As I was thinking about ideas for new posts, I realized that I don't need to go far and as the name of this journal suggest - might as well write about Automation. Also, there seems to be more questions about it lately on ET in general.
Why don't I post about Automation here much?
I believe it can become a rabbit hole very fast.
Idea of
solving trading thru Automation is very appealing and it gives a false sense of hope. Once we start automating, it's hard to stop, as this is one thing which can actually provide a solid sense of progress and achievement. It can be measured and it actually can be done with 100% certainty.
In my personal opinion, the biggest return on time spent on Automation is in
- Automating very routine and error prone parts of your trading once you sure they work without Automation. Example - automatically sending orders to your broker instead of typing them, or closing position once it hits exit criteria. Key here is - you need to be already certain your method has an edge and works. Automating things that don't make money in a first place will not help
- Automating edge validation / backtesting. Once you have an idea or maybe already traded it and got trades sample that looks promising, there is a point where you know what trades you are looking for but it takes just too long to go thru past data to dig out more samples and record some basic trades starts. Then sure, automation of such test is the answer
- Automating something that you have high confidence in working but wouldn't be able to do without Automation. Who knows, but maybe you want to scan premarket for a very high relative volume 5 mins before the open and stock gapping up more than 2%, then go long in up to 20 positions betting 2% capital on each. This just example of something that will be incredibly difficult to do manually and likely impossible to execute well consistently doing by hands
- Automating the rest. Basically once trading became pretty boring and it's all about executing your system now - why not. Might as well automate the whole thing including data updates, daily prep, executions, positions management, reporting etc
Re #2 - good quality backtest is difficult to do. So if you're just starting out your time is better spent on validating your idea manually first. Going thru charts one by one and looking for your setup and recording stats. Most of popular ideas just don't work so there is no point in investing into becoming a backtesting guru to figure that out. Often, after doing it manually for 20 trades you will see that idea is not worth it. But, unlike with automated backtest, you will pick up little observations on a way and that can help to refine idea and eventually to come up with something that might work. In the simplest form - maybe you will notice that doing exact opposite to what everyone else is saying you need to do works better. It's not that easy, but that phase of manually looking at charts has its learning advantages.
Don't come to Automation as a rescue for unprofitable trading. Sometimes it might seem that only if emotions would be left out your executions you're golden. Unfortunately, it is often no the case.
And on that note - taking more courses is not a solution either. Most people probably go thru 2-3 and it makes sense, as we expect that there is sort of formal education in trading. Takes 2-3 to realize that there isn't. Taking more is likely just postponing that inevitable realization and clinging to the uplifting feeling of hope each new one of them gives. Added that last paragraph after reading a story of a
poor soul who gave up trading after 8 years of switching from method to method and taking more and more courses.
That is not to say there is no hope. Hope is in stats. The only question to aks yourself really - if I do that exact trade 1000 times what the outcome will be? And then gradually remove anything that stands on your way to answer that question.
Val
