I am not selling intuition and experience short. I remember a few times scratching out of trades just before the real disasters strike based on some "Jedi" force... can't explain. I know any good trader can outtrade the bots any day... What I am saying is that system traders are more readily to use leverage thru money management and diversification in an effective and orderly manner to facilitate the compounding effect over the long run. It's just a thought... no proof.
Trading 101 John Merchant: The slippage and commission will kill you. Then the latency of the internet will make sure you are always on the loosing side of those systems that sit on the exchange floor , are fully automated and can execute 50 times per second. EricP: One reason why you should never reveal your real edge. Someone will take it and program it. Secondly: Chess is conditional upon fixed rules and only the computational different options needs to be considered. It was just a matter of all the different possibilites that previously could not be assessed within a reasonable timeframe. Markets are not having fixed rules, big difference and hence no comparison. nononsense: I still vividly remember the Y2K problem. The biggest issue was that the people who programmed the original COBOL programs were no longer around and the business logic was lost. A lot of "wrapping" the old system was done so no real new system has eventuated. At one stage I worked at a polytechnic and when the computers were introduced the teachers complained that the assignments handed in were only show and no contents. same with calculators, it annoys me to see cashiers requiring a calculators to give you the change at the till. In general the youth these days seem to be unable to think (reason). I used to be in professional photography before I went into the computer industry and initially I could easily outperform the "automated" systems. But as the automated systems got smarter and smarter it became harder and harder. Now it is rarely wrong and will overall outperform myself. Howver there are still occasions that I need to "override" it. Having said all this I have noticed that in a directional move a lot of these bots stand aside. I also think less and less retail traders are present in the markets. This has certain implications. For one thing I can see limit up and limit down moves coming back and I can see a more "square wave" like type of price behaviour. There is still money to be made in the markets but let me quote Jessie Livermoore (Reminicences of Stock Operator) that is still true today as it was in his time: page 60: The average ticker hound - or, as they used to call him, tape worm - goes wrong , I suspect, as much as from overspecialization as from anything else. It means a highly expensive inelasticity. After all, the game of speculation isn't all mathematics or set rules, however rigid the main laws may be. page 61: The average chart reader, however, is apt to become obsessed with the notion that the dips and peaks and primary and secondary movements are all there is to speculation. If he pushes his confidence to the limit he is bound to go broke. Interesting piece is following on page 61, I will let it to yourself to look it up. Because it deals with a clever man who made regularly money until WW II knocked him (and his followers) out. I cannot remember where I read it but it is being said that the market will always find a way to beat a systematic exploitation that is being done on a large scale. With over 20 years experience in the computer industry I have gone beyond what most others have. After trading automatically I have now gone discretionary as I find that more rewarding. My system is deliberately desgined that it will be hard ( never say: cannot .....) to automate. My philosophy here is that if it can be programmed then it is only a matter of time before it is obsolete. (others will hit on the same idea) I am seeing when the market manipulators play their game and then I pitch my game accordingly. During the development of the trade I may adjust my stop strategy, profit taking strategy, targets etc. Nothing is static, it is all dynamic. I get only a few setups a week but that is OK by me. Rest assured that is possible to outperform these machines because they are (more often than not) only designed for a particular market setup / condition and stand aside when they cannot analyse what the market is doing. And there will always be new things happening in the markets. In fact I think that this "bot handicap" that we are facing today is not much different from the "bucket shop" handicap that Jessie Livermore faced. And he had to totally adapt his methods when he went to New York, took him several attempts before he finally got it. At the end of the day trading is all about psychology (fear and greed and manipulation). Try working from a different perspective, a contrarian approach, and question the fundamentals that you have read about. Jessie Livermore would say: "There is a time to be long, a time to be short and a time to go fishing." This is post 101, and I am calling it quits here. Other things in life require precendence over ET. ( Time for me to go fishing ) Adieu Sherlock.
Holmes Re: "I am seeing when the market manipulators play their game and then I pitch my game accordingly. During the development of the trade I may adjust my stop strategy, profit taking strategy, targets etc. Nothing is static, it is all dynamic." I agree that the thing to do increasingly is to be flexible according to what is unfolding or even stand aside and thus out of the unpredictability of what is has effectively become a killing zone and concentrate on the fewer opportunities created when there is panic or euphoria in the market (and the Bots are pulled) or where you can enter at an extreme where the ensuing push pull is far enough away from your stop not to matter. I am also now looking more at trades per week than trades per day and starting to refocus on local stock markets with good old fashioned ramp and dump manipulation (done by people) that plays out over days with the retail investor in mind and whose basic methodology is the same as in Livermore's day. The reappearanace of the auto orders after a move is a good cue to consider whether this may be the time to exit - just that, as I have seen them run over enough times to know they are not infallible. On the EUR futs I have DoM turned off as seems a meaningless distraction most of the time (at least to me, whereas HSI DoM can give clues) and when it does show something you would pick it up from the price action anyway. BTW if you use button trader you can set it so that on some markets the appearance of a bot or the 'mini flipper' is announced by a squeak squeak sound - difficult to think of them as anything but clowns when their presence is announced this way
Bravo Eric. I have a system that is a better trader than me even though I programmed it. Why? Because many humans are incapable of assessing all possible conditions at a given juncture in the market. For example, I'll get a signal and be skeptical because I can't instantaneously recall all of the conditions that generated that signal. So, while my mind is backtracking, the market has moved on. Invariably, my instinct to override the signal is later trumped by a profitable trade that almost got scratched because of ego and emotion.
Ah, but that's Eric's point. If one can eliminate the negative emotions of fear and greed and substitute a computer that trades the same way as you, would you not prefer that? But admittedly I am a huge programming bigot. Anything, anything can be designed and built for the market -- it's possible that a great discretionary trader simply cannot express how or explain why he trades the way he does -- attempts to replicate great traders have been made. There are systems out there that would blow your mind -- beautiful rules-based, adaptive systems -- that you will never read in any book. Systems that follow the "Principle of Ever Changing Cycles". Systems that in certain market conditions will buy a low breadth close and in other conditions will sell a low breadth close (in case you're trying to figure out why the futures gap up overnight). If you work hard enough and watch the market for 7-8 years, you will figure it all out.
so why are the banks using bots? i believe it to be a business decision based on.... you dont have to pay a bot. you pay 1 or 2 programmers rather than say 10 traders bots dont suffer fat finger syndrome bots dont take sick days bots dont go and work for the competition (although the programmers do) when market fashion changes or volatility and you need to make a load of traders redundant etc, you wont get done by a bot for sexual discrimination etc etc so there you are 10 traders generate say $10mil in a year. the bot only does $8 mil say. but you dont have to pay the bots an additional $5 in employment expenses. i dont think they are better traders, but they may well make more business sense. prime brokerage model being the perfect example of how banks are lowering the cost of doing business - making them more competitive while also giving the customer better service.