3 alternatives I am faced with

Discussion in 'Automated Trading' started by travis, Jul 3, 2009.

  1. travis


    In the past, while using my automated systems, I have switched between "full automated" mode, "mostly automated", and "mostly automated + discretionary".

    With a good emotional balance, "mostly automated + discretionary" yields the biggest profits. But if you just miss that good balance even 1 day per week, which is highly optimistic, you risk financial ruin. I have learned that, the way I am (impatient), I cannot be profitable with discretionary trading.

    On the other hand, I realize that often I miss big opportunities with my system, and that profitable positions turn into negative ones if I wait for my system to close them. On the other hand my system is profitable, just not as profitable and intelligent as I'd want it to be.

    I came up with a summary of all the options I am faced with. I would opt for option #2, but the risk is to go from #2 to #3. So the safest one is option #1, because it allows no misunderstandings, since you are allowed no intervention at all. But it's also a very boring and frustrating one (to the point of being unbearable). A strict application of #2 is the best choice, but I won't be disciplined, so I should realistically go for #1, which means turn it on once a day and forget about it. What I don't like about it, is that I won't have anything to do, and that I will have to stop interpreting and looking at the markets, which is very entertaining.

    Here is my summary - let me know if you have any advice, or want to share similar doubts and experiences:

    1. "do not touch anything at all"
    you will be frustrated because 1) you miss opportunities, 2) lose money with the system for long periods, 3) feel bored, and 4) fear ruin
    pros: ruin is improbable, and you will be relaxed by a profitable system - whereas you will be stressed by profitable discretionary choices #2 and #3

    2. only use strict rules of intervention (impending reversal, and similar)
    you may lose control and switch to #3, you may discard good trades, and forgo profits by exiting early
    pros: you may improve profitability, and are allowed some control over your systems

    3. full discretionary trading allowed
    you never had a discretionary edge (because you are restless and won't wait for opportunities), so you face losses, lose control and risk ruin
    pros: you will be able to seize great opportunities, you learn and get entertained
  2. Good post.

    With option 2, why do you automatically dismiss your ability in developing greater discipline?
  3. travis


    Because, whether I believe in myself or not, there are facts that prove that I cannot achieve greater discipline.

    After over ten years of trading I still cannot strictly follow rules that I set for myself. Sooner or later I break them. I can't completely explain why. It might have to do with the fact that I was always a rebel with authority (school, parents, employers), and so I am a rebel even against my own rules. I am always challenging whoever sets rules for me, even myself.

    I've seen myself do terrible things when trading discretionary. For example, the opposite of diversification. If I'm losing, I tend to double my losing positions, so to get back at the market. The market keeps falling, and I increase my positions even more. Of course this may actually allow you breakeven of even make money instead of losing, but sooner or later you'll incur into an accident, that will blow out your account (it already happened twice to me).

    So not only do I not have any self-discipline, but it is very dangerous for me to forget about this problem, or to hope to solve it. The solution seems to be to let the system run, and forget the markets even exist. Actually this is why I developed systems to begin with, because I realized I couldn't make it on my own, via discretionary trading. And now, interestingly, I am still faced with the same problem - how to let the system trade without interfering with it. Part of the problem is that I know for sure, that if I am in a good emotional shape, I can outperform my system. In its best month the system will double capital. With my help, it can triple capital. But then again, with my help it can lose everything in about one month, too. And it's not easy to realize when you're trading because you are seeing an opportunity or because you're frustrated and bored and want some satisfaction from the markets (but there is a difference - I am not just stupidly saying that whenever I lose it's because I was in a bad mood). The problem is that I will definitely want to trade when I see an opportunity, but also I will want to trade when I'll feel my life is worthless, empty, when I'm desperate and I feel I have nothing to lose. Yeah, I am quite unstable as you can tell - I am the opposite of "calm, cold and rational".

    I wish I had a much better system, because it'd be much easier to let it run and forget about the markets. Instead I still feel compelled to check how it's doing. The reason is that I am afraid the system will fail. If I were positive that the system would even only increase capital every month, I wouldn't touch it, and I could forget about the markets.
  4. Cutten


    Choose 1. Then, to avoid temptation, open a separate account with 10% of your capital and speculate full discretionary on that account to your heart's content. When your discretionary account finally blows up, maybe you will learn that the purpose of trading is profit, not entertainment.

    If you still find it hard to stay away, just pay college girls to mud wrestle for you during market hours, that way you can get "entertained" safely and cheaply while your systems make money. As a last resort, hire a big trained martial arts dude to sit in front of your trading terminals from bell to bell, with strict instructions to physically prevent you from interfering with your systems trading.

