David Bergstrom is a quant trader who has spent years researching, building, testing, and implementing strategies for high frequency trading firms, CTAs, money managers and even retail traders.
He has since used the software behind his proven processes to launch Build Alpha, which helps professional traders and institutional investors create hundreds of systematic trading strategies even if they have no programming experience.
David spoke to TraderLife's Chris Johnston for the latest instalment of our Trader Dozen series, as he discussed his beginnings in penny stocks, being a self-taught programmer, and why he decided to open up his software to all traders...
For those traders who haven’t cracked it, I say keep going. Trading is a wonderful business for those that persevere.David Bergstrom
1. Can you remember when and why you got into trading?
I have always been a bit of a hustler looking for ways to make extra money and avoid the rat race. Probably originally motivated by big dreams... you know cars, houses, vacations the typical “trader lifestyle” we all fall in love with. The lifestyle is certainly possible, don’t get me wrong, but at the time I thought trading was going to be easy – something I could do on the side to make some extra cash.
I actually got into trading late in my undergrad and had some early success. I remember having this wake up call in class one morning, “like what in the **** am I doing here”? At that point in my life I would trade anything from pennies, low floats, options and now I’m primarily futures as I work with a high frequency market making firm.
2. What’s your trading style and how do you fit this into your other life activities? Do you trade around your life or does your life/job fit around trading?
I try to be as stoic as possible and found myself having trouble early in my trading career with managing emotions, discipline and patience so the transition to automated trading made a lot of sense for me. My life is the markets so everything I do is kind of related to it. Even a lot of my close friends are traders so I’m always talking about markets in some shape or fashion. I bet my girlfriend can probably talk a better book than half of these ‘gurus’ just from overhearing phone convos from time to time.
3. What motivates you to constantly work on improving your trading/company and enjoy what you’re doing?
It is the greatest puzzle to solve and intellectual mind stimulant one can find. Everyday there is new data, information, etc. that just continues to keep you on your toes. The market is a living, breathing beast and if you sleep on her you can be gone tomorrow, and I think that challenge is incredibly motivating. It is hands down the best game in the world and you compete against the brightest, smartest and best capitalised participants in the world; winning is very fulfilling.
4. Throughout your journey, are you able to pinpoint a moment or a routine that you started doing that then made all the difference to your trading and/or life?
Yeah, definitely. I mentioned a bit before I had trouble keeping my inner voice calm and quiet. This obviously leads to a lot of turbulence in your account. Even though I was slowly progressing, I just did not feel like I was breaking through – you know making the trading numbers to set you free. So I lucked out and landed a job a few years into my journey as a trading assistant at the HFT firm I mentioned earlier. When I started I was like “oh man, what I think trading is and what these guys are doing are two completely different things”.
The idea of quantifying your edge and testing it was all new to me. After learning how to test ideas I went back and analysed my early trading and was like “Oh no. What was I doing? I wouldn’t do any of this knowing what I know now” and suddenly it all clicked. Why was my account up and down? Simple, don’t do this thing anymore or don’t trade this strategy it doesn’t even have a valid quantified edge, etc.
5. What would you put your success and progress down to? Just being lucky, your intellect and smarts or just consistent hard work? Or possibly a combination?
A combination no doubt. I certainly lucked out getting the job at the HFT firm as I was clearly unqualified but in reality, I started as a glorified coffee/lunch getter but I busted my ass to learn programming and learn the quantitative side of the business. I’d hypothesize that success cannot exist without both luck and hard work so it is no surprise to me. I love that saying that opportunity often disguises itself as hard work.
6. I’m presuming that you’ve come up against failure in the past. What has been your approach on getting past these failures and has this evolved since?
In my early days it was very easy for me to push through as I had no other choice. I was a college dropout, so failure meant joining the rat race. I don’t know, going to work at a bar or drive a truck; nothing wrong with those but it certainly makes fulfilling the dreams of nice cars and family vacations tougher to achieve. I knew I had to keep going no matter what – failure just wasn’t an option as corny as that sounds.
But now the motivation is more sophisticated and intellectual. I find failure now to be another puzzle to crack and encouragement to view the problem in a new way so it is almost exciting now. Because now if I fail I know one way (or a few) that do not work so it means I’m actually closer to a solution.
