Introduction: The World of Algorithmic Trading
What's up, everyone? Lately, we've received numerous inquiries about trading algorithms, particularly those services that offer their bots to pass Prop firm challenges and similar endeavors.
Today, I'm going to provide a brief overview of how algorithmic trading truly operates, shed light on the less scrupulous aspects of certain firms, and guide you on the right approach to algorithmic trading if it piques your interest.
Wall Street's Investment in Algorithm Development
Number one, on Wall Street, they're investing hundreds of millions of dollars in hiring PhDs in mathematics, physics, and experts from around the world to work for Wall Street. They are tasked with developing new quantitative models and algorithms to trade on behalf of these firms.
Now, picture yourself browsing Google or Instagram, and you come across an advertisement featuring an attractive graph showcasing an algorithm executing trades on your behalf. They often portray it as a money-making machine and offer it to you for a mere $500, $1000, $50, or $100.
The problem with most algorithms is quite straightforward. Markets go through cycles, including trends, consolidation, continuation, or reversal. Typically, many of the algorithms you see for sale are designed for only one of these market phases. Sophisticated algorithms capable of handling multiple stages exist, but they are complex.
For instance, the algorithm I use for trading in my cryptocurrency account is primarily a trending algorithm. It avoids trading in consolidating markets, waiting for the trend to resume and volatility to return. This algorithm involves intricate setup that most retail traders wouldn't understand. I've attempted to offer a simplified version to my inner circle, but configuring such complexity is impractical for most.
All the "plug and play" algorithms you find online are subpar. There's no algorithm on the planet that you can simply turn on for any market or timeframe and expect it to generate profits without specific instrument and timeframe configurations. Approximately 99.99% of algorithms available for purchase fall short.
They may perform well for a brief period, perhaps two weeks, before losses ensue. Subsequently, they deplete the gains and enter a drawdown phase. If you're lucky, they might eventually recover to break-even over an extended duration. This is why prop firms have ceased to permit such subpar algorithms unless you can demonstrate their profitability over several months.
Challenges of Buying Trading Algorithms
Some of these algorithms—though there are a few decent ones—remain elusive. Most of the time, you won't have access to them. Many services that promise to pass trading challenges on your behalf are gimmicks. They may work occasionally, depending on market conditions and their setup. This is why they offer money-back guarantees. However, you'll still lose the money you invested in the challenge, but they don't seem to mind in any case.
This type of thinking reflects a mentality seeking shortcuts instead of putting in the necessary work. If you've been trading for three to five years and have identified a pattern that consistently works, and you want to automate it with an algorithm, that's a different story. However, be prepared to dive deep into a complex world, as some of our senior members who ventured into algo trading discovered.
Entering the world of algorithms quickly leads to machine learning and significant expenses. I personally invested a considerable amount in mine over three years, and it remains a complex endeavor. There's no such thing as a plug-and-play solution. Don't be swayed by Instagram posts that display flawless entries and exits in a perfect trend, claiming to scalp bottoms and sell at the tops—it's pure bullshit.
Consider this: if someone is selling you their algorithm for $500, why wouldn't they just use it themselves? They could invest $500 in their own bot and potentially make thousands or even millions by plugging it into any prop firm with a substantial account. If they were truly confident in their algo's performance, they'd take the million-dollar opportunity instead of selling it for $500 or $1,000. It simply doesn't add up.
Cautionary Tales and Shortcuts
So, stop believing in fairy tales, cease being naive, and abandon the search for shortcuts. It's akin to those individuals who opt for bicep implants, the bizarre spectacle you sometimes encounter on the internet. Instead of embarking on the years-long journey of weightlifting required to attain a fitness model's physique, they resort to shortcuts.
This journey takes years, just like mastering algorithmic trading. Purchasing a third-party algorithm without understanding how it functions is analogous to inserting silicone implants into your biceps and deluding yourself into thinking it's genuine muscle. The truth is evident to everyone; it looks fake, and you end up squandering your money.
Do yourself a favor—put in the effort. It will save you from disappointment and lead to lasting satisfaction. Remember, any celebrity or individual at the pinnacle of their field, like Kobe Bryant, always emphasizes the importance of hard work. It's about dedicating yourself to the task, locking yourself in a monk-like focus for a year, and committing to it.
I assure you, if you do the work, positive results will follow. My door is always open. So, stop believing in fairy tales and start putting in the effort.
The Value of Hard Work in Algorithmic Trading
So, stop believing in fairy tales, cease being naive, and abandon the search for shortcuts. It's akin to those individuals who opt for bicep implants, the bizarre spectacle you sometimes encounter on the internet. Instead of embarking on the years-long journey of weightlifting required to attain a fitness model's physique, they resort to shortcuts.