We continue in this multipart interview series with Peter Heisenberg. Please read Part I of this interview if you have not already done so.
Part III
Qn: ChatGPT has been the talk of the town for the last several months. Do you think ChatGPT has a place in a trading bot platform?
I think it is more of a hype at this stage. First of all, ChatGPT has a limitation in that its knowledge is capped till the year 2021. Try asking it to create a basket of electric vehicle companies and you will know what I mean. Next, if everyone is to ask ChatGPT for the same strategy formulation, then where is your alpha? Your neighbour next door may run the same strategy as you, no thanks to the same source. Also, true algo traders trade on real time data such as technicals. Huge quant funds acquire millions of data points real time to derive at a trading decision based on their own “secret sauce”. But, using ChatGPT is a self-defeating cycle in my opinion since the “handouts” are the same. And last but not least, true AI will be sentient and what makes you think it would not trade against you? I would personally steer clear from bot platforms that tout ChatGPT as part of its trading features. AI is a dual-use technology. And those Youtube videos claiming to build a stock trading bot with ChatGPTs, are just sensational.
Qn: So, you think AI will never give you an alpha?
Definitely not if everyone else is asking from the same AI source. It may work for a while but over time, since everyone is using ChatGPT, the handouts are essentially from the same source. The alpha will not be sustained. Don’t get me wrong. I am a strong believer in AI. But, there are strong ethics and strong governance that are needed to control and monitor the growth of AI. Eventually, AI will think on its own and it will know that it has created strategy A for a thousand users. So, these thousand users will all use the same template. And AI will trade against them. Hence, I believe the only sustainable alpha is through your own secret sauce, that only you have access to its recipe. And this comes only from years of trading experience.
Qn: We noticed the bots that you had listed on StockHero Bots Marketplace have been doing quite well. Do they contain your “secret sauce” ?
Yes, they do. Those bots are baked with some of my favourite strategies.
Qn: Are you able to share one secret sauce ?
Then, it would not be a secret any longer.
Qn: Do you have any tips to be a good algo trader?
Always strive to find an alpha. If your strategies are common place and you do not have the full confidence that your strategy is as unique as a Powerball winner , do not stick to it for long. The market is so efficient it is scary. Hard work pays off. Tinker with the algo until you reach the eureka moment. Be prepared to lose money along the journey.
Qn: Can you share more about risk management in algo trading? How can an algo trader adopt a risk management into his trading strategy?
I recommend that traders have a mix of fast action bots to bots that are primed for daily market moves coupled with bots that trade on substantial market corrections. And leave around 10% of equity in cash for doomsday scenarios.
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We would like to thank Mr Heisenberg for this insightful interview.