Automated trading doesn't work

I agree with this very rational explanation. These who say you can't automate or translate their system into code are the same people who, when asked "why", often reply "that's just the way it is" - the majority of human beings. It takes rational and hard-working people to do this automated trading stuff.

That's also why I am hoping that automated trading will work for a while (but I don't really know). The markets are moved and influenced by this majority of these lazy and superficial people, who do have money.
 
Quote from ScoobyStoo:


(b) they can't describe their rules because they don't have the ability/time to break down every aspect of their trading system into clearly defined rulesets.
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This explains why we do not have HAL 2001 yet. It is 2009 you know.
 
Quote from travis:

I agree with this very rational explanation. These who say you can't automate or translate their system into code are the same people who, when asked "why" something happens, reply "that's just the way it is". The majority of human beings. It takes rational and hard-working people to do this automated trading stuff.
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Absolutely true.

And before anyone asks why all the smart money isn't automated...it's down to cost efficiencies.

Why bother spending $$$ to fully automate a system if you can pay a good trader $$ or $ to implement the system for you?

The reason people aren't automating everything is simply because it's cheaper to hire the computing power of a good trader's brain.

But this is changing now....look at the % of transactions that are now attributed to algo trading. Just keeps going up...
 
But what I learned on this forum just a few weeks ago is that "algo" trading also means "automated" (fractioned) execution of discretionary orders, in turn given by superficial non-hard-working fund managers. I believe that not all those who become bosses become bosses because they are gifted at anything other than kissing up and similar.

So this could in turn mean that even in the future I won't have to be the smartest man in the world to be making money in the markets (with an automated trading system), but only that I'll have to be smarter than the average investor (which I will always be, because I never replied "that's just the way it is", even when I get asked "why" incessantly by a three years old).
 
Quote from ScoobyStoo:

If you have a system then by definition it must be possible to describe that system with a number of clearly expressed rules.

If you can automate those rules then your system can be traded by a machine.

It's as simple as that.

Discretionary traders will tell you that their systems can't be automated because they need to 'feel' the market. What they are actually telling you is either:

(a) they can't describe their rules because they don't rigidly follow a system at all and are trading on impulse. The end result is almost certain failure over a prolonged period of time (although obviously the laws of probability come into effect here and there will be a few that continue to win just through blind luck)

(b) they can't describe their rules because they don't have the ability/time to break down every aspect of their trading system into clearly defined rulesets.

Building a complex automated trading system will be almost impossible if you don't understand how to accurately translate your system into logical rulesets and then code them. A lot of knowledge and experience of software design is needed to do it properly IMHO.

However, at a conceptual level ANY system can be broken down into a finite numbers of rules and if you have the know-how these rules can be automated. It's just that the majority of retail investors don't have the ability/time to do this.
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very often they just do not have the technical abilities to implement it.
 
Quote from travis:

But what I learned on this forum just a few weeks ago is that "algo" trading also means "automated" (fractioned) execution of discretionary orders, in turn given by superficial non-hard-working fund managers. I believe that not all those who become bosses become bosses because they are gifted at anything other than kissing up and similar.

So this could in turn mean that even in the future I won't have to be the smartest man in the world to be making money in the markets (with an automated trading system), but only that I'll have to be smarter than the average investor (which I will always be, because I never replied "that's just the way it is", even when I get asked "why" incessantly by a three years old).
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Yep, obviously there are degrees of automation. A lot of the institutions use randomisation algos to divide up large orders and then spray a steady stream of randomly sized smaller orders into the book in an effort to stop anyone tracking their moves.

IMHO most fund managers are glorified salesmen/women. They earn their money by reeling in the suckers, off whom they then take a management fee whether their fund makes money or not.
 
Good, because obviously you have a lot more knowledge than I do, and yet you are confirming what I have always thought about fund managers.

Regarding this, I remember speaking, over 4 years ago, about my interest in trading systems to the director of the investment department at the Bank that ended up hiring me (not as a trader). He was the boss of about 1000 people among traders and all the other people supporting them. He said to me: "trading systems do not exist. It's impossible to predict the future". (My usual reply to this is: then why should you trade at all? It's not like humans aren't trying to predict the future based on the past - they do just the same, only less accurately).

Then I realized how much of an idiot he was. I noticed he was always friendly, charming and smiling, and I said to myself: "oh, ok, that's how he got here - by smiling all the time and by being such a diplomat". Just like you said - "glorified salesmen". Later, not surprisingly, I found out that many of the traders working for him never even made any money, year after year.

But then why is that not a problem for my bank? Because we make so much money from lending money and charging all those fees, that we can afford to lose some of it with trading. So they hire idiots with college degrees and let them trade however they want (all discretionary) - no matter whether they lose or not. These fresh graduates obviously let the idiot hiring them think they know how to trade, to get hired and also because some are confident about it, just like any beginning day-trader.

No meritocracy at all. The fact that this guy was an idiot didn't stop him from becoming the head of all investments (two years later he was fired). The fact that these people never made any money with their trading didn't keep them from being kept as traders, and even receiving bonuses. I am speaking of the situation here in Italy, but I don't think it'll be much better in more evolved countries, because the world is still full of idiots. I've seen them in all countries.
 
Quote from travis:

Good, because obviously you have a lot more knowledge than I do, and yet you are confirming what I have always thought about fund managers.

Regarding this, I remember speaking, over 4 years ago, about my interest in trading systems to the director of the investment department at the Bank that ended up hiring me (not as a trader). He was the boss of about 1000 people among traders and all the other people supporting them. He said to me: "trading systems do not exist. It's impossible to predict the future". (My usual reply to this is: then why should you trade at all? It's not like humans aren't trying to predict the future based on the past - they do just the same, only less accurately).

Then I realized how much of an idiot he was. I noticed he was always friendly, charming and smiling, and I said to myself: "oh, ok, that's how he got here - by smiling all the time and by being such a diplomat". Just like you said - "glorified salesmen". Later, not surprisingly, I found out that many of the traders working for him never even made any money, year after year.

But then why is that not a problem for my bank? Because we make so much money from lending money and charging all those fees, that we can afford to lose some of it with trading. So they hire idiots with college degrees and let them trade however they want (all discretionary) - no matter whether they lose or not. These fresh graduates obviously let the idiot hiring them think they know how to trade, to get hired and also because some are confident about it, just like any beginning day-trader.

No meritocracy at all. The fact that this guy was an idiot didn't stop him from becoming the head of all investments (two years later he was fired). The fact that these people never made any money with their trading didn't keep them from being kept as traders, and even receiving bonuses. I am speaking of the situation here in Italy, but I don't think it'll be much better in more evolved countries, because the world is still full of idiots. I've seen them in all countries.
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You've hit the nail on the head there. Most retail traders assume that the guys working on the desks in the big banks must be better at trading than they are. Believe me when I say that this simply is not true.

It's quite liberating when you accept this as fact because it unshackles you from feeling like a perpetual underdog.

It's worth remembering that small volume retail traders have one massive advantage over the guys working the big desks. Getting a $2k bet into and out of the market is easy, getting a $2mil bet into and out of the market is a lot more difficult

And it's always worth holding in the back of your mind that big money does not necessarily equal smart money.
 
How about semi-automate. Let the discretionary to handle complex task and the automate to handle simple task that require speed to act. Let me be less abstract, use automate to send you a signal if a certain price, volume etc. have been reached; and use discretionary to decide whether to take the action on that signal or not depending on your feeling about the market mood or the speed of the price movement for that given security etc.

PS: Use your discretionary to gauge stock trader's sentiment. :D
 
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