Is fully automated trading a fantasy? Your opinions here

[ybfjax]

My teacher of a manual trading system insisted that the automated trading systems that could "print money" was a fantasy. Only fueled by trader's dreams of having a money tree and huckster's feeding that dream.

He says you can automate certain tasks, but not FULLY automated and "print money" consistently to live off of.

You must analize charts/news and make trading decisions manually yourself.

I was wondering what you think of that statement? I see an entire forum dedicated to automated trading systems.

He used to be a broker for several firms and a floor broker in Chicago and has 20+ years experience in the markets.

Exception: those people that start with large balances $100k or $1mil or more could average 10-20% annualized with fully automated systems.

What do I think: I think it may be possible (100% fully automated), but it won't be sold for $49.99 But even at $10,000, the price is irrelevant. How could you tell the scammer from the legit system?

I was interested to know your thoughts and opinions.

 

[Kohanz]

1. If a profitable automated system is being sold, that should be your red flag right there. It is probably useless, or has outlives its usefulness.

2. The reason a lot of people are skeptical about automated trading is because they simply don't understand what it entails. They think you press a button, go away forever and, as you said, wait for it to "print money". And while, yes, a good automated system should require little to zero attention for it's actual algorithm and trading execution, this does not mean that you can let your automated system sit for months and months or years and years (depending on the time frames it trades) without needing to be vigilant in monitoring it's performance, tweaking the algorithm, and essentially keeping it as profitable as you possibly can.

Think of automated traders as discretionary system traders, who don't have to do all the work of executing the trades manually, but still have to do all the work researching and perfecting the system. On top of that, they may have multiple systems to manage, rather than one, so in essence, automated traders can easily end up having to work harder than discretionary traders and IMHO this is probably the case for most profitable automated traders.

What is the advantage then? One might ask this. Other than being able to stick to the system rules steadfastly, no questions asked, without human error, there is the important ability to scale out to many more instruments than a manual trader could ever hope to monitor or manage.

 

[MarkBrown]

automated systems that make money without human intervention do exist.

 

[youngtrader]

whatever anybody says I don't believe in the whole black box thing at all. How can an automated system possibly be able to disipher the fear and greed emotions of trading. The markets will move the way they want to thats why only a few can be profitable at trading. A bunch of guys typing in mathmatical equations will not be able to beat the market. Just watch when a huge catastrophic disaster happens to the world and the markets just go wild you will see people jump off the whole automated trading bandwagon.

 

[frostengine]

I know without a doubt that a profitable 100% automated system is possible. You will not find someone selling such a system, but they do exist. However, automated trading is not necessarily an easier path than manual trading.

 

[showyouwang]

Automated systems work, and so do quant methods.

It depends on the system. (and some cases how creative you are at implementing them).

A profitable system involving a bunch of indicators, I have seen it before. The only difficulty is in coding the risk/reward assesment, but someone creative can find a solution to that. Not to mention, even without it you probably have a statistical edge.

Personally, I don't automate my systems because I'm still trying to learn everything I can and I don't have that much working capital anyways.

In the future, I would definitely look into learning a good programming language and pumping out a hands-free bot. That way, I could have the bot trade money while I do my own discretionary trades.

 

[MarkBrown]

Quote from youngtrader:

whatever anybody says I don't believe in the whole black box thing at all. How can an automated system possibly be able to disipher the fear and greed emotions of trading. The markets will move the way they want to thats why only a few can be profitable at trading. A bunch of guys typing in mathmatical equations will not be able to beat the market. Just watch when a huge catastrophic disaster happens to the world and the markets just go wild you will see people jump off the whole automated trading bandwagon.

i hear what your saying but your wrong. there are guys doing it very well and even catastrophic events dont matter.

 

[ybfjax]

Quote from markbrown:

automated systems that make money without human intervention do exist.

Please be more specific. enough to live off of? I talking about for those that could afford, say, $10k. Maybe I'll even throw you $20k. Could it print $1k a week? (10% of $10k) That would require little drawdown; consistent winners.

Remember, were not starting with $1 million. 10%-20% annualized would be $100k and most of us wouldn't mind living off of that

I'm talking about the average guy that probably opened his trading acct with the minimum $5-10k

My teacher said that annualized, 10-20% was realistic starting with huge amounts and most likely having to wait out large drawdowns in between.

Quote from youngtrader:

whatever anybody says I don't believe in the whole black box thing at all. How can an automated system possibly be able to disipher the fear and greed emotions of trading. The markets will move the way they want to thats why only a few can be profitable at trading. A bunch of guys typing in mathmatical equations will not be able to beat the market. Just watch when a huge catastrophic disaster happens to the world and the markets just go wild you will see people jump off the whole automated trading bandwagon.

I think the next quote sums up why there might be an advantage to automated systems:

Quote from Kohanz:

1. If a profitable automated system is being sold, that should be your red flag right there. It is probably useless, or has outlives its usefulness.

2. The reason a lot of people are skeptical about automated trading is because they simply don't understand what it entails. They think you press a button, go away forever and, as you said, wait for it to "print money". And while, yes, a good automated system should require little to zero attention for it's actual algorithm and trading execution, this does not mean that you can let your automated system sit for months and months or years and years (depending on the time frames it trades) without needing to be vigilant in monitoring it's performance, tweaking the algorithm, and essentially keeping it as profitable as you possibly can.

Think of automated traders as discretionary system traders, who don't have to do all the work of executing the trades manually, but still have to do all the work researching and perfecting the system. On top of that, they may have multiple systems to manage, rather than one, so in essence, automated traders can easily end up having to work harder than discretionary traders and IMHO this is probably the case for most profitable automated traders.

What is the advantage then? One might ask this. Other than being able to stick to the system rules steadfastly, no questions asked, without human error, there is the important ability to scale out to many more instruments than a manual trader could ever hope to monitor or manage.

Agree: you can certainly watch more markets that one discretionary trader could do by himself. It would take several traders, trading the exact same way, to trade the amount of markets that an automated (or several) systems could do. And the management of those systems by one or two people would be much easier

Disagree: that it would be without human error. When you say this you mean no error in execution, which is correct. But is the system itself without error ? Only the balance sheet will tell over time.

Can a computer measure the volatility within a bar? I may fold/continue a trade based on certain pivot points. I guess the hardest point is to figure out how to take what you see and write rules for it mathmatically, covering EVERY possible senario. So I guess that's why you would have to continuously.

My teacher said that we ALREADY have it easy because he used to work in the days where a real-time datafeed meant $300/month and even more expensive satelite/cable equipment. Intraday charts had to be drawn by hand. Yeah, that was a while ago.

He says computers already do 90+% of the work. You must still analyze charts and news and make decisions.

 

[ybfjax]

Quote from markbrown:

i hear what your saying but your wrong. there are guys doing it very well and even catastrophic events dont matter.

What kind of gains are we looking at here? Drawdown? Minimum balances? Markets? How often do they tweak? How long can it be left loose on the market with NO intervention? Etc, etc.

 

[frostengine]

My honest opinion is your "teacher" is living in the past and does not fully understand what a computer can accomplish.

10% a week..... how many discretionairy systems do you know that can produce 10% a week with little drawdowns? If you ask me, that is your fantasy, not automated systems. Could an automated system produce that? Possibly... but before you knock an automated system for not being able to produce those returns show me a discretionairy one that CONTINUOUSLY produces that with little draw downs.

As the trading frequency increases, automated systems gain an edge. There is no hesitation when an automated system identifies the setup... Humans hesitate... whether out of fear or just plain fatigue..