next step is to try the same with voles, shrews, etc., and start a
hedge fund that is actually located in a hedge.

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anentropic
^ this :)

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philbarr
By the way, there's a little "up" triangle next to each post which means
"this" ;).

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acannon828
Dude has had an interesting life. Bio from his webpage:

 _Michaels career, not only as an artist, is a rather unusual one: born in
1969 in Vienna, he got interested in technology, especially electronics and
mathematics, already when 7 years old. At the age of 12 he worked as a
programmer. He quit school at 17 and started his first own business in the
financial field, publishing analysis on the financial markets and managing
funds, until he sold his business at the age of 23. The following 3 years he
spent climbing and hiking in Africa, USA, Asia, and all over Europe. From 1995
on he was the publisher of werk-zeug, a technology and art magazine, as well
as streetfashion, a magazine featuring fashionable people on the streets all
over the world. He was also active in the field of software development, is
the originator of many inventions, and holds international patents ranging
from climbing equipment and bicycle gears to trading systems and electronic
payment systems. Already in 2001, Michael decided to sell his companies to
start his career in arts and works as he calls it. In the very same year
though, he started a side business on eBay that eventually became the world 's
largest powerselling enterprise on eBay, a company with 80 employees and a
turnover of 30 million euros a year. In early 2005, the company went bankrupt,
and Michael lost all his money in the process. Never shying away from new
challenges, he decided to write a book about the company and its end: English
and German versions of "The end of EBay" are available through Amazon here.
Qentis' bankruptcy also had its good sides: finally, Michael could concentrate
on his art and private studies. Michael’s works are the result of a rich live
and a long history of ideas. The artist about his work: "there is no way to
(mate)realize all the plans and projects I have on my mind in one lifetime- I
can only pick the best and feasible". His work touches a broad variety of
fields such as technology, politics, science, social topics, and style._

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fennecfoxen
Cute project, but since it isn't actually hooked up to live trading, I'm going
to suspect that they're not actually dealing with the issues which would keep
them from making a profit on those trades: trading fees, losses going into the
bid-ask spread, the fact that large enough purchases actually move the market,
and the fact that the crash which wipes you out can come along on years later
just when the victories of the past few years made you think you had
everything figured out.

Simulated trading is all well and good for the long-term buy-and-hold sort of
trading where you can assume you're a medium-small-sized fish in a huge pond
and these errors are inconsequential, but with ultra-short-term trading like
this the texture of the market matters a lot more.

That said, if you're a day trader of some sort trying to compete with the task
the rat has been assigned to do, there's a very much elevated chance that
you're in the wrong business.

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jackgavigan
I seem to recall that the most likely predictor of whether the next tick in a
liquid market will be up or down, is whether the last tick was up or down.

In other words, if the last tick was upwards, there is a >50% chance that the
next tick will be upwards too.

A quick'n'dirty Google search turned up some research:
[http://www.researchgate.net/publication/234834258_Random_Wal...](http://www.researchgate.net/publication/234834258_Random_Walk_or_a_Run_Market_Microstructure_Analysis_of_the_Foreign_Exchange_Rate_Movements_Based_on_Conditional_Probability)

Looking at the ticker tracks the artist has used, I wouldn't be surprised if
the rats are effectively being trained to Buy when they hear high-pitched
notes, and Sell when they hear low-pitched ones.

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throwaway283719
It's actually the other way around. For most stocks, if the last tick was
upwards, the next tick is more likely to be downwards (where a "tick" is any
time the best bid or ask moves, and "price movement" means the change in the
mid price).

For example, taking a random stock over a random three month time period, I
compute that after an uptick, the probabilities for the next tick are -

    
    
      P(uptick)    = 39.3%
      P(downtick)  = 56.3%
      P(no change) =  4.4%
    

where "no change" typically happens when the best bid and ask change by the
same magnitude, but in opposite directions.

Of course, this is not very useful for trading, because it doesn't give you
enough of an edge to overcome the bid-ask spread.

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jackgavigan
Okay, here's the breakdown of the five sample ticker tracks provided by the
artist.

    
    
                                                        NR231   NR287   NR320   NR440   NR442   Totals
      Uptick followed by an uptick (UU)                    6       5       9      14       5      39
      Uptick folowed by a downtick (UD)                    2       4       3       3       4      16
      Uptick followed by no significant change (UN)        1       0       0       2       0       3
      No significant change followed by an uptick (NU)     1       1       0       2       1       5
      No significant change followed by a downtick (ND)    2       1       0       0       1       4
      Downtick followed by no significant change (DN)      2       2       0       1       2       7
      Downtick followed by an uptick (DU)                  1       4       3       0       4      12
      Downtick followed by a downtick (DD)                 8       6       8       1       6      29
    

There were 58 upticks in total, 39 (67.24%) of which were followed by another
uptick.

There were 48 downticks in total, 29 (60.42%) of which were followed by
another downtick.

