Greg’s Thoughts

Five reasons to consider automated trading - 24th September 2011

 

There are five reasons why I like automated trading or algorithmic system type trading. It helps me stick to my trading plans and frankly I think of myself less as a trader and more as a portfolio manager. Here are a few reasons why:

 

1. Remove the Emotion - Some say trading is 90% psychology and 10% your plan, I don’t really agree with that but let’s say it is true, then, if you automate your trading plan have you removed 90% of your problems? Traders hesitate to pull the trigger, or get impatient and jump in too early. Regardless how much you think you can train your mind to be more disciplined, you will always be human. Why not use the computer for it’s strengths, being a robot, and let it execute your trading plan for you.

 

2. Backtest In Seconds - It can take hours or days to go through years of charts looking for your entry and exit points and marking the outcome in a spreadsheet. With a automated trading plan you can run a test in seconds and see the outcome over the last few years, including % success, number of stopouts in a row, average pip or tick profit per trade. Then you can try a variation of your idea such as a larger profit target, and again see the effect, in seconds.

 

3. Step away from the computer - participate in the markets while you put the kids to sleep, have dinner, and take a phone call. Even when you don't have the time to trade, you can have your trading plans running via automated systems.

 

4. Multiple trading plans running simultaneously - How many markets and charts can you watch at the same time? Some traders joke that the way to fix a bad trading patch is to buy more monitors and put more charts on them so your office looks more important. When you automate your trading plans you can enjoy positions being taken on a few pairs at the same time for independent reasons. In fast paced markets its good to be able to do 2 things at once.

 

5. Place Trades While you Sleep - 8 hours uninterrupted sleep in a pitch black room with the same bedtime each night is essential for sharp thinking during the day, yet few make it a priority. Ever notice the better times to trade could be between 10pm and 6am? The idea that you’d let a computer trade your plan while you sleep can be unsettling for some but here’s how I see it. Firstly I never risk more than 1% of my trading account on any 1 trade, and secondly I go for moves in the market that last longer than 8 hours, so if anything was to ever go wrong then it would only be 1% of a problem and when I got up in the morning my open position would likely still be within my profit and stop area, plus my profit and stop are placed at time of entry and stay with the trade till it closes out. Having traded while I sleep for years now I really enjoy it because you can’t think about it when you sleep, so you just let the maths and statistics do their work.

 

Compliance Note: Only ever trade with risk capital. Trading involves the risk of loss. Spend time in simulation while you learn how to use your chosen software.

 

 

 

 

Why you should trade in a group - 20th September 2011

 

I've just finished reading a book called The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nation by James Surowiecki. It builds on the idea that the crowd is smarter than the smartest person in the crowd. Reflecting on my years of teaching others how to automate their trading, I can say this is true. A trader by themself with the best information at hand has an average chance of hitting his or her goals; however a small group of traders from diverse backgrounds conversing and sharing ideas regularly with strong trust between them, results in outstanding automated trading systems. This is why at TradeCoach we put new traders in a support group of fellow traders whom often become life long friends.

 

 

 

 

Take the sensitivity out of the System - 18th September 2011

 

A friend of mine studied Multi Variable Optimisation for 11 years at uni. He found the most important thing is the need to take the sensitivity out of the system. So for example if your system is running with a setting of 2.9, 3 or 4 it should still give great results. I found this interesting because here at TradeCoach we put our newly designed autos through a stress test to see if the new code fresh off the press is too sensitive to variations or not.

 

 

 

 

Discretion vs Automation - 16th September 2011

 

I recently had coffee in Sydney with one of the Directors of a large US futures broker house while he was passing through. Given the large size of his book (book is trading talk for number of trading clients) I had a few questions. I valued his opinion because he has a top down view of so many traders who are clients of his broker firm.

Some of his clients are successful traders, some not.

My first question was:

1) What % use automation?

Answer: In their first year basically all traders are trading discretionally, in their second year almost all of them are trading discretionally, and in the third year about half of whoever is left discover automated trading and develop their own systems.

My second question was:

2) What % of traders make it to year 3?

Answer: I guess around 10%

My third questions was:

3) Taking a step back and looking at your book as a total, if you just take those of your traders, who are profitable, what % of those profitable traders use auto?

Answer: maybe 90%.

 

Compliance Note: There are no guarantees in trading. Automating your trading plan to remove the emotion does not guarantee successful trading.

 

 

 

 

Passionate about Trading - 14th September 2011

 

I love anyone who is passionate about their field of work. If anyone has not seen it, you must watch TEDtalks YouTube Benjamin Zander: Classical music with shining eyes. Now it is true that this video is not trading related but the guy's passion for his chosen field of work is contagious, and he's funny. Automated trading is no different, in that, you have to develop a passion for it, the idea of building a new automated trading system each morning needs to make your eyes shine. When you are so excited about what you are working on you simply buzz, almost start to shake, that's when time disappears and you become engrossed in what you are creating. That's the type of passion we want to instil in you here at TradeCoach.

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