Fully automated trading through the use of so-called “robots” or “expert advisors” (EAs) at the retail (meaning individual) trader level is mainly something which is seen in the forex market. This is thanks to the likes of systems like Metatrader (MT) which allows traders to program in systems which can run by themselves, though other markets have also seen similar sort of functionality develop as well. Basically, this is a smaller scale version of the “algorithmic” trading done by hedge funds and other institutions.
The idea of having a little money machine that automatically produces profits day in and day out is the dream of many, many traders. As a recent emailer has discovered, however, it’s not so easy to find one.
Robots or Expert Advisors have to update monthly or periodically to keep up to date with markets….
Why don’t the manual mechanical trading systems do the same…if the robot is based on the mechanical system….???
What changes in market are we talking about?
Why isnt there a system that just shows you the market as is……and just gives you what it will in terms of pips and you set the risk level with stops or other money mangement rules.
I keep buying crappy systems promising millions….and they all say the same…but fail to deliver the RESULTS….long term…consistently…with very little draw downs and low pips….
How can I trade anytime, any currency, and make consistent gains…no matter what…..
I would first contend with the mailer’s statement that manually executed mechanical systems don’t need to be reviewed the way automated ones do. Especially when dealing with short-term systems, the way market dynamics change requires just about constant research and development. People often think that they can find one system that will work the same profitable way forever. That’s just not reality. Any strict rule-based process is going to suffer from periods when it’s rules are simply out of line with the market. The market is dynamic. Rigid systems are not. That is a major reason why system traders are so often working on new systems or refinements.
What Changes?
How does the market change? Volatility is one of the bigger factors which changes and messes up trading systems. Imagine a stock that normally trading in a $1 range suddening shifting to trading in a $2 band. Any system that was optimized for the initial volatility would likely have problems with the larger swings.
Other things that can change to impact the market dynamic is things like shifts in wider trends and changes in volume.
System Expectations
The ideal system is one which produces fantastic returns and has low drawdowns (being something which suits the trader in question a given). Those systems are rare, to say the least. Chances are you’re going to have to either accept some swings in your account equity to get the gains you’re after, or accept lower returns to reduce the violence of the rollercoaster ride in your account.
The hard part for someone new to the market is figuring out where your drawdown tolerance is. It’s one thing to see a system performance plot and think that you can ride out the drawdowns. It’s a whole other thing to actually do it with live money without doubting or second-guessing the system.
Buying Systems
I’ve gone on record as saying that I’m not a fan of folks buying systems. Unless you know exactly what you’re looking for and exactly what you’re getting, the odds of a winning experience are low. You’re generally better off developing your own system. There’s plenty of raw material out there in the form of indicators, chart patterns, and statistics to get you started. The process of system testing, if done with intent and focus, will teach you a great deal about trading and the markets. When you buy someone else’s system you don’t learn anything.
Any market, any time, anywhere
Because of those things I mentioned above as variables which can change markets and system performance, it’s very hard to find a single system which will work in all timeframes and all markets. It would have to be something very, very simple like a moving average cross-over. Generally speaking, very simple often means large equity swings because the system isn’t set up to account for the specific nuances of a certain market and/or timeframe. That’s why you’ll often see a system work well for a certain market, or group of them (like certain currency pairs), but not for a different market.
If you really want to be able to look at any chart and come up with a good trading strategy, then you’ll need to learn a technical analysis methodology and use it repeatedly to the point of it becoming second nature. Experience becomes the key.
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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.
** See John’s full bio.
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