Ten Things That Trip Up System Traders


Dave over at StockTickr posted 10 Ways New Automated Traders Get Tripped Up today. It’s a great post with a lot of very good insights, not just for those seeking to trade in an automated fashion. Any trader can get some value out of his comments. Here are the 10 “ways”:

  1. Trading Too Large, Too Soon
  2. Trading Strategies that Trade Too Frequently
  3. Doing No “Forward Testing”
  4. Blaming the Money You Lost on the Backtest
  5. Not Comparing Actual Results with Backtested Resultss.
  6. Using Market Orders for Entry without Reason
  7. Ignoring Slippage and Commissions
  8. Not Spending Time Learning Why Some Unprofitable Strategies Backtest so Well
  9. Manually Overriding Your Automated System
  10. Not Understanding that It’s a Marathon Not a Sprint

Go visit the actual post to read Dave’s comments for each of the points, and to see the bonus he tacked on as well. Very good stuff!

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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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  • Paul

    Does automated trading give you an “edge”? If so where is the longterm authoritive data to support the claim? If you need to backtest or forward test a strategy are you not claiming that market history will repeat itself relative to the stock you are following? What leads one to believe that forward or back testing a market strategy has any more validity then forward or backward testing a strategy for the roulette table?

  • http://www.theessentialsoftrading.com John

    Paul: What are you arguing here? Against system trading? Against automated trading? Against trading at all?

    The reference to roulette seems to imply the latter. But you’re comparing a process of attempting find a way to put the odds in one’s favor (and research as indeed proven that this is possible) against a situation where the odds are known and always against the player.