Automated Day Trading

[schweiz]

Psychologically it is very hard not to interfere with the system when it is in a losing or protracted sideways period.

I don't agree. Put a fix stop and follow the rules.
All depends on the quality of your trading plan. The better it is the easier it is to avoid psychological issues as confidence grows.
Low winning rates, small profits and big losses should be avoided. They are the cause of psychological issues.

 

[Millionaire]

This is going to be especially true if this is the only system you are trading. I would not be comfortable trading only one system because if it degrades to unprofitably you are screwed.

I trade all my best edges and combine them into one overall system.
I have other edges i don't trade, even though they would increase overall profits they are just not good enough to be worth including.

 

[Millionaire]

Low winning rates, small profits and big losses should be avoided. They are the cause of psychological issues.

All automated trading systems are psychologically hard to trade at some point or even most of the time.
If anyone has found an automated system that looks like it is not hard to trade, then most likely they have made a mistake in their research. e.g. not tested over a large enough sample or have over curve fitted.

 

[Millionaire]

At some point i will leverage up this system x2.5.
But i am not doing this yet, but it is part of my medium term plan.

For 2018 using 2.5 leverage with this system, the results would have looked like this:

Jan: 22.5%
Feb: 1.0%
March: 12.25%
April: 4.25%
May: -7%
June: 19.5%
July: 4.5%
August: -0.5%

56% for the year to end of August.

With this much leverage the system becomes one that averages 100% a year (more if you compound profits) with drawdowns around 33% (but probably 50% in the extreme case).

 

[BrooksRimes]

I agree and cope with this through back-testing which gives a history of losing trades and drawdown periods. For example, if I have a 20 year backtest history and never had more than 3 consecutive losing trades and now I have 4 or 5 consecutive losing trades, this would be a cause for concern and further analysis to see if the system is broken. Similarly, if the maximum past drawdown was 20% and now I have a 25% or 30% drawdown, I would start doing some analysis and perhaps halt trading until I make a determination.

This is a very true statement. I recognize this.
"Don't fix it if it ain't broken". The trick is to be able to identify when it is broken, and when it is not broken.

 

[schweiz]

All automated trading systems are psychologically hard to trade at some point or even most of the time.

How can an AUTOMATED system be hard psychologically? You just have to start it and the system will do the rest. There is no human interference at all.

Only if you have to enter or exit manually it can be hard.

 

[BrooksRimes]

Losing money is always hard and doubly hard when you start worrying about whether the loss is normal or the automated system is broken.

 

[Millionaire]

How can an AUTOMATED system be hard psychologically? You just have to start it and the system will do the rest. There is no human interference at all.

What happens if you find a much better system than the one you currently have running.
When do you switch over?

That is the main issue with trading an ATS. People don't switch systems when the existing system is printing money, people switch systems when the equity curve for the current system is not doing well.

The psychologically pressure to switch to a better system (if you have found one) can be immense at that point. But what often happens is the old system starts to print money soon after you abandon it, outperforming the new system.

Jerry Parker, hedge fund manager and original Turtle, sums it up very well:

"You're tempted after a certain period of underperformance to tinker with your systems and call up research. Then as soon as you implement the new research you find out, well the older system would have performed better" -- Jerry Parker