Automated trading doesn't work

As most of the posters have remarked, the statement "automated trading does not work" is clearly false.

The problem is how many are the people that have working automated trading system?

Clearly very few on the planet.

Therefore, in a "statistical" sense, one might say that "usually" automated trading does not work.

But just the same holds for discretionary trading. Besides, usually one loses a lot of money
that way.

The point is that succeeding in the design of a complete automated trading system is difficult
and requires a broad range of competences, besides deep intelligence and original thinking.

There is an analogy with the statement "one cannot go to the moon".

We know this is false. But statistically it's true, because holds true for most people.

To make an automated trading system there is not a "physical" distance to overcome, as to go to the moon.

However the journey is anyway very long because there is a lot of thinking, and creation of new ideas
to fill the gap to the final destination...

It's an intellectual journey, but, we might jokingly say that the destination is not much closer than the moon!


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G-Bot Automated Trading System
http://www.datatime.eu/public/gbot/
 
Quote from tommaso:

...the destination is not much closer than the moon
More...
What do you think of this poll?

http://www.elitetrader.com/vb/showthread.php?s=&threadid=161203

Do you think it gives you a good idea of the time required to implement a fully automated trading system? Or do you think it is biased, because of people lying, the wrong sample or similar?

Personally, I think it is pretty accurate. Still, I was surprised that 63% of voters say that it took them less than 5 years to fully automate their trading.

A possible explanation is that most people here are programmers, and if a programmer approaches trading, his first impulse will be to automate everything, and that will be pretty quick, so all he has to do is study the markets and find a profitable strategy. This would explain why 32% voted that it took them less than 2 years to do everything.

For non-programmers things are quite different. For example, I was not a programmer and it took me more than 10 years to learn all the things necessary to fully automate a back-tested trading system. It took me 4 years just to find out about the existence of trading systems, and it took me 7 years to decide I wanted to automate a trading system. Then another 4 years to do it properly.
 
Quote from travis:

What do you think of this poll?

http://www.elitetrader.com/vb/showthread.php?s=&threadid=161203

Do you think it gives you a good idea of the time required to implement a fully automated trading system? Or do you think it is biased, because of people lying, the wrong sample or similar?

[..]
More...

Thank you travis for asking my personal opinion (too much honor)

Besides what you mention, there is perhaps one bias element which is due to the definition of a "fully automated trading system", which can vary from person to person.

There are people who set up an Excel application and they genuinely (and, let me say, naively) perhaps believe they have an "automated system".

Also, another aspect which can cause distortion is whether you include or not the time for the creation of the trading strategy.

My personal understanding of a fully automated trading system is such that, assuming you have a smart and powerful programmer working full time (and overtime) for you, I believe it is physically impossible to create the mere basic infrastructure in less than 2 years.

I am talking only of the infrastructure", meaning trading engine, order handling, charting, backtesting and tuning facilities, alert, reporting, etc. This excludes the strategy part.

About the strategy, you either get at least one that works, and then you are ok, or you don't (and this is unfortunately most of cases).

To devise a working strategy can take any amount of time: from 2 years to forever. It depends on intelligence and also on technical skills, because sometimes a good idea can fail to be recognized as such because inaccurate implementation, or viceversa a bad or impossible strategy can illusorily appear as good because of errors in the implementation or other logic errors.

That's also why you see several trading system being sold. The people who created them realize that they have kind of "wasted" an unbearable amount of work and they try to profit sharing with others the same delusion or hope which has leaded their work for years.

In other cases, there are systems which are genuinely intended to provide only the mere infrastructure leaving to the user the responsibility of providing a good or acceptable strategy.

In any case, I consider automated trading the only way to go. Discretionary trading is quite close to betting in my view and, personally speaking, I strongly reject any form of betting.



Tommaso
 
"...automated trading the only way to go". I totally agree with you - that's what I've been saying/writing for years.

The reason I asked you such statistical questions is that I noted, from the link you provided, that you are a professor of statistics in Italy. How many fully automated retail traders (not people working for financial institutions) do you think there are in Italy? I have always wondered. I would think a much smaller percentage than here, because being fluent in English is a requirement for this field.

By the way, what did I mean, in the poll and here, by "fully" automated? I use excel myself, and since all I ever have to do is turning my excel workbook on in the morning, and turning it off at night, this allows me to say my system is "fully" automated.
 
Quote from travis:

"...automated trading the only way to go". I totally agree with you - that's what I've been saying/writing for years.

[..]How many fully automated retail traders (not people working for financial institutions) do you think there are in Italy? I have always wondered. I would think a much smaller percentage than here, because being fluent in English is a requirement for this field.

[...] I use excel myself, [...] this allows me to say my system is "fully" automated.
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"How many automated retail traders in Italy" ? Good question. Actually I do not know.
I do not know exactly where your "here" is, but I wouldn't even speak about percentage! :-)
I guess there are very very few. Probably confined to a handful of people!

As you rightly guessed, the "language barrier" is also a serious obstacle. I myself have begun learning
English at relatively late age and, living in Italy, it's hard to keep it alive. I must say I still feel
like an handicapped person, if I consider my inability to properly (I mean, as I really wished) interact
with such a large part of the world (especially when it comes to spoken language), to express my enthusiasms in another language or to access that immense body of knowledge.

When one is born in the US or an other English speaking country one must consider himself very lucky just
because he/she has access to a whole world of opportunities which are denied to many.

