Any strategy that can be developed (discretionary) can be coded. The sophistication and detail of the code can be complex, but it can be done.
The problem with most guys is that they base their strategies off metrics or inputs that are impacted by fundamental changes.
I will admit, developing an automated strategy that yields HIGH profits is very difficult. However, developing an ATS that's profitable really isn't that difficult at all. (assuming you're willing to suffer some drawdown).
I will tell you that it's possible to craft a trading strategy that not only is resiliant to fundamental changes, but actually fairs better during fundamental changes.
There's a reason guys are proclaiming they don't use indies anymore and now trade solely off price action or volume. When do you see the most price action and volume?.....during fundamental changes.
There's an entire process to developing a successful ATS, but it usually starts with gaining an edge and then optimizing by trying to eliminate "losers" while retaining most of your winners.
Favorite Futures: YM & Equities & Options & Mutual Funds
Posts: 174 since Jun 2010
Thanks: 56 given,
I want to commend the author for have the balls to start this post.
My two cents on the subject is that, individuals who are "problem solvers" with a million problems solved a day, or people who need to be in motion non stop are going to have the same issue of the original poster. Because when it comes down to it, trading is sitting in front of the computer in a state of mild anxiety waiting for a make or break moment.
There are no problems to be solved and other then refocusing your mind, what else can you do? Auto trading certainly allows you to get on with your day or on to other problems.
I auto trade core positions with indexes and equities through options... or stock... or mutual fund with great yields. I find that auto trading directionally intra day is best scalped..
One solution I'm working on now which has been great so far in Beta is semi auto for intraday.... because I do think some guys like the action of trading, and there is nothing wrong with that as long as their winning right??
The following user says Thank You to mainstream for this post:
This is only my assumption, but I've noticed a particular occurrence trading the ES. In some range bound small movements I'll see a pattern emerge which looks promising. It looks like a high probability Japanese candle formation on the minute chart (lets say movement A). I can tell it would probably trigger some automated systems, but the over all long term price data from hours ago suggest to negate this move (lets say movement B). I can tell on the short term It looks like you could make a tick or two, but anyone manually trading looking at the chart would be hesitant to trade movement A based on variables outside of the 1 min chart. Then as the movement B goes against this formation of movement A I see a volume increase in large chunks till finally the trader or automated system move the market till they get just one or two ticks. Immediately after they 'seem' to pull out and it continues to go in Movement B direction.
Now, if you can program an automated system to use volume, which I assume a lot of trading firms or hedgefunds have the capitol to do so, that automation could work even better. It's shame in a way that they can't crunch multi chart patterns and discern against a trade that looks promising short term based on a dozens of longer term and or fundamental variables. But then again why would the automated trading system care? I'd assume It certainly doesn't need a high win to loss or reward to risk ratio because even a small win to loss ratio with a large amount of trades would still result in a substantial return.
What do you guys think about including volume into Automation? Or, do you think this occurrence is just regular traders working off the same inclinations and thus pulling out at the same time?
I am going to throw another important hat into the ring here. I am enjoying this discussion pro and con so hope no one leaves the thread. I don't mind be challenged as long as it is respectful and not personal.
If you have a system does not have to be automated but at least a system based on probabilities it allows you to scale up your contracts in a much more orderly systematic way. If you trade discretionary this is much harder to do. If you are trying to read the flow and emotion of the market and you have to make those decisions on the spot on a per trade basis it gets very hard to quantify when you should and when you should not scale. I can scale because I know the probabilities of my system. Scaling is where I make most of my profit.
"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."
Last edited by liquidcci; June 11th, 2011 at 01:58 PM.
The real heart of the issue is "rules based trading." That's what most people are trying to achieve.
As an avid firearm guy, I get a lot of questions about different guns, calibers, brands, etc.
My answer to start is always purchase/carry/use whatever you can shoot best. The biggest, baddest, deadliest, most expensive weapon is useless if you can't hit what you're aiming at. Shooting a .22 caliber and hitting your target is always more effective (and safer) than shooting a .50 cal and missing.
