From my experience people don't like algorithmic trading because you can't hide so easily behind nonsense like "psychology" and all this other garbage from retail trading literature to mask the fact that your trades have negative expectancy.
When you try to turn your "discretionary" setups into algorithms you quickly see how much of your trading "intuition" or whatever you want to call it is really nothing more than noise, false perceptions and randomness.
The following user says Thank You to dutchbookmaker for this post:
Trading Psychology is not garbage. It directly accounts for why most people have no problem making money on sim, yet most people lose trading cash.
If your methodology is flawed and has negative expectancy, then psychology is not going to help you change that. But if your method is sound, yet requires discretion and cannot be programmed, then psychology plays an important factor. Basically the factor is "execution", what your paper says to do vs what you actually do. If your paper says to hold until you have a good reason to exit, yet you exit without a good reason, that is a psychology problem of poor execution. The method was sound, you failed to execute it.
You can have a good, solid, positive expectancy method and it not be automated or it not be within most peoples realms of possibility to automate it due to the discretionary element involved. Just like only recently massive supercomputers can now beat someone at Jeopardy, if you don't have the proper hardware sophistication or engineering software capabilities it is my opinion most strategies cannot compete with a good, solid, competent discretionary trader.
That said, if you change the game --- it's no longer Jeopardy for instance, now it's HFT Jeopardy, then obviously the human player, the discretionary trader, has no hope of winning because HFT is what the computer does best.
Strategies should do what computers do best. Computers don't do everything better than us.
I don't want to come in and "stomp" on this thread because most people know I have negative views on automation and advise the majority of people to not pursue it. So I will try to keep a distance. Discussion is good, and I will try to refrain from posting further in the thread so you guys can continue on with a productive conversation without me. So that is my reason for not replying, if you are expecting me to do so...
Thx for the good thread.
Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.
Need help? 1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first. 2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses. 3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make. 4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance. 5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers. 6) Help using the forum? Watch this video to learn general tips on using the site.
If you want to support our community, become an Elite Member.
I whole heartedly agree with this post. Here's the statement I have a comment on, "If your paper says to hold until you have a good reason to exit". If your trading plan says that, you will not survive very long as a discretionary trader. You will be one of those guys writing posts saying, I should have held longer, I should have exited here, I should have cut my loss here, I should have done this, I should have done that.
I believe your exit is more important then your entry. If you are going to leave your exit that vague, with no specific rules to define it, your profitability will be ruled by your emotions, and the psychological ramifications of that will be the end of your trading career. It will always cause you to say "I should have...". I don't think there are too many successful traders who have that phrase in their regular vocabulary.
Favorite Futures: Futures - bonds, currencies, index
Posts: 288 since Oct 2010
Thanks: 70 given,
Monpere - while your point is valid, I think it was just a hypothetical example where it is assumed that the 'good reasons' are defined on paper somewhere. It was just an example of not following your plan, and the difference between your plan and what you actually do being the 'psychology factor'
Yeah, I understand. The point I was trying to get across is, if you find yourself regularly saying "I should have..." you will have a short trading career, because your trading methodology is not concrete enough. This kind of statement in and of itself is a sign that your trading is being affected by your psychology.
I have never said "I should have..." for any trade, ever. I have never said "That was a nice trade", I have never said "This trade should run pretty far...", etc. Every trade is the same because my method uses exact trade selection/entries/stops/targets, you cannot get more concrete then that. The market is going to give me 10 ticks, or it will take 5 ticks from me, period. Every win is 10 ticks, every loss if 5 ticks. I don't care if I make my 10 ticks, and the market moves another 100 ticks in my favor. My expectancy was calculated on that defined trade selection/entry/target. Anything outside of that is immaterial to me, and cause me no regret whatsoever, therefore I have no psychological burden in those aspects.
Last edited by monpere; June 21st, 2011 at 04:55 AM.
The following 4 users say Thank You to monpere for this post:
If not trading a mechanical rules based system and trade in a discretionary manner how you have any expectancy at all?
From my perspective you can't fully measure anything if discretionary because everything is always changing. To me this really means you have nothing to hang your hat on for draw downs, expected profit, probabilities or really any kind of measure.
You could say well I base that on what I did last year. Okay but discretionary is always changing so last year carries no weight with this year.
Let the debate rage on.
"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
So, are you assuming that a mechanical rules based system never, ever, change?
I think that most discretionary traders have some kind of mechanical system and also mechanical traders make some kind of discretionary decision over her mechanical rules. Even automated strategies change over the time (usually after a big drawdown, further than past ones). In my opinion market is changing everyday, like traffic jams so many people are involved and everybody has a different reason to be there.
Mi point is, there is a mechanical trader out there using exactly the same mechanical rules for months/years? do she ever fade a trade? do she ever begin a trade before the rules are set, because she is assuming that will be true in seconds/minutes... and so on.... The same happens with auto trades (not changing it for years).
--offtopic-- ** I'm self-taught in english, not sure if I should use she/he when talking about an hypothetical person instead of specific male/female person***