7. What do you think sets you apart from others who are trying to be successful in what they do?
My grind. I love what I do and it allows me to work insane hours and think about the problems I want to solve all day every day without it draining on me. I don’t know where it comes from, probably sports, but I was always taught if you want to play, stand out or get accolades then work harder. So now whenever I’m faced with something, I don’t know a challenge or whatever, I always just think the solution is to work harder (and smarter).
8. What advice do you have for those who fail, give up or never get started? For either trading or something else in life.
If you at one point thought it was a good idea or would be worth it… then pursue it to scratch that itch. That regret can eat you alive forever. For those traders who haven’t cracked it, I say keep going. Trading is a wonderful business for those that persevere.
9. Do you set goals for yourself? And do you feel that it is a good way to achieve what you want?
Yes, I set annual goals and update a daily to-do list. Baby steps is kind of my motto and another quote comes to mind here: “people often overestimate what they can accomplish in one year and underestimate what they can accomplish in five”. I just try to progress a little every day and it adds up – probably good trading account advice too, I suppose.
10. Knowing what you know now and how you got to where you are today, is there anything you would like to have done differently, maybe done something earlier in life (or later)?
I would have learned programming in order to test things. I think it is crazy you can see a stat online or hear it on television and most have no way of verifying it for themselves. To me, being able to validate or verify something very quickly is a super power. Even if it is false or true or partially true or whatever, that can still lead to something that can assist you.
11. Could you talk a bit around what Build Alpha is and how regular traders could utilize it to improve and expand their trading?
It is definitely growing and becoming better each update. I built the software for a few main reasons, but the main one was that as I learned about the importance of testing things before risking my money I started having and building this MASSIVE list of ideas I wanted to test and I just never had enough time. So finally, I was like "you know what? I’m building something that can test thousands of ideas quickly otherwise I’ll never whittle down this list." So the main idea is to save time and test everything.
Build Alpha itself has three main uses for me. First, it can autogenerate strategies for me without me doing any more programming. So I can select specific ideas to test or select random or thousands of ideas and the software can build the best strategies. The second use is to validate these strategies and create proper expectations using some advanced tests that I can now easily apply to all these strategies. Finally, every time I found a new strategy I had to code it up to automate it so in Build Alpha I made a few code generators, so I could generate complete code by just hitting a button.
The idea was to save time and massively increase my research hours cause that’s really where the nut is cracked. It also streamlines the development process a bit for me too.
12. I understand you were using a version of Build Alpha yourself privately before making it available to the public. Could you expand on why you thought there was a need for such a product, as you put it, to help “bridge the gap between the programming world, the quantitative trading world, and the money manager/trader”?
Yeah, most of Build Alpha was just separate standalone programs that I would run from the command line and generate text-based results. So after a while I started to standardize my strategy testing and development process. Something like build, then test one, test two, then code or whatever, so I was like "why don’t I just put all these in one place and make my life easier?" You know that Bill Gates quote, “don’t give a hard job to a hard worker, give it to a lazy person because they’ll find an easy way to do it”. I’m not lazy but I think this applies as I’m always trying to simplify things so I can focus on what matters most (edge hunting). So honestly, it was mostly for me and still is for the most part. I get great ideas and love all the Build Alpha guys, but if I find something useful to my process I prioritise and add it first!
13. Quoting you from your Chat With Traders Interview you said that learning to programme was like having a super power. Could you explain what you meant by that and why you think algorithmic / systematic trading holds such an advantage over discretionary trading?
I wouldn’t say advantage over discretionary, and I actually believe they can co-exist. But for guys like me that struggle to be consistent with emotions or discipline or whatever, then systematic trading is the only way and sometimes being a good trader just means admitting that. I’m the first to say that I can’t hack it as a hand trader but because I can say that, that actually allows me to move on from it and success can’t happen if you’re stuck – this is just a fact of life, right?
The big importance to programming or being able to rapidly test ideas is from the fact we are in a fast-changing world. Trades maybe used to take days, weeks to play out but now they happen much faster. Strategies come and go and if you’re set in your ways and the market shifts and you cannot adapt fast enough then your bills don’t get paid. You have knowledge so why not leverage it with technology, that’s basically what I was telling myself along the way. So to me it is an extension of one’s self, just like a super power.