An Objectively Profitable Trading Strategy?

Witch-Doctor has given me a lot of flak lately over the possible success of an algorithmic trading program I recently hired someone to develop.

I want to know what others think. Technically the funds don't go through until Friday, so I have about 24 hours to decide whether or not I should invest.

The program will scrape data from stocktwits, and specifically this webpage: https://stocktwits.com/mrinvestorpro. It will instantaneously set buy orders for any stock at market if specific criteria are met based on the retrieved data. This webpage will take you to the user "MIP," who is a "pumper." As soon as he posts an "alert," the alerted stock will explode several dozen percentage points. This user buys stocks AFTER he alerts them, so it would not be impossible to buy at a respectable price before the stock increases by 20%, with an occasional halt that would generate between 100% and 200% revenue. His large following drives the price forward up to 30 seconds after his alert or even longer, too. See the images below, which provide uncontroversial evidence.

Basically, I am buying a fixed number of shares as soon as MIP posts a lone ticker symbol coupled with at least two "alert" emojis. Buying before others are able to manually set an order will provide me with a huge advantage, especially if I can do it within 1 second. Given access to the stocktwits public API and some 20-25 proxies, as well as the Ameritrade API, this program is entirely possible and I expect to make 20% revenue three times per week.

What do you think?

Example 1:



Example 2:



There are at least 12 examples per week.

This was essentially my full-time business from 2006-2008. For a while I made a lot of money at it, but I made the mistake of relying on it for my entire income. When the 2008 market crash hit, the trades I was doing up to that point ceased being effective... essentially my income stopped coming in. I didn't have a contingency plan for this, and, needing to pay bills, that's why I eventually got into tech.

My general advice is go for it, but ONLY if you're doing it with money you can afford to lose. Have another source of income, and don't rely on trading only to pay your bills. (Unless of course you're a millionaire and can absorb any degree of market volatility that comes your way)

Let me also share some more specific points you may wish to consider (in no particular order):

- If you're dealing with lightly-traded stocks (and judging from your screenshots it looks like you may be), liquidity could sometimes be a problem. Just because you place the order, there's no guarantee it will get filled. Be prepared for this.

- Place strict price limits in your buy/sell orders, so you don't get screwed with an automatic trade at some crazy price.

- If possible, place both your buy and sell orders at the time. This means you must have up front already some guess of how much gain to expect, in order to set the right sell price. Yes this does cap your maximum potential gain, but it will also protect you from hanging on too long and maybe losing all your profit. (There are lots of psychological reasons why humans are bad at finding the right time to sell, so make these decisions in advance and have the computer handle it.)

- Be prepared to adjust your algorithm on a regular basis. It may work now, it may work for a while, but it won't work forever. You'll have to make changes.

- Always backtest any new algorithm before you put it into action.

- Watch out for commissions. I don't know how big your portfolio is but make sure you have enough to invest that the commissions don't eat up your profit on each trade.

- Consider trading options. In my business I did do some straight stock trades, but I mostly ended up doing options trades because of the greater leverage. Trading options can be really dangerous if you don't know what you're doing, so study them carefully first if you're not already familiar. However, the benefits of leverage are well worth it. Instead of trading 100 shares of a particular stock, you can trade 1 option contract (equivalent to 100 shares) on that stock for a fraction of the price. You get a lot more bang for your buck.

- Also be prepared to list every single trade you make on your tax return... unless they have changed the tax law (and I'd be surprised if they did), when I was doing this you have to report every single trade on a form 8949. With automated trading that means a lot of trades... it's a pain in the ass. Set aside a little money as you go to have an accountant deal with this for you.

That's all I can think of for now. Again I'll reiterate, don't invest money you can't afford to lose. I personally have had no desire to get back into stock trading because, in my opinion, there's too much random luck involved. No matter how much you research, no matter how smart you are, there's still a huge luck factor. When things are going well you'll pat yourself on the back and think you're a genius... until the next market crash happens. If you have a long term view you can ride out these ups and downs. (Or if you're psychic and see the crash coming, you could even make a lot of money selling short!)

So I say... play the game, enjoy the ride, just don't rely on it for your income or it will become too stressful.

كتب بواسطة Dave, 06.08.2020 at 06:04

glad you took the time to respond. Yeah, trading on super low volume could be dangerous. That's exactly how I lost 3 months worth of gains this summer. I started trading just earlier this year around March, then I gained a ton of cash from the COVID run-up on biotech, then I lost it all after taking bad short positions. And yeah you're right on just about everything, I've backtested this program enough to give myself confidence, but I'm going to manually monitor the program and set my own sell orders until I'm able to reliably predict an approximate peak or when the pump tapers off. Plus I can optimize the program to account for other possible sources of stocktwits revenue, in case the user "MIP" goes AWOL, dies, or takes a break from trading, especially since my program is dependent on 1. the pumper, 2. his followers, and 3. others who have developed this exact same program.

This is all fun cash for me anyway from the housing costs for tuition that got reimbursed, so I think I'm gonna go ahead and try this out. The program should be finished in about 3 weeks so we'll see then

Thanks

Get a job. this is just a phase. this is why wolf of wall street is rated r. so 15 year olds dont waste all their money...