More importantly, apart the language there is also a problem of opportunities (especially for young people).
Italy has major problems. Practically no more industry, no real market, everything works only through corruption
or similar. I sometimes really feel this country is "fucked up", as you say in some movies, and has no real future.

Sometimes, I imagine jokingly, that if Bill or Steve were born in Italy, they would end up being some beggars...

Here no one is ready to invest in ideas. People who old the largest capitals often use them to perpetuate new scams
or to take control of business where there is no risk (utilities, etc.) ripping off all they can and then
leaving what remains (see Tronchetti Provera with Telecom or the Alitalia affair, etc.) as public debt.

We still have this beautiful sun, good food, generalized free health care, a somehow less heartless society,
but when it comes to professional life or real business ... it's really discouraging. And I mean it.

As to Excel and and "fully automated trading system", I know several people use happily Excel and by no means I wish to upset those who use it successfully everyday.

Personally, attaining automation through an Excel Application does not seem ideal to me, just because the lack of flexibility I am used to (but, I must say, I am a very demanding person).

Further you need full integration between the trading system and the backtesting and tuning system.
You also need to "follow" your orders, so you need to catch partial fill events to monitor what is going on.
You need to adjust your position, change it dynamically, or reverse it perhaps through multiple accounts when
the price goes against you... You need to setup alerts for some occurrences you need to watch over, etc.

Nevertheless, it must be said that switching from a discretionary approach to an Excel automation is certainly a very good step because it denotes a feeling and a demand toward a "systematic" approach to trading, as opposite to betting. And this is very significant because makes the difference between a trader and a gambler.


Tommaso
 
By "here" I was referring to the people in this forum, who are mostly from the US. I was not referring to where I am, because I am in Italy as well. That is why I mentioned how I always wondered about how many "retail traders" in Italy are doing what we are doing. I would think not more than 300 (I am speaking of full automation), but let me know if you have different information.

As far as excel, I think full automation is indeed possible. As I said, all I have to do is turn it on and turn it off. Once a month there will be a bug (either due to my programming or to the broker), but it never endangers my (small) capital. I was forced to use excel because I am not a programmer and I can't build anything better. I know it has some limits, but so far they didn't bother me.
 
Quote from travis:

By "here" I was referring to the people in this forum, who are mostly from the US. I was not referring to where I am, because I am in Italy as well. That is why I mentioned how I always wondered about how many "retail traders" in Italy are doing what we are doing. I would think not more than 300 (I am speaking of full automation), but let me know if you have different information.
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That's a real surprise! I was misled by the name to assume somehow you were in the US.
For what I have said, I couldn't imagine someone moving from US to come work here :-).

300 sounds like a big number, I wonder how did you come out with this estimate.


As far as excel, I think full automation is indeed possible. As I said, all I have to do is turn it on and turn it off. Once a month there will be a bug (either due to my programming or to the broker), but it never endangers my (small) capital. I was forced to use excel because I am not a programmer and I can't build anything better. I know it has some limits, but so far they didn't bother me.
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If you do not feel limited by the tool you use, than probably you do not need to look for more. It's important to feel completely at ease with the technology one employs.

[Personally, for me, it would actually be more complicate (and probably impossible) given my goals and my approach, to create a trading system with Excel.]

Tommaso
 
Fully automated trading does not work.

There is one factor that discretionary traders seem to use alot in their trading and that is avoid trading during news events. This thing can't be programmed into an automated program. Trading news eventually leads to blow-up regardless whether you're automated or discretionary.

The best trader is a discretionary trader who trades with so much discipline, that they are "automated", or an automated system that is discretionary used, I.E. turned off during FOMC announcements and other news or limit up/limit down (remember the limit up and down from Fall 2008, just madness).
 
Quote from tommaso:

Personally, for me, it would actually be more complicate (and probably impossible) given my goals and my approach, to create a trading system with Excel.
More...

I am not an Excel programmer either. Programming in Excel would be tough for me. However, I would not give up so easily. Individuals and companies have put years and millions of dollars into the developement of trading systems, that can be configured to run many different (and unique) strategies.

I would not confuse the "trading system" with "the strategy" that is implemented on the trading system.

The CoolTrade system is a generic system that is all point-and-click, so there is no programming involved with the creation and running of your own fully robotic strategies.

It is so much easier to create and run a fully robotic strategy, than most people even realize. I doubt anyone would manually trade the stock market, if they actually knew how easily running a fullly automated trading system really is.

Unlike the millions of dollars lost in mutual funds, which are really nothing more than black box trading systems that you can't even control, the strategies in a robotic trading system are completely configurable (every rule). You can see what every rule/indicator in the system is doing throughout the day. I can't imagine any other way to trade.

Adoption of all new technology is slow, like when the first cellphones came out. I remember I was one of only a few people who had one, in the company I was working at, in the early 90's.

Ed
(Creator of the CoolTrade system)
 
Quote from college_trad3r:

Fully automated trading does not work.

There is one factor that discretionary traders seem to use alot in their trading and that is avoid trading during news events. This thing can't be programmed into an automated program. Trading news eventually leads to blow-up regardless whether you're automated or discretionary.
More...

My experience says otherwise. Many of my best trade signals came just before news events and several times when I was scared and switched the system off before news I missed good opportunities.

The reason many blow-up during news events is because they are undecapitalized and get liquidated due to margin calls.

Actually, a couple of traders I know in person have no idea when news are released, they don't care, they read no papers , watch no TV and still make money trading, a lot of money.
 
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