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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.

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