This is not something you can do over the weekend and let run happily ever after.
By Guy Avtalyon
People maybe get automated trading wrong. I’ll explain this. But first comes first.
Wouldn’t it be great to have a robot trade on your behalf and earn guaranteed profits? It’s everyone’s dream is to find the perfect computerized trading system for automated trading. The one which guarantees profits and requires little input from the trader themselves.
There are many automated trading systems available. But there are still a few burning questions that need to be answered.
First of all, what is the automated trading?
They are computer programs designed by expert developers to follow a given market algorithm, every minute of the day.
You should consider automation if you want to participate in the futures market but lack the time to monitor, formulate, and implement your own trading plan.
Automated Systems are programmed to look for trends, analyze market data, and apply specific mathematical/technical formulas which in turn generates signals: buy and sell orders – to go long or short.
The performance – whether hypothetical or live- is tracked in real-time and you can subscribe, activate, and deactivate any system at any time.
Automated Trading is comfortable
They are programs that place orders on behalf of the trader. A trader sets the essential condition for order placement based on technical analysis principles.
The system will place orders automatically based on the necessary conditions.
The automated trading system facilitates backtesting on a demo account which gives a fair idea of the efficiency of the strategy.
But you need more about how an automated system can increase your trading profit.
In other words, can trading strategies that are automatically executed in financial markets be profitable?
The investment is a process, so automation is a logical conclusion. To be honest, auto-trade is like a driverless car. It can go fast or slow.
It all depends on the robustness of your design. People maybe get automated trading wrong. This is not something you can do over the weekend and let run happily ever after.
If you believe that manual trading is highly competitive and intense, then imagine sitting in a fast car without a steering wheel, accelerator or brake pedals.
So, why people fail?
The way to design a profitable trading system is counter-intuitive. It must be built to withstand erosion. People think of the best possible outcome when they design a strategy.
You can’t design and test drive snow tires in Sahara. There are some reasons for that, don’t you think?
You need to design automated strategies with failure in your mind. Always.
Take care of the bad scenarios and the good ones will take care of themselves.
That is not sexy, but you wouldn’t take some luxury car for a spin if you knew that brakes are porous?
When people think about failures, they think about stop losses or blow-ups. This is not the main issue, really.
The problem is transforming near misses into near losses.
Like you know, the market flip-flops all the time and does not care about your feelings.
The whole game is about:
- a) moving the peak of profitable trades from small losses into small profits. In order to achieve a compounding system. That can only be achieved by having a solid exit policy
- b) elongating the right tail: ride your winners and cut your losers short. Profits look big as long as losses look small
But as always, simple is not easy.
The privilege of simplicity is that it imposes itself, even to those who do not understand its sophistication.
Automated trading is a great tool to have in your trading toolkit.
We would say the hardest thing about it is codifying your strategy. Converting your strategy into code that a computer can interpret can be very difficult, but totally doable if you put your mind to it.
So if market conditions cause it to enter losing positions, it’s gonna enter losing positions, and quickly!
These losses can mount up so have proper risk management systems in place:
– Set a max drawdown limit that’ll kill the bot if it’s triggered
– Use stop losses on every trade
The strange thing is that it works and frankly speaking, no one would never be able to achieve the same results manually. You do not want to sit in front of a monitor and contemplate all the time.
Computer trades are like a psychopath.
It has no emotion and can do many more markets.
The algo makes better decisions quantified as a higher gain expectancy/trading edge than you would.
There is no question about it. It takes trades to makes money.
The mindset of an autotrader is different than a manual trader. You have to trust the system.
Once you auto trade, you have to let the machine take the trade even if your guts scream NO.
The good news is you can monitor multiple markets on your own time.
The machine keeps trading away and that is an incomparable feeling of freedom.
You can spend that time with your friends.
Isn’t it amazing?