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Does automated trading help with psych?
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Does automated trading help with psych?

  #1 (permalink)
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Does automated trading help with psych?

I wonder if automated trading could help me? I never made it as a discretionary trader because I was overwhelmed with information when trigger pull time came. I would always over think ever trade. It's who I am a thinker. I do heavy research on every big decision I make. This works well when buying a house or auto, but I am sure you can see how this would hamper discretionary trading success. I always had the best intention to pull the trigger but there would be a Bernanke event that would talk me out of the trade, etc.

I am just curious if those of you that had emotional problems, and analysis paralysis were helped by automating?

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  #3 (permalink)
Fiddler
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If you are that much of a thinker and need to be in control, how to you think you will feel when a program makes a decision that you do not agree with? Do you think you will just be able to leave it alone? Second, do you think that you would ever be able to build an automated system that you could "trust"?

The best piece of advice I can give you is to think of trading only in probabilities. You don't have to be right all the time, only enough, and you don't have to hit home run profit every time, only enough. Once you figure out those "only enoughs", then you are good.

For me automation, has helped me to ride the psych roller-coaster. Swing trading, which I thought I would never do. Riding through fed announcements and Apple earning releases which influence make 20% of the NQ's moves, etc. But from your description of yourself, I find it doubtful that it would be good for you. I have had a good profitable 7 months of live automated trading, so my view may be skewed a bit. However, I know how much effort I put into everything before I got there. I would be afraid you would spin your wheels in development while searching for a holy grail. That is not to say it couldn't be a good hobby that may yield fruit. And if you get serious, an all encompassing hobby.

By the way for discretionary trading, it is just the same. Each trade is only one in the sea of probabilities, there is no need to take each trade as if it were your last. Once, and only once you get "enough" information, take the trade or don't. Believe it or not, information actually means less to a trade than you think. The market is telling you what it will do, it may just make a detour first. Take this with a grain of salt, since I am not doing discretionary now, but my predictive powers have improved since I started caring for my bot.

Even with my ramblings here, if you are still interested in automation, this forum is a wealth of information. Great information on the things that many forget about: risk tolerance, money management, and back testing without bias.

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  #4 (permalink)
Trading for Fun
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Discretionary trading has little to do with Bernake.

There is discretionary TA trading. It's more like: I like the way the price moves or I like the way the price approached this MA, or: I will enter the bounce of THIS round number now (but not others yesterday) or: I saw the price act like this a 100 times so I enter.

By the way, there is also systematic trading, where you enter a trade based on signals. You don't have to guess your entries then or listen to Bernie.

Automatic trading will most likely not improve your traing results as it is 1. systematic and not discretionary 2. it won't compete with HFT

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Thanks for the good replies everyone

I actually thought since I am a control freak, there I said it, that if I had automated systematic trading system that I had forward tested for about a month, with good back test data, I may let it run and go back to outside sales. I realize the only time I made money was when I couldn't tick watch and just let the trades go. I would be so busy with sales I couldn't tick watch. When I attempted to day trade watching those ticks up and down and my emotional attachment to the money just ate me up. I would over think not take the first signal, it would be a winner, then take the second-loser, get disgusted and just want to quit.

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  #6 (permalink)
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The other thing I should mention is I am not going to have to develop the automated strat I would doing Bill's EOT auto trades. I have watched them for about a month now and they work well. The do get chopped up sometimes after the initial open but early morning, overnight, and on expansion days Bill's auto strat does well.

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  #7 (permalink)
Fiddler
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What are the stats on the system?

Accuracy?
Avg Win?
Avg Loss?
Avg Trade?
MAE?
MFE?
ETD?
Profit Factor?
What kind of risk of ruin do you intend to run?

You can't just think you can autotrade your way to making money using someone else's stuff...lol What happens when it breaks and you are on your own after a 30-50% drawdown. You better hope that you had a 60-100% profit by that point otherwise you are backing up.

