Is fully automated trading a fantasy? Your opinions here
- Thread starter ybfjax
- Start date
I don't want to speak too soon, but the annual returns would be well over 1000% and the maximum drawdown would be maybe about 5-10% Probably less than that.
For every 100 ticks you win, you lose about 6-10. My actually losses have been more like 15-20 ticks. But just about all 95% of my losers I was just being reckless and not trading according to the method. I figured I was in profit and just got carried away.
Still up 30% in about 8 days, though. So I just need to keep pressing my winners and stay disciplined.
yeah they do exist.
1) spread
2) cost of transaction
3) volatility
4) acct equity
5) trading hours
6) stop loss
7) take profit
8) liquidity around the spread
9) FIFO dominance
10) market order dominance
11) current session open/high/low/pre session high/low
the above are the basic parameters for a automated system. How the code interelates to the above and modifies the parameters above is the key to a automated system that prints money.
the problem becomes as more and more of these systems are used, the markets will become less volatile and will end up taking money away from human participants.
1) spread
2) cost of transaction
3) volatility
4) acct equity
5) trading hours
6) stop loss
7) take profit
8) liquidity around the spread
9) FIFO dominance
10) market order dominance
11) current session open/high/low/pre session high/low
the above are the basic parameters for a automated system. How the code interelates to the above and modifies the parameters above is the key to a automated system that prints money.
the problem becomes as more and more of these systems are used, the markets will become less volatile and will end up taking money away from human participants.
I disagree. There are too many market participants on both the hedger's/institutional side, and the speculative side, each with their own reasoning as to how the market will play out. No one machine or person can or will dominate the market.
If anything, the machines will only add to the total volume. In fact, it is because of the move from pit to electronic trading that has made daytrading so much more successful.
The volatility is about how people react to news events and movements in the market. The volatility is the effect, the news/economic reports and the subsequent buy/sell-off represents the opinions of the traders/machines in real-time (cause).
If what you said were literally the case, I'm sure all of the Market Wizards (or here -- or #3) would have already cleared off all (or an overwhelming majority) of the money from the table.
the market wizards are human, and are not perfect. There is a unique method of curve fitting, that the scalpers do on the floor, the scalpers constantly quote the current offer and bid and their only objective is to get filled and unfilled at the current spread or better.
Now if you think of this, FIFO dominance in the electronic arena wont guarantee a fill, since large money pools have placed fixed quantity of units at every tick 5 ticks or greater around the spread. This guarantees on the electronic system that their order of being taken out of the market will be first.
if the current spread is 2/3 (bid/ask), then being a scalper on the floor your constantly shouting this out hoping that you get filled during a stable moment in the spread. The talent of the scalper is when the spread shifts 3/4, and instead of selling at 3 now he tries to sell at 4. When the spread was 2/3 and the floor broker takes him out at 3 there is always a possibility the spread shifts to 3/4 and now he caught he gave up the edge and must try to buy one at 3 or take the loss at 4 giving up the edge to someone else.
the scalper gets a feel for the market and can tell which side is unstable whether its the bid or offer. If the offer is unstable the scalper will keep constantly quoting the bid. Hoping the floor broker using retail orders fills him at the bid, and then the offer becomes unstable even more and the spread shifts up. Now the scalper can unload at current bid and make 1 tick profit on size. Or he can try to unload it at the offer and make 2 ticks on size.
Electronic scalping programs try to decipher the instability in the spread whether its the bid or offer. Instability is detected as liquidity being pulled one side more then the other. And the liquidity can be pulled by orders from retail hitting the spread or having unfilled orders being pulled. Now if you try to maintain FIFO dominance, you would pull your order on the unstable side of the spread but maintain your orders at the next tick. Now your FIFO status is maintained.
So the key becomes detect instability in the spread and also determine implied:
1) price vector
2) price vector rebuff zone
3) price vector breakthrough of rebuff zone
The whole time your constantly stating the spread on a certain amount of size. If your chose to pull your bid or offer, then you lose FIFO dominance. But as you detect the instability and hit someone else's spread before they realize it, then you've basically superceded the FIFO issue and now you have regained the edge using a market order. But when you do this, the detected instability could as well be a false signal. And must exit at the spread losing 1 tick or more.
So what becomes important are:
1) FIFO dominance
2) instability of the spread detection(pseudo-market order)
3) minimize loss by exiting at 1 tick loss
These are the lowest risk systems. Money extraction is limited to the laggard liquidity, or the orders that failed to get pulled even in the face of unidirectional price spread instability. For the e-mini's at any second the 'laggard liquidity' is around 50-100 contracts. So at any second these systems that are dominating are pulling out 10 ticks or less based on how many systems are at work in a given second. The more systems the less extraction.
