Wednesday, July 18, 2007

Automation Does Not Equal Profitability - Pt. 1

Automation of the Trade-Ideas set-ups and backtested position management rules within The Odds Maker is in beta now with our key partners. More details like screen shots and how it all works are coming. In a nutshell if you know how to use The Odds Maker, you will know how to use the automation tool - it's all built from it.

Exciting summer indeed.

What I can share with you is a series of questions and answers asked by one of the partners mulling their use of the automation tool. The title of today's post comes from one of our answers. Today is part one and tomorrow I'll post part two.

By the way we will take any suggestion for a name for the new tool. The winning entry will get 200 credits to use The Odds Maker in Trade-Ideas PRO.

1. Who does this version of automated trading fit?

This version of automated trading is geared to the current and future users of Trade-Ideas Pro. It is the next logical step in a series of tools we provide designed to improve a trader's discipline and remove manual, non-value added steps from the trading process.
Question for current customers: You have a good set up in Trade-Ideas but can you really follow it if you had to do it all by hand? What if you got 3 signals in the same minute? Can you keep track of the 30 minute hold time or a 15 minute hold time if the signals all came in 2 or 3 minutes apart?

The automation helps not by giving some magic formula but by simply offloading the grunt work of manual order entry. The investor/trader should always focus on the strategy not the actual punching of the keys. The traders who will use this automation are the more active traders typically but not always. A customer may want to trade a strategy while they are at a meeting and unable to be in front of a computer for example.

2. Why is automated trading important?

From a customer’s perspective the most important reason for automated trading is the ability to follow a trading plan without breaking the rules. This discipline is often overlooked. So often, investors/traders get caught in the cycles of fear and greed that ultimately leads them to making mistakes that cause serious financial harm. You always hear of the trade that went against you and because the customer did not take the loss early it wiped out their accounts.

Think of things like Enron, and World Com, and countless others. The automation does not care about names it only cares about following strict rules, rules that you the customer sets to protect their capital. Capital preservation and growth is a key to having customers be happy and trading more often.

3. What are your Pro/Cons to automated trading?

Cons are simple. Automated trading is not and will never be for everyone. It will be for a subset of more market savvy active traders. The other con is garbage in garbage out. If you tell the computer to do something stupid, it will then do exactly what you tell it to do. It will follow your stupid rules. That is why you can’t have automation without proper strategy building and back testing.
It is important to make the customer aware that automation does not equal profitability. The Pros are the ability to explore and participate in market situations that you would otherwise never see. Of course the obvious things like discipline, taking the emotions out of trading, and following the rules exactly as they are laid out are important benefits.

4. Can the user enter the amount of money he/she wants to have auto-traded that day?

Yes. The user will be able to specify things like how much money to allocate to an automated strategy. We already give the ability for the user to specify share amounts to be traded and how many trades they want the system to make on their behalf. More features will be coming. Important note: If the user runs out of buying power the system stops trading.


Anonymous said...

Who are the partners you are developing this automated Trading? Is Scottrade one of those partners? I hope the answer is yes. ScootradeElite platform is awesome and with your automated trading it will be unbeatable.....

D TradeIdeas said...

There are plenty of conversations with many brokers at this point. Scottrade is one of them. Another has moved a bit further forward. It's all in the tea leaves at this point. Thanks for the interest and make sure your opinion makes it to your local Scottrade branch or corporate office.