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throwaway283719
There were around 480,000 ticks in my sample - who do you believe? ;)

The difference is probably in what is defined as a "tick" for the purposes of
computing the stats. If you are using traded prices as opposed to quotes, for
example, you will get very different results. If you sample at regular
intervals (e.g. 1s) you will get different results again.

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bayesianhorse
A lot of people didn't get the idea that this is an art project, not an in-
earnest investment strategy.

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diminoten
Yeah, this isn't real, is it?

It's an art project, not a science experiment.

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scotty79
Was the training and price input necessary at all?

Doesn't random generator outperform some hedgefunds?

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Arkadir
One of the rats achieved a 53.5% success rate (the author did not specify
whether this was over the entire 800 data points or only the last 100).

When tested on 800 data points, a purely random strategy would have a > 53.5%
success rate about 2% of the time.

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tempodox
Finally. We can replace the Wall Street folks at 1 / 1.000.000 the price of
today. This will be a significant boost to the economy.

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borgchick
LOL, you under estimate the cost of the cheese... and the dropping removal
service... but yes, for the most part, I think you are right!

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mml
Imagine the savings on cocaine alone!

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bayesianhorse
Someone said hedge fund managers don't run on coke and models any more. But
hey, now it's coke the beverage, and mathematical models...

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camillomiller
I am no AI expert, but couldn't a modern AI be trained more or less in the
same way?

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lmm
"AI" is not a single thing. There are some projects that you train to respond
to signals, sure. Some of them are already in use in HFT. Modern trading tends
to use a lot more inputs than just the historic price though - you also look
at wire services, twitter, etc. So I wouldn't expect this to be competitive
without having access to more data.

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digitailor
Wasn't the point that the rats only reacted the the live feed, and didn't have
any ancillary data? That ticker tracks converted to sound were enough to
perform strikingly well in terms of deciding holding moves?

 _...the training was almost finished; the performances of the top 4 rats had
turned out to be comparable to those of the world ' s best fund managers.
Their ability to recognize sound patterns generated from the market's ticker
tape was incredible. And the rat traders also hold another advantage: unlike
their human counterparts, they are not likely to be distracted from news or
economy fundamentals, their own personal or their bank's financial status._

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throwaway283719
I should point out that it's not at all surprising that the "top 4" rats
performed very well. If you got a couple of hundred people, animals, or random
number generators to trade using any set of rules you like, and then looked at
the top 4, you would almost always find that they outperform, because that's
what being in the top 4 means!

The real question is whether the _same_ four rats would be the outperformers
if you ran the experiment again.

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JJKitty
I guess all we can do is hope that we can become Mr Kleinworth Morgan Jrs. =D

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cinitriqs
the rat animal for the right job...

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namtuots
next: hedgehog fund managers

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coldcode
If rats can actually beat human traders, why shouldn't we put the traders in
cages and let the rats have our money?

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glxybstr
this is fascinating. i love the mix of scientific experimentation with an art
piece. i'm wondering at which point the improvements in the newer generations
will taper off... maybe a rat could be the next warren buffet?

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cornewut
Rats? Is there a pun intended?

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jackgavigan
Rats Awesome Trading System?

The fat cats aren't going to like this...

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jarek
Rats Are The Solution

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borgchick
Perhaps this explains the ebb and flow of the market?

Consider for a (rat) trader:

\- success

\- get treat

\- eat treat

\- loop

... passage of time...

\- get fat

\- judgement clouded by excess fat (perhaps inhibiting movement)

\- less successful

\- less treats

\- loses weight

\- become more successful again

...and so on...

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Throwaway1224
Silicon valley "rat trading" funding announcement in 3... 2... 1...

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billconan
this is so interesting, one more reason to have a rat as my pet.

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sbdavid
Is this a joke or not?

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sbdavid
[http://www.5markets.com/](http://www.5markets.com/)

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smrtinsert
+100 LNG RATS

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anon4
The sonorification bit has me interested. Perhaps a human trader could
outperform the rats, or at least themselves, if they went just by sound data
without trying to think too hard? I can see he's going to try training humans
to trade this way, the results of this will be pretty interesting.

It may very well turn out that the difference between trading by looking at
numbers and trading by sound and intuition is like looking at someone throw a
ball and predicting where it will land versus being told the ball's mass and
initial vector - in the former case you can very quickly predict with a good
accuracy where it will land, while in the latter you need a good amount of
time and a few sheets of paper and you achieve accuracy that's not that much
better.

And yes, I realise that once you stretch the analogy too far it doesn't work,
the ball will follow a completely deterministic trajectory, while the stocks
move in a rather random fashion and the principles (if you can call them that)
that govern their movement are not known to nearly the same precision as the
principles of motion of a rigid body on Earth in normal atmospheric
conditions.

But I'd say that if you look past that, the analogy is informative and serves
to roughly illustrate the point.

