"These new AI tools have great potential to increase the level of profits we normally expect while lowering risks." - Bob Mann, Advisor's Capital
[We are just beginning to see the many developing applications of artificial intelligence (AI) in the money management process. The Institute for Innovation Development has covered a number of asset management pioneers previously and today, to further expand our coverage, we have a guest contributor.
Institute member, Bob Mann, CEO of Advisor’s Capital Investments in Woodstock, Ct who was so excited and impressed with his discovery of Trade-Ideas, LLC that he wanted to tell their story. Know that Bob is an author and expert on market cycles and a veteran market technician who for five decades has been holding out a lantern in search of honest and reliable money management and trading systems. So when he finds a system, in this case AI based, I am only glad to help him share his discovery with all of us.]
How You Can Use AI to Profit In Volatile Markets - Computer Based Chess Masters and AI Trading Systems
by Robert Mann, CEO, Advisors Capital Investments
- IBM’s Deep Blue Computer beat Gary Gasparov to defeat a reigning chess champion in 1996 for the first time ever.
- December 30, 2014 – A new computer chess champion called KOMADO proved it can beat any human being playing chess.
- December 17, 2017, Alpha Zero – Google – Deepmind – AI beats the world’s best computer program at chess.
- May 10, 2018 Gary Gasparov says “Don’t Try to Beat AI… Merge With It”.
Is it any wonder that today’s powerful AI systems can beat any human being at investing?
Renaissance Medallion Fund has proven so successful using AI that it doesn’t want client funds. You cannot have access to the Medallion Fund’s Technology but you can have access to Trade-Ideas, LLC and their AI system called “Holly”. Holly is the only commercially available AI service that has delivered positive alpha over the past three years. Trade-Ideas has recently been awarded Best Machine Learning Development at FundIntelligence’s 2019 Technology and WSL Awards. This was mostly due to the proven application of the technology to substantially outperform the S&P in 2018.
Holly is an artificial intelligence tool that generates active strategies each day to capture alpha. Different modes of application are available: Risk-on performance reflects a bias towards staying in the positions beyond reward targets while strictly adhering to risk targets for each trade. Risk-off mode is where reward actions do not deviate from trade plan parameters and risk management rules permitting exits earlier if existing profits erode significantly. Risk-on mode carries all trades the entire day until the close and is often present during days of momentum which typify the majority of trading days in 2018. Some 2018 Risk-On performance metrics follow:
- Total Trades, 12 months 2018: 3,560
- % Winning Trades: 46.3%
- Profit Factor: 1.67
- Sharpe Ratio: 5.61
Investors, advisors, traders and hedge fund managers are becoming aware of Trade-Ideas, LLC which ranks number 3,012 on the 2018 INC 5000 with three year sales growth of 134%.
My intent in writing this series of articles is to bring ideas and managers I may find that may have an advantage for us, the smaller independent investment advisor or more sophisticated individual investors. Today, I am focused on Trade-Ideas LLC. This is a service I have been using over the past year. Most of my 50 year career has been focused on active equity management. I have used a number of computer based tools to help me deliver positive alpha. Nothing I have used in the past has compared to the tools Trade-Ideas has made available to me, a professional investor. Towards full disclosure, know that I have become an affiliate and plan to consult with other professionals in the use of “Holly”.
Why consulting on this AI system? To draw an analogy, I have been an instrument pilot and instructor for a number of years. Often pilots with a great deal of experience ask me to instruct them to fly a light sport aircraft. My student needs to be humble and learn all over again because this type of airplane is more difficult to fly in certain circumstances. Using AI from Trade-Ideas requires a new learning process as well. I am an advocate of Trade-Ideas for advisors and I recognize some of the skills they need to acquire and the habits they need to unlearn. These new tools have great potential to increase the level of profits we normally expect while lowering risks. These tools have become valuable in this new age of low cost commissions and fast electronic trading.
I have recently interviewed Dan Mirkin, Senior Managing Partner and CEO of Trade-Ideas, LLC. and have asked him the following questions:
How did you get involved with this business?
Dan: After I graduated from the University of Texas, I became involved with SOES Trading. I found I could earn as much as a real job and manage my time as I chose. Later I became a hedge fund manager actively trading index derivatives. This led to becoming involved in the direct access trading technology business. I contributed to the design and testing of Cybertraders, the first commercially viable direct access trading program which was acquired by Schwab for $400 million dollars in 2000.
As trading costs continued to go lower and brokerage firms like E-Trade brought access to independent investors, my career continued to evolve in the direction of Trade-Ideas.
How did your process evolve?
Dan: After years of experience working with venture partners and getting a $50 million dollar education, it was by catering mainly to professional traders, active traders and hedge funds that we began to build a reputation.
Today our technology accomplishes what no human can do and that is to watch each and every trade of every stock in the markets and alert our clients about profitable activity so they can act first. We make the computers in our data centers act like traders by playing thousands of trading scenarios each day. Much like IBM’s Watson, our computers are continually learning which market relationships have predictive outcomes. Our servers identify what is working in a declining or rising market and suggest exactly what to buy or short and when to exit.
Trade-Ideas’ “Holly” is like counting cards at a casino and only acting when the odds are in your favor.
I know it takes many different skills to build a company like Trade-Ideas. Tell me about your founding partners.
Dan: David M. Aleriat - Managing Partner has had 20 years of experience trading, consulting, developing software for utilities, capital markets, and consumer products. Trade-Ideas benefits from his ideas in business development, customer acquisition, corporate strategy as well as energy trading and marketing. David holds dual Bachelors of Arts degrees in Economics and French from the University of Texas and a Masters of Business Administration degree from the Cox School of Business at the Southern Methodist University.
Philip Smolen - Senior Managing Partner CTO - Phil holds an MS and BS in computer science from the University of Texas at Austin. Phil worked as a senior software architect on trading systems and has worked at Lockheed Martin designing laser guided defense systems. Phil has been the architect of the Trade Ideas data base and real time search technology.
Brad Williams - Chief Operations Officer - Brad has over 25 years experience managing financial technology. Brad was the founder of Future Trade Technologies which was sold to Interactive Brokers LLC in 2007. In 2003 he joined with the other founders to start Trade Ideas LLC.
Today we have more than 20 key personnel that make Trade-Ideas, LLC.
What milestones have you accomplished and what is your longer term goal?
Dan: Currently, we have 20,000 subscribers. We run over 1 million simulated scenarios each evening and broadcast 8 average daily algorithms selected before the open daily. Holly takes all of our developed strategies separates out the top 35 strategies over the past 60 days. She then applies trade filters to decide what should be modified to improve outcomes. After the initial optimization process she teleports to Monte Carlo and redoes everything. Only the strategies with a success rate above 60% and a 2:1 profit factor are visible to our client the following day.
We now have 14 years innovating in advanced market analytics. Trade Ideas is the only AI virtual analyst that generates alpha. Professionals around the world are using our technology to rapidly identify opportunities using their own methodology or our generated algorithms.
At this point we are unique. Our servers never sleep as they sift through technicals, fundamentals, social media, earnings and more across millions of possible trades every day to find the highest probability risk appropriate opportunities. It is not just about profit, but more importantly it is about risk control that leads to even greater profits.
There is a strong Money Ball analogy here as well: “No man is better than a machine and no machine is better than a man with a machine.” Paul Tudor Jones
Today, the bulk of assets are passively managed. I envision tremendous growth as investors begin to realize what they are missing, especially using tax deferred funds like IRA’s and charitable trusts. The future is clearly one where people are MUCH MORE INVOLVED in what happens to their money and Trade Ideas is here right now to service this growing demand.
The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines). For more information click here.