There are ways of getting around the 'scalper issue', or other ways of making money. But in order for me to tell you these, it would require atleast 9 figures minimum. Liquidity around the spread fails to be an issue. And only time and volatility dictate gross returns.
12.50 x 1 contract x 60 seconds x 60 minutes x 6hrs = 27,000 thousand dollars per trading day, if your system is only 50% good, you dont make anything for the day. if its 10 percent better you can pull out 2,700 using 1 contract.
Now if you think of this, FIFO dominance in the electronic arena wont guarantee a fill, since large money pools have placed fixed quantity of units at every tick 5 ticks or greater around the spread. This guarantees on the electronic system that their order of being taken out of the market will be first.
if the current spread is 2/3 (bid/ask), then being a scalper on the floor your constantly shouting this out hoping that you get filled during a stable moment in the spread. The talent of the scalper is when the spread shifts 3/4, and instead of selling at 3 now he tries to sell at 4. When the spread was 2/3 and the floor broker takes him out at 3 there is always a possibility the spread shifts to 3/4 and now he caught he gave up the edge and must try to buy one at 3 or take the loss at 4 giving up the edge to someone else.
the scalper gets a feel for the market and can tell which side is unstable whether its the bid or offer. If the offer is unstable the scalper will keep constantly quoting the bid. Hoping the floor broker using retail orders fills him at the bid, and then the offer becomes unstable even more and the spread shifts up. Now the scalper can unload at current bid and make 1 tick profit on size. Or he can try to unload it at the offer and make 2 ticks on size.
Electronic scalping programs try to decipher the instability in the spread whether its the bid or offer. Instability is detected as liquidity being pulled one side more then the other. And the liquidity can be pulled by orders from retail hitting the spread or having unfilled orders being pulled. Now if you try to maintain FIFO dominance, you would pull your order on the unstable side of the spread but maintain your orders at the next tick. Now your FIFO status is maintained.
So the key becomes detect instability in the spread and also determine implied:
1) price vector
2) price vector rebuff zone
3) price vector breakthrough of rebuff zone
The whole time your constantly stating the spread on a certain amount of size. If your chose to pull your bid or offer, then you lose FIFO dominance. But as you detect the instability and hit someone else's spread before they realize it, then you've basically superceded the FIFO issue and now you have regained the edge using a market order. But when you do this, the detected instability could as well be a false signal. And must exit at the spread losing 1 tick or more.
So what becomes important are:
1) FIFO dominance
2) instability of the spread detection(pseudo-market order)
3) minimize loss by exiting at 1 tick loss
These are the lowest risk systems. Money extraction is limited to the laggard liquidity, or the orders that failed to get pulled even in the face of unidirectional price spread instability. For the e-mini's at any second the 'laggard liquidity' is around 50-100 contracts. So at any second these systems that are dominating are pulling out 10 ticks or less based on how many systems are at work in a given second. The more systems the less extraction.
There are ways of getting around the 'scalper issue', or other ways of making money. But in order for me to tell you these, it would require atleast 9 figures minimum. Liquidity around the spread fails to be an issue. And only time and volatility dictate gross returns.
12.50 x 1 contract x 60 seconds x 60 minutes x 6hrs = 27,000 thousand dollars per trading day, if your system is only 50% good, you dont make anything for the day. if its 10 percent better you can pull out 2,700 using 1 contract.
knowing this, so imagine why forex brokers hate scalpers. And will use tactics:
1)freezing your platform
2)delay in price feed
3)requotes
4)invalidating profits
As a group the floor scalpers goal is to hit stops, and stops get clustered around rebuff zones( support/resistance). Taking price into these zones, rains down money on the market makers and floor scalpers. The orders need to be filled at the market/ and non retail makes the spread. Raining money.
1)freezing your platform
2)delay in price feed
3)requotes
4)invalidating profits
As a group the floor scalpers goal is to hit stops, and stops get clustered around rebuff zones( support/resistance). Taking price into these zones, rains down money on the market makers and floor scalpers. The orders need to be filled at the market/ and non retail makes the spread. Raining money.
What MarkBrown is talking about would cost about 20mill to setup! If you are lucky and have the knowledge and skills. So there is your secret to beating this market.
"Yeah. My teacher's method is designed to either breakeven or profit 85-90% of the time."
And just every now and then you have one loser which wipes you out and have to start over again.
Those who cant do teach. Period.
"Yeah. My teacher's method is designed to either breakeven or profit 85-90% of the time."
And just every now and then you have one loser which wipes you out and have to start over again.
Those who cant do teach. Period.
a talented retail investor is the enemy of the scalper and market makers. These 'talented investors scalpers' end up costing them the spread at a minimum.
When you use 'pseudo market orders' where you hit someones offer or bid on the first indication of price instability. You've effectively given a scalper/market maker a loss. Since they have to offset as quickly as possible.
