The Black Book of Financial Hacking Quotes

“and even Saturn can not impress the S & P500 index.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“This effect is called Fooled by Randomness.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“such as the Cold Blood Index described on the Financial Hacker blog.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“You can now create the user interface of your trading system. Determine which parameters you want to change in real time, and which ones only at start of the system.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“Important: Do not reinvest the profits during the test runs. Do that only at the end when your strategy is complete. Until then, test with fixed lot sizes onyl. Reinvesting can distort the equity curve completely and can affect the result to a point that it useless.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“Dependent on whether you trade a single asset and algorithm or a portfolio of both, you can calculate the optimal investment with several methods. There’s the OptimalF formula by Ralph Vince, the Kelly formula by Ed Thorp, or mean/variance optimization by Harry Markowitz.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“Instead of exiting after a certain time, raise the stop loss by a certain amount per hour. This has the same effect, but will close unprofitable trades sooner and profitable trades later.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“Assemble all your metal strength and go back to step 1.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“If the system stays profitable with those variants, but not with randomized prices, you might really have found a solid system.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“Variants that maintain most anomalies are oversampling, detrending, or inverting the price curve.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“The in-sample periods are used for training, the out-of-sample periods for testing.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“The filter is at least as important as the trade signal, if not more – but it’s often forgotten in trade systems.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“A market inefficiency has normally only a very weak effect on the price curve. So your algorithm must be really good in distinguishing it from random noise.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“Find a price curve anomaly. Decide for a market inefficiency to exploit – or discover a new one. The best known inefficiencies are listed in the next chapter. Think about which price curve anomaly this effect could produce (an anomaly is any systematic deviation from randomness). Describe it with a quantitative formula or at least a qualitative criteria. You’ll need that for the next step.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“But we hope a merciful margin call saved them early.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“When analyzing robot strategies, one can notice such a martingale system from telltale peaks in the lot size. For this reason, robots or signal providers often increase not the number of lots, but the number of trades, which is less suspicious.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“As a result, private traders have a slightly higher annual loss rate of about 65%, but certainly not 95%, not even beginners.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“The profit distribution of real traders is not a Gaussian, but a Lévy distribution. It has a smaller peak and fatter tails. That means the losers lose more, and the winners take more than in a random-trading situation.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“It is a "known fact" that 95% of all private traders lose all their money in the first 12 months. Not true - at least not with completely random trading and one trade per day. You can see from the profit distribution that only about 55% lose money at all (the sum of the red bars with negative profit), while 45% end their trading period with a profit. Of course, they won't attribute their success to the bell curve, but to their trading skills.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“It is a "known fact" that 95% of all private traders lose all their money in the first 12 months.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“Depending on length and resolution it can be a couple hundred dollars. Options data selling is apparently even more lucrative than options selling.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“But options are often bought as an insurance against unwanted price moves of the underlying.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“Due to the premium, options can still produce a profit to their seller even if the underlying moves a bit in the wrong direction. That's the seller advantage.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“American style options can be exercised anytime, European style options only at the expiry date.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“If the underlying price (the spot price) of a call option lies above the strike, the option is in the money; otherwise it’s out of the money.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“It is also usual to trade not only single options, but combinations (combos) of different options types. Thus there are innumerable possibilities for options strategies.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“An option is not a financial asset. It is a simple contract that gives its owner the right to buy (call option) or sell (put option) a certain amount (the multiplier, usually 100) of a stock, a future, or some other asset (the underlying) at a fixed price (the strike) at or before a fixed date (the expiry). Better read the previous sentence twice.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“For instance, static variables keep their value between function calls;”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“An advise call generates trade rules in C code; Detrend = SHUFFLE tests a strategy with a random price curve; NumTotalCycles can generate statistics from multiple simulation runs; plotHistogram plots histograms.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks

“The reality check described here can determine that a strategy won't work. But the opposite is not true: it cannot with the same certainty determine that it will work.”
― Johann Christian Lotter, The Black Book of Financial Hacking: Developing Algorithmic Strategies for Forex, Options, Stocks