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  #8 (permalink)
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Luger View Post
What are the stats on the system?

Accuracy?
Avg Win?
Avg Loss?
Avg Trade?
MAE?
MFE?
ETD?
Profit Factor?
What kind of risk of ruin do you intend to run?

You can't just think you can autotrade your way to making money using someone else's stuff...lol What happens when it breaks and you are on your own after a 30-50% drawdown. You better hope that you had a 60-100% profit by that point otherwise you are backing up.

Good points indeed. I realize you have to be independent at some point. I thought I could initially just be a follower and ride the wave until I develop something on my own.

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  #9 (permalink)
Fiddler
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I respect the fact that you said discretionary trading is not for you. My journey is probably similar to yours before I went back to the day job. Still, I never forgot about trading, continued tinkering with automation. Eventually, after learning all the stuff I never knew I needed to learn, I am finally getting some payback. Still all the learning and development was much like a second job.

One of the biggest psychological benefits of autotrading is that you can work another job. Your livelihood is not on the line from the trading.

I was probably a bit harsh in my earlier posts, but I would not trade someone else's system at the early stages of automation. It may seem simple, but it still is more than turning on the system and letting it run. The most important question is do you know enough to understand when the system is starting to fail and how much it is going to cost you? With my system it will likely be a 30-50% drawdown depending on if it grinds down slowly or makes a catastrophic splash. That would wipe out most of my gains at this point, but from now on it is pure profit.

The development process is part of what makes it comfortable because you fully understand the risks. When done properly, you can come up with a close approximation of your odds of blowing up your account and adjust your leverage accordingly.

Keep or get the day job and learn about automation. You will find out if it is for you just from doing the research and testing. If you have that sample system that you were considering following, take it, code it, and find out how robust it actually is. Try to poke holes in it. How does it respond to other time frames, bar types, instruments, etc.? Really do the due diligence and research; utilize that which hampered your discretionary trading. But also remember you will never have a perfect system, keep the probabilities in mind.

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  #10 (permalink)
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Luger View Post
I respect the fact that you said discretionary trading is not for you. My journey is probably similar to yours before I went back to the day job. Still, I never forgot about trading, continued tinkering with automation. Eventually, after learning all the stuff I never knew I needed to learn, I am finally getting some payback. Still all the learning and development was much like a second job.

One of the biggest psychological benefits of autotrading is that you can work another job. Your livelihood is not on the line from the trading.

I was probably a bit harsh in my earlier posts, but I would not trade someone else's system at the early stages of automation. It may seem simple, but it still is more than turning on the system and letting it run. The most important question is do you know enough to understand when the system is starting to fail and how much it is going to cost you? With my system it will likely be a 30-50% drawdown depending on if it grinds down slowly or makes a catastrophic splash. That would wipe out most of my gains at this point, but from now on it is pure profit.

The development process is part of what makes it comfortable because you fully understand the risks. When done properly, you can come up with a close approximation of your odds of blowing up your account and adjust your leverage accordingly.

Keep or get the day job and learn about automation. You will find out if it is for you just from doing the research and testing. If you have that sample system that you were considering following, take it, code it, and find out how robust it actually is. Try to poke holes in it. How does it respond to other time frames, bar types, instruments, etc.? Really do the due diligence and research; utilize that which hampered your discretionary trading. But also remember you will never have a perfect system, keep the probabilities in mind.

Actually I appreciate your tough questions. For years in trading I was afraid to ask those as I was so desperate. I have sat for almost 2 months now and watched EOT's Bill auto strat and don't think I could produce those stats you previously asked about because I don't have the indicators to back test so I watch their trades live in their room and do my best to estimate PNL, which is close because if there is a question I always take the worst possible result, in case I am not sure how the trade worked out. I feel pretty comfortable as Bill, room moderator, is taking the same trades so he has backtested 10 years I believe.

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