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5 misbeliefs about automated trading

 

After a previous article about the pros and the cons of automated trading, I will present here 5 misbeliefs about automated trading that we often read here and there. I will thus try all along this article to put some lights on this activity in order to make you avoid the classical confusions about it.

Automated trading is reserved to professionals.

" As far as I'm concerned, I won't go to automated trading because it's reserved to big banks and hedge funds. In fact this requires a huge technologic investment and everyone does not have the same capital as Goldman Sachs to pay for computers or engineers"

False. this myth comes from the fact that everyone starts to mix up automated trading with high frequency trading which becomes really notorious these days but which is only a part of automated trading. In fact, you will never manage to compete the big banks in this field ( high frequency trading a.k.a. HFT ) where the competition is mainly about technology and mathematics.

Let thus the professionals fight each other for microseconds and as far we are concerned, let's concentrate on more conventional timeframe from the minute to the day. In this context, we all have the technologic tools ( platform ) and the analysis tools to create a winning system.

Automated trading is a swindling and Santa Claus does not exist

"Do you really think that you can earn money sleeping? Of course not! Automated trading is a swindling wich makes rich the systems sellers who are finally dream sellers. There is no free meal on the markets"

False This one is my favourite. It often comes from the mouth of those who have once believed in Santa Claus in the markets. I thus confirm the fact that nothing is really given on the markets or in life generally. If you thought you could get rich without doing anything or by downloading an ea on a forum, you might be disappointed...

This being said, you shouldn't make a shortcut between the dream sellers and automated trading. Automated trading does offer opportunities to make money, but you"ll have to work in order to find one opportunity, then testing it with data from the past and automating it. After that you would eventually need to adjust it in order to keep it efficient when the market changes. Finally automated trading is a work of research and of strategy development, while it lets all the boring and repetitive tasks to a computer. Spacebar trader times are over...

Automated trading will never equal a human brain's performances.

'A computer is stupid and limited. It could never equal a human being which has great adaptation capacities. I thus stay in manual'

True and false. Yes, a computer does not have the adaptation faculties of a human being (even if the artificial intelligence and the neurones network developments are challenging this statement ) but it does not have its defaults as well (emotionalism, stress, tiredness, impulsivity, greed, etc). It even has other qualities : a huge calculation power, an optimal speed, it is never tired, can analyse data from several markets at the same time, is never distracted, does not ask for a wage or some affection and never goes on strike etc. In automated trading you thus have to use the advantages of a computer to your profit. As for the debate on the comparison of the performances of the two types of trading, I let it others because everyone has his strong beliefs and there is no point trying to convert the converted. As for me, I have my own point of view, but I understand that discretionary trading may be more adapted to other personalities.

A trading robot cannot adapt itself and will always be beaten by a discretionary trader.

Probably true literally for a specific system but not for the automated trader. This misbelief is close to the previous one but is not really the same. Some say that as soon as an opportunity exists, it is discovered and then more and more "extracted" until its disappearance. This is true. But this statement strikes the automated and discretionary traders as well...

The discretionary traders answer that the human would be able to adapt his strategy that consequently remains profit making. They thus think that the automated trader creates a system once in his life and watches it turning until the end of his days. No! Automated trading consists in modeling and improving his systems instead of staying all day long in front of a screen waiting for some conditions to realize. This implies spending more time thinking about his strategies and looking for new ones rather than trading it. This argument is thus not a valid one.

You have to be able to program in order to start automated trading.

"Automated trading is probably full of promise but I can't program. This is thus not for me"

False. Every traders will agree with me, if you stop at the first difficulty which appears in the trading world, you generally don't go very far. So, yes, you will have to program at a moment or another in order to model you trading robot or backtest it. But it exists some backtest tools or trading platforms for which the learning is accessible to the most motivated. For the others there is our Automated trading programing service which offers really affordable rates. This is then an investment as another.

 
The pros and cons of automated trading

 

The last few years, automated trading has become a kind of a trendy topic in the trading world. Some consider it as evil and try to make it responsible for all the anomalies appearing on the markets, others try to understand it in order to make profits. The aim of this article is to make you move to the right side so that you can improve your trading.

The emergence of automated trading.

Nowadays; it's hard to live without a personal computer and a broadband connection. Thanks to the new perspectives opened by the IT development, trading which used to be an activity reserved to some privileged has now become accessible to nearly everyone. But the IT development has not only facilitated the access to the trading, it also opens a new way of trading to the independant trader, a way which was before reserved to banks and "hedge funds" : the automated trading's one.

Everything it requires can today be found on the Internet : a broker, a platform ( such as Metatrader, NinjaTrader, MutiCharts, etc ) and a bit of ingenuity and work will make you able to create a robot trading for you. However; everything is not that easy. Do not magine creating or buying a money maker machine in a few clicks. The aim of my article is not to make the appraisal of automated trading but rather to present you the advantages and disadvantges it offers so that you can re think and and improve your trading approach.

The pros of automated trading :

- frst of all; automated trading is able to solve one of the biggest trader's issue : his psychologic weakness. A robot will respect without qualms the rules of your trading strategie. For example; thanks to it, no more moving stop loss or positions opened impulsively.

- A trading robot works all day long without having to rest. Even if it does not sleep at night; it will still be fresh on he morning... It will thus never miss a trade opportunity 24/7 and wont make mistakes due to tiredness.

- A trading robot thinks well and fast... It can realize millions of operations per second, what leaves human beings far behind... even before the cocktail hour. It makes you thus able to act faster than everyone else, and to analyse at the same time a huge quantity of parameters on different markets.

- Finally, a robot does not need you in order to work. You can go to work, have a rest.. ( I let your imagination complete this list ), while it will respect your strategie without complaining, going on strike or ask for a salary raise...

The cons of automated trading

- A trading robot only has the intelligence you gave to him. This means that it has absolutely no natural adaptation capacity. If the maket evolves and your strategie becomes loss making, it will be your turn to work to improve your system.

- Automated trading is therefore, an activity more focused on research and development than on trading itself. This will suit to some but not to everyone.

- Your strategie has to include logical rules, because a computer only understands logic...

- Finally, the modelisation of an automated system requires the learning of a programming language or to contract out this activity to a professional.

Half-automated trading.

To conclude, automated and systematic trading present a lot of advantages but won't suit to everyone. However, if your preference still goes to manual and discretionary trading, don't forget that IT can greatly facilitate your life by executing numerous repetitive tasks. Half automated trading can thus probably become a solution.

 


 
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