So only computers can effectively scalp at split second decision making, humans cant the reaction time is too slow. Where the human can gain a advantage is to use 'pseudo market orders'. But these 'talented investors' are a rare bunch, and there are more then enough non talented investors to feed these computers. Every year a certain percentage of the population enters the marketplace. And these computers, extract money from them and other less proficient computer systems.
A market wizard is implied to be one who can decipher price instability the soonest. And yes they can give these systems a painful blow as liquidity pools are interlinked. But keeping sharp at all times is tough on a intraday basis. And its only possible or worthwhile maybe once or twice a month. The other times, the market wizards, try to decipher overall trends. And another breed of computer systems exist that compete with them at this level. These computer systems you could argue are just market wizards who computerized their system. On a day to day basis there are strategies employed. And the pool of money that can be extracted is much larger then the pool the scalpers try to extract. Eventually only computer systems will dominate and if not dominating the markets currently.
When you use 'pseudo market orders' where you hit someones offer or bid on the first indication of price instability. You've effectively given a scalper/market maker a loss. Since they have to offset as quickly as possible.
So only computers can effectively scalp at split second decision making, humans cant the reaction time is too slow. Where the human can gain a advantage is to use 'pseudo market orders'. But these 'talented investors' are a rare bunch, and there are more then enough non talented investors to feed these computers. Every year a certain percentage of the population enters the marketplace. And these computers, extract money from them and other less proficient computer systems.
A market wizard is implied to be one who can decipher price instability the soonest. And yes they can give these systems a painful blow as liquidity pools are interlinked. But keeping sharp at all times is tough on a intraday basis. And its only possible or worthwhile maybe once or twice a month. The other times, the market wizards, try to decipher overall trends. And another breed of computer systems exist that compete with them at this level. These computer systems you could argue are just market wizards who computerized their system. On a day to day basis there are strategies employed. And the pool of money that can be extracted is much larger then the pool the scalpers try to extract. Eventually only computer systems will dominate and if not dominating the markets currently.
I will take a minute to fully digest all of what you have said. I think I get most of it, except for the "rebuff zone" (is that the retracement or support/resistance?).
Besides, how do you account for orders held in-house? (pseudo stop orders held at the client/brokerage servers and are sent as market/limit once the target price is hit).
But overall it seems like you are defining a specific strategy that you (or some scalper traders) use. There are millions of other private traders, institutions, market makers, etc that are all trading slightly (or largely) different strategies.
And that's 2160 RT trades. And of course minus commissions. So at 50% you actually lose to the house (brokerage, exchange, etc.) If you are playing it this way, it would appear that unless you can do at least 75-85% or better with the scalping method, it's useless.
Commissions would be around $3-4 RT retail with that volume with the right broker? Or maybe $2 RT for a professional? $4 x 2160 = $8640; $3 x 2160 = $6480; $2 x 2160 = $4320.
- With 1 contract, the $4RT rate it would require that you do 82% to breakeven;
- With the $3RT rate, 74% to breakeven;
- With the $2RT rate, 66% to breakeven;
Especially if you are trading multiple contracts, you had better not do less than those rates consistently.
With the scalping method, the small guy is essentially screwed unless he has a near-perfect system running.
I still get in and out when and where I want according to my strategy. So the liquidity is fine enough for me. I think that is what ultimately matters to most traders in terms of their strategy.
PS: Retail forex is even worse to scalp, because the pip spread is 2-5 pips or more. So the market would have to move 3-6 pips minimum in your direction before you could profit.
Besides, how do you account for orders held in-house? (pseudo stop orders held at the client/brokerage servers and are sent as market/limit once the target price is hit).
But overall it seems like you are defining a specific strategy that you (or some scalper traders) use. There are millions of other private traders, institutions, market makers, etc that are all trading slightly (or largely) different strategies.
And that's 2160 RT trades. And of course minus commissions. So at 50% you actually lose to the house (brokerage, exchange, etc.) If you are playing it this way, it would appear that unless you can do at least 75-85% or better with the scalping method, it's useless.
Commissions would be around $3-4 RT retail with that volume with the right broker? Or maybe $2 RT for a professional? $4 x 2160 = $8640; $3 x 2160 = $6480; $2 x 2160 = $4320.
- With 1 contract, the $4RT rate it would require that you do 82% to breakeven;
- With the $3RT rate, 74% to breakeven;
- With the $2RT rate, 66% to breakeven;
Especially if you are trading multiple contracts, you had better not do less than those rates consistently.
With the scalping method, the small guy is essentially screwed unless he has a near-perfect system running.
I still get in and out when and where I want according to my strategy. So the liquidity is fine enough for me. I think that is what ultimately matters to most traders in terms of their strategy.
PS: Retail forex is even worse to scalp, because the pip spread is 2-5 pips or more. So the market would have to move 3-6 pips minimum in your direction before you could profit.