Automated Trader vs Manual Trader

W

WmWaster

Hi. Ideas gatheirng time. :D
I would like to hear people's opinions on several issues.

1)
How do you compare between automated system and manual trading? What're their pros and cons?

2)
What makes you feel automated trading is the best way to go, if you think so?

3)
Do you think automated system can beat manual trader?

Can automated system get close to or even suprpass what some successfully manual trader achieve (eg traders from $10k something to millions in a few years)?

Thank you!
 
Quote from nbates:

Think about it in the context of LASIK Eye Surgery and you will get the picture.

imo
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I get a picture, but I wonder if my picture is the same as others.

That's the main reason of this post - to know each other opinion.

Anyway, thanks for your post. :)
 
Quote from WmWaster:

Hi. Ideas gathering time. :D
I would like to hear people's opinions on several issues.

1)
How do you compare between automated system and manual trading? What're their pros and cons?

Pros of automated systems:
The advantage of an automated system(assuming it is profitable) is that it always will do exactly what it is instructed to do. It will not deviate from its intended purpose.

This is why arbitrage trading is primarily black boxed. An arbitrage trade will never change(unless the correlation between instruments changes) thus their is no need or advantage to giving a trader any discretion in these types of trades.

Also automated systems are helpful for the discretionary spread trader. Electronic markets are moving too quickly for the discretionary trader to execute his positions. A good example is the "autospreader" in TT(Trading Technologies). Traders predefine at what price they want to execute a spread trade and the software puts the trade on when the legs can be executed at the desired levels. A majority of the time a manual trader using a mouse could not execute the levels in both legs without missing one leg. Over time 100% of a spread trader 's executions will be done by automated systems.

In general automated systems are much better at executing the trade. For example I am a 100% manual trader in ER2. I am limited to trading within 2-3 ticks of the bid and ask. The reason for this is I do not have enough time to cancel and replace orders farther away from the market. This is a disadvantage. For example, lets say I am long 5 contracts and the market is at the highs. I am watching because I am ready to get out of all five when the market makes new highs. Someone buys new highs 6 ticks higher(example old high 700.00 new high 700.60). He actually buys 500 contracts, but it was executed in 2/10ths of a second. Now it is 690.80 offer. I probably will have to be happy selling 690.60!

Cons of an automated system:
I do not see any disadvantage in using automated systems in the "execution process". I also do not see a disadvantage of automated systems in arbitrage trading.
The area where automated systems still have room to grow is in making trading decisions. A discretionary trader can evaluate a market and decide what type of trading will be successful for that trading day. He can change and adapt to market conditions. An automated system does not have the ability to adapt to present market conditions.

2)
What makes you feel automated trading is the best way to go, if you think so?
Automated systems are the best at executing the trade.

3)
Do you think automated system can beat manual trader?
I HOPE NOT! I am a discretionary trader who enjoys the adaptability my brain offers me!!
However automated systems ---- concentrate 24 hours a day, does not have to take a pee, does not have nervous breakdowns, does not have an ego, does what it is told, can always be adjusted, does not have to take a vacation, does not get carpal tunnel, etc.... etc.... etc....

I have friend who knows someone who works on the IT staff for Getco Trading(successful trading firm in Chicago). They changed their bonus structure for 2005. They gave less of a bonus to the traders and much bigger bonus to the IT and Quant staff!


Can automated system get close to or even surpass what some successfully manual trader achieve (eg traders from $10k something to millions in a few years)?

I think the answer to your question is no. I will reword your question.

Can automated systems get close to what successful manual traders achieve and keep the profits they accumulate over the long term?

If you worded your question this way I would answer YES!
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I think automated systems are more for scalpers sense for a trader like myself, I dont care about slippage of a few pennys.

Problem with automated systems:

1. Traders puts too much faith in their system

2. If your system fails, you are now less disciplined because you're so used to having everything done for you.

3. Automated systems can't possibly calculate all the factors that move the market.

- nathan
 
Thanks scalper21 for your great inputs.
Thanks to cashmoney69 too.

One of the nicest thing I found in automated trading is it can trade 24 hours a day non-stop. I can earn money even if I'm sleeping.

In addition, it's nearly effortless after you have developed your system. It is run automatically. You don't need to spend efforts as manual traders have to consistently (although automated trader may need to maintain their systems once in a while).
 
Quote from cashmoney69:

I think automated systems are more for scalpers sense for a trader like myself, I dont care about slippage of a few pennys.

Problem with automated systems:

1. Traders puts too much faith in their system

2. If your system fails, you are now less disciplined because you're so used to having everything done for you.

3. Automated systems can't possibly calculate all the factors that move the market.

- nathan
More...

Yes, and it seems automated system cannot achieve such high percentage of succuess some manual trader may attain (eg 80-90% accuracy). The drawdown is thus larger.

Another problem I could think of is flaws and bugs. If the system malfunctions, how seriously would it hurt us? If the trading platform encounter problems while the system is running (eg positions opened, but stop-loss can't be executed due to some communication problems from trading platform), how could we do?

Not to say, it seems it is difficult, or impossible(?) for automated systems to turn $10,000 to millions in a year or so.
 
Can automated system get close to or even surpass what some successfully manual trader achieve (eg traders from $10k something to millions in a few years)?

I think the answer to your question is no. I will reword your question.

Can automated systems get close to what successful manual traders achieve and keep the profits they accumulate over the long term?

If you worded your question this way I would answer YES!
More...

After all, what do you prefer - automated trading or manual trading?

What trading strategies do you employ?
(From your name, it seems you involve in scalp trading)
 
I love it when people try to convince themselves that the auto-traders cant and are not doing as well or better than the discretionary traders. Please keep it up.
 
scalper21 good post.

I'd like to add that I read a lot of posts saying that auto cant get the results that manual trading does and I think that should be analysed somewhat.

I read traders saying they can make discretionary trades based on a wider spectrum of information, or alternatively based on situations that are too subtle to analyse mathematically. But there are only two possible explanations for how we make discretionary trading decissions. Either we mentally calculate and estimate, or we use ESP.

My untested assumption is that ESP doesn't work, and that we mentally calculate and estimate, and those are both actions which can be automated. If you can't automate your trading decissions then you dont fully understand them or haven't fully tested them.

Also I'd like to point out that it is very difficult to definatively test whether discretionary is better than automation. In regression testing the more 'degrees of freedom' you have, the higher the 'confidence interval' thats required and the more data you have to have backtested. But in discressionary trading there is no knowing how many degrees of freedom there are. There is the potential you could need an infinate amount of backtesting to get 95% confidence. And the catch22 is that if you make a mental decission to limit the degrees of freedom in discressionary trading, then you might as well automate your system.
 
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