Welcome to The Great Triviality, and the 'Advent of Alpha'

Welcome to The Great Triviality (named for a quote from the late, great Phil Bull, founder of Timeform).

This blog is dedicated to exploring algorithmic trading strategies on betting exchanges like Betfair. From now on I’ll refer to this activity through the over-used word “trading”.

There is a community of people - some doing this professionally - who have gathered on the betcode moderately active Slack channel, to discuss all things trading. The betcode group has as an obvious focus on the superb open source Python library flumine. Other libraries exist, but this one seems to have gathered the largest community discussing trading, even if by most accounts many people are actually writing other tools to trade.

On this blog I will focus on systems and processes more than tools and code, but when I do dive into code it is likely to use these libraries as they’re freely available, mature and capable tools.

I am a technology specialist, with 25+ years experience in Software Engineering. Today I work for a cloud computing provider you have probably heard of, but this blog contains only my own opinions, and is not affiliated with my work or employer. If I mention use of my employer’s products or services I am likely to need to get their approval to do so in advance, so I’m more likely to avoid mentioning them at all.

My professional career more broadly has focused on puzzle solving. Identifying useful problems to solve, look at a range of solutions that could fix them, test some solutions, and then iterate in a way that produces something useful. This blog is discussing that, but about trading.

What is the Advent of Alpha?

“Alpha” is a highly technical term in professional investing, defined as the difference between an investment portfolio’s actual returns and its expected returns. In the sports trading world it can be used as a shorthand for “advantage” or an exploitable systematic market inefficiency. In short, it is possible for it to be a statement of an idea that with the right parameters could make a systematic profit.

The betcode group have a meet-up every month or so in a pub in central London (you can find out more if you join #random on the Slack group). At these meet-ups it has become a joke that I am always “leaking alpha”, because I will boldly make statements - not backed by data - that seem reasonable avenues of investigation. More than once I’ve seen an attendee take a note on their phone for more sober consideration at a later date, and occasionally get told that one of my ideas has helped them with a strategy in some way.

In order to launch this new blog and because it’s (almost) Christmas, and I love “advent of…” things, like Advent of Code (which I’m also doing this year), each day I’ll post an idea here.

I might not be able to post every day, but by the 26th December, there will be 25 (or more), ideas here that my experience of playing with hundreds of strategies, reading many dozens of books and papers and talking to as many people who will talk to me about these topics, all suggest to me might yield profits. I am likely wrong on occasion (see the sections below on why), but that’s the premise. Take it, leave it, do what you want with it.

You might complain that posting unvalidated ideas is not really Alpha. OK, but I like alliteration and I don’t care. If you don’t read this blog or like it, that’s up to you.

Many experienced people will complain that these ideas are “obvious”. If you’ve been looking at this problem space for a long time, maybe. To which, I’ll answer with two counters:

There’s still an angle you’ve probably not thought about. Admit it. Discuss it. This year somebody mentioned something about an area I thought I knew inside out for 10+ years and I realised there was an angle that opened a whole new class of strategies to me. This is good.
New money is going to come from one of two channels (I think): degenerates, that the governments of the World want to block from being able to gamble; or, more healthily, other traders. We need more counter-parties. That means lots of ideas, some of which will be obvious.

There are some rules:

I won’t verbatim disclose a system that somebody else has described to me as profitable, but I may borrow concepts and use other sports/markets as examples to explain the idea.
The ideas will be just that. There might be code if I need to explain a concept, but I’m not here to give you things you can drop into a folder, execute and lie back. You will need to do work to turn them into profit making systems.
I’ll aim that ideas can at least be validated a little bit with free data. Most free data is garbage, but you should be able to get started without spending a lot, and then decide to collect data or buy it. In January, I’ll aim to write more about finding and collecting data, but this month is about ideas.
This blog does not have comments enabled for a reason. Any discussion will be on the slack group, where there are far wider than mine to pull the ideas apart. I’ll think about creating a back channel for discussion if there doesn’t work.

Will these ideas make me rich?

Probably not.

I am not a professional at this. I’d argue that’s because I’m “time poor”: I don’t get a lot of time to do the work to turn an idea into profit, and I’m lousy at the maths (but improving all the time), which means what might take one person a week to validate, might take me 2-3 years. I’m not exaggerating.

However, I’ve tried lots of things that don’t work, tried to understand hundreds more, some of which show good promise. I have informed intuitions on what should work, some of which I am regularly trading, sometimes for small profits.

Right now, I’m trading a system that makes about £15 a day. It might scale, it might not. But it’s taken me decades of occasional tinkering and a five figure loss in failed experiments to get that working. I’d like to shortcut that for you because:

I believe more people doing this will improve liquidity, which makes my systems more likely to scale. You’re more likely to become my counter-party than my competitor.
By writing about this, I’m more likely to clarify my own thoughts and create new ideas (that I may or may not share with you).
Honestly, if a syndicate stumbled across this blog and suggested that I could go work for them, well, that wouldn’t be a terrible outcome.

My central premise with Advent of Alpha is not that all my posted ideas will make money, but that ideas - even profitable ones - are cheap, and its the execution that is expensive. I do not believe in the Efficient Market Hypothesis in the form that if an idea becomes known, its value is immediately priced into the market and evaporates. I’ll come back to that another day.

I learned how cheap ideas are from my days of working as a startup CTO - people would ask me to sign NDAs for their “hot idea”, I’d refuse, and if they then shared the idea with me I’d explain that was already a known business idea and there were multiple apps and websites already doing it.

Weirdly, this would cause people to be disheartened. There is a culture that ideas that make profit must be unique and can’t be shared. That’s nonsense.

If you told me you wanted to open a coffee shop, I’d suggest there are a lot of headwinds in that business, but there are lots of coffee shops operating profitably and so it seems a reasonable idea. The idea of a coffee shop is cheap and good.

It’s the execution where it gets hard work. Where should you locate it? How will you source your coffee and other supplies? How will you run it day to day? How much should you charge given your costs? If it isn’t profitable in the first month, should you close? What about the first year? If another coffee shop opens up next door, what should you do about it? How much effort should you spend working on new ideas for your coffee shop, and how much effort should you spend on just making sure its running well?

Actually producing a profitable coffee shop is hard. There’s a huge delta between the good idea of running a coffee shop and realising the value.

It is no different in trading, even if it is just software that we can throw together on a laptop. I do not believe trading is a zero sum game, and I can point to the financial markets (shares, commodities, currencies, other instruments), and the walls of books in any library groaning with explanations on trading strategies as examples of how sharing these ideas can increase growth for everyone.

I once read in a financial day trading introductory guide (the things that I read for ideas…), that you can explain a trading idea in all its detail to anyone you want, and not put your idea at substantial risk, but the moment you start to discuss your specific tradable entities, the entry, exit and stop loss limits, you’re heading into territory of arming people who can come against you in the market. I kind of believe in that.

These ideas then will be inspirational, but not descriptive to the point where you won’t have work to do. They’ll be a bit more detailed than “open a coffee shop”, but I’m not going to help you with the metaphorical lease or the business plan, or help you paint the walls. That’s on you.

But we can talk about all the different coffee shops out there, and not hide behind the fear somebody might beat you at running a coffee shop at your expense.

The main point this month is to get us all discussing ideas, and realise that the discussion of an idea is in itself not inviting somebody to eat your lunch before you noticed.

And after this month, this blog will get into more detail about each of the pieces: coding, data science, infrastructure, the industry stakeholders, and more ideas.

It’s going to be great. Happy Advent of Alpha, and once again, welcome to The Great Triviality!