The same is true with most things.
For some guys, rules based trading is easier achieved manually or at the discretion of the trader. For others, it's automation that helps to provide the discipline necessary. Some guys see coding and all the issues with automation as more of a challenge than being disciplined and emotionless. Some guys observe the opposite.
This is very similar to the investor who wants to dump his money off with an advisor and say "don't call me." They don't want to know the day to day swings. Same with the guy that invests in his 401k and looks at it 2 times a year. As compared to the guy that invests, and constantly obsesses over the day to day swings.
For some guys, that concept is true on a tick by tick basis. All the advice in the world can be heard on how to be more stone cold, how to remove emotion, etc, but for some, it's just too difficult.
For a discretionary guy, the ones I've seen that are successful, literally get to where they don't care. They don't get excited about gains. They don't get bummed about losses.
As I said in another thread, undercapitalization has a LOT to do with this aspect. It's much easier to be apathetic about trading when your positionsizes are a small fraction of your bankroll. (or you're trading money that you really don't care about). The same is true for gambling. How many of you have walked through a casino and your jaw dropped when you see a guy playing a $500 pull slot machine? Or saw a guy playing $1000/hand in blackjack? That's because you're point of reference is completely different. To some people....betting a grand/hand is like others betting $1/hand.
So, if you can't magically increase your capital to the point that your almost trading "funny money" and you're not some zen master that can totally remove your greed/fear/excitement/anger/euphoria/depression, etc, etc.....then rules based trading through automation may help.
I think people gravitate toward what they're comfortable with. So if discretionary is more comfortable for you and that's what works for you....stick with it. If automation is more comfortable for you....
The point is to make more money than you lose.
I will admit that automation presents a set of challenges that seem daunting to some, but when you really dig into it, coding isn't all that difficult. But it does take some personal growth and investment in learning and research. But it can and is done.
The following 9 users say Thank You to RM99 for this post:
I'd like to ask you at what point does a decision becomes discretionary ? What about if i develop a system that uses fuzzy logic, would the system be considered a subjective system or a discretionary bot ? If yes it would then what difference is there between a discretionary trader and an automated bot ?
Not sure what fuzzy logic means. But, if I present the same chart setup to that system 100 times on a 100 different days, and that system makes the exact same decision every single time, then it is a rule based mechanical system. If that system does not have a human being pulling the trigger, it is a bot.
If that system makes a different decision just once out of the 100 times, because it had a funny 'feeling' about the market, or if that system ever said, I 'should' have held that trade longer, or I 'should' have gotten out here, or I 'should' have entered there instead, or I 'think' there are 100 traders trapped here, or it 'looks' like the market is going down, or I didn't see the stochastic was below 20, or this setup 'looks' really good, I'm going in with 10 contracts instead of 2. Or if that system made a different decision on that 1 trade because it was tired, bored, distracted, sick. moody, hungry, didn't get enough of sleep, upset, felt weird, had a fight with his girlfriend, was cut off in traffic by a bozo earlier, was upset about his kids failing grade at school, or was worried about a test result from the doctor, or because that system had 3 losers in a row, or wanted to prove it could beat the market, if that system ever looked at a trade on the chart at the end of the day and said 'what was I thinking', etc., etc., then that system would be a discretionary system, that system would be a subjective system.
Not to be flippant, but those are all things that affected my trading when I was a pure discretionary trader. If none of these affect you, then my hat is off to you my good sir
Last edited by monpere; June 11th, 2011 at 07:14 PM.
The following 4 users say Thank You to monpere for this post:
Favorite Futures: YM & Equities & Options & Mutual Funds
Posts: 174 since Jun 2010
Thanks: 56 given,
I turn on the system when I think a set up I trade is manifesting, and let the computer manage the entire trade, from entry to exit. This is only Intraday with deep book futures like the Indexes (to overcome Limit Order Issues), I also like that the broker I use will only allow for a certain number of losses a day... double fail safe from my perspective.
Of course the trick is coding a system that trades chart patterns you like effectively.... or finding one that does.