    Your urge to "do something" should be directed towards doing further research to improve your system, or to find new systems that are better or that are uncorrelated and can diversify and thus smooth your returns. From what you said about yourself, there is no way you can be a discretionary trader. Systematic is the way to go. Channel your energy where it is useful - research.
  5. travis


    Thanks for your advice. I find it reasonable (and "entertaining").

    You say work on more research, and more systems. Very reasonable, I have been doing it as well, all these years.

    But there's only so much a non-programmer and self-taught VBA "coder" can do. I already have 30 systems on my excel sheet, and I don't think I can fit any more in it. Besides, I am tired. And yet these 30 systems are not enough. Because they are not that good (only 60% of wins).

    And it's not easy to find people who will develop systems with you just for the project, just for the "fun" of it. My hope was to "help" my system make more money and faster, so I could have enough money to hire a programmer to finally build the system I really want, a system that doesn't make me worry. With a better platform than excel, I could build more and better systems. I could take care of the trading ideas, and the programmer could take care of the rest.

    But it is not happening. The crave for money doesn't get me rich any faster. Unlike for other jobs, where the more you work, the more you make money, here it depends where you put your energy, and sometimes the more you work the more you lose money.

    Hopefully one day I will have enough to hire my cousin, who's a programmer, and will finish college in a few months. We will work full time on ideas (me) and implementation (him).

    But in the meanwhile, it does look like option #1 is the right option for me.
  6. edbar



    Your goal should be to strive for a system that accomplshes method #1.

    Whatever you do not like in your system, improve it.
    i.e. if you are staying in boring positions for too long, then add a rule that says "Exit position if Time In Trade > 5 Minutes/Days/Weeks", etc.

    I am not trying to plug the CoolTrade system, as you know I am the CEO/Developer of the system, but if you look at Tab-6 of the Profit Goals screen, you will see that it allows for many methods for exiting a position, so you lock in the profits and get out quickly. This frees up your funds so you can go into other positions (turn your money!!!).

    Once you have reached your projected profit goal, wait for a small pullback (to ride the profits higher) and get out.

    Since your ultimate goal is for the system to run 100% unattended, if at anytime you find yourself wanting to hit the keys yourself, you should write down "why?". You must see something that told you to do the entry or exit manually. Your mission should be to document the reason and then add the ability/rule to your trading system, so that it can handle it on it's own. Over time, your system will get better and better and you will eventually have a system that you can confidently run 100% unattended.

    Good luck!

    CoolTrade, CEO
  7. travis


    I agree with what you say. It sounds just like what I've been trying to do, and I am also thinking that CoolTrade sounds more flexible than excel (as far as I am capable of using it). On the other hand there would be other platforms that seem more flexible than excel, and ultimately, since I can't be switching brokers and platforms all the time, I am going to have to stick with the broker that seems to be the most widespread (which has many advantages) and has the cheapest commissions (Interactive Brokers).
  8. edbar



    I like IB a lot. They have fast executions and an excellent datafeed, not to mention the $1 trades for 200 shares or less, $5 for 1000 shares.

    CoolTrade has been working great with Interactive Brokers since 2004.


  9. travis


    Yes, I am sorry for not being informed about it. I later went on the internet and did some research about your company but it was too late to edit my post. I saw a video on Youtube where you mentioned that you work with IB (among others).

    What I meant is that it would take a lot of effort, since I still would have to open a new account, change platform, move all my systems to a new platform, and so on. Not that I am lazy, but there's only so many accounts that someone can open and platforms he can try before getting tired. As we all agree, IB is a pretty good one, and I am lucky to have even found it, so I will have to stop at that. Once and if I'll quit my job, I'll be able to investigate full time and in depth all the other solutions, including possibly paying someone to create my own platform, in one of the IB API languages. Or maybe I will find out that it's more convenient to use your platform.

    Part of the problem I have is that I can't quit my job if I didn't make enough money first.
    But I can't make money if I don't do things right, and that requires time and energy, which my job doesn't allow me to have.
  10. Number 2 is the way to go but if you are working alone there are many temptetions. I will be implementing soon a solution, which I think I should have many years ago. You are not alone you know in facing these problems.

    Basically, the solution involves getting together with 2 investors/traders with sufficient capital. I will provide the system and capital. The three of us will form a corporation and in the bylaws will state that the system should not be interefered with unless all 3 decide so with appropriate penalties for discretionary intervention.
    #10     Jul 5, 2009