Wednesday, June 11, 2008

One Trader's Transition to Automated Trading: Insights for You

Dave Mabe is a trader first and entrepreneur addicted to trading second - my kind of fellow.

Following his slow transformation from entirely discretionary trading to one that relies increasingly on automated trading fascinates anyone reading his posts on the subject.

He describes a path whose benefits include, among others, less time behind the computer, less stress and fatigue, and even better vision - all while trading profitably.

Just like in trading, Dave scales into this new automated trading approach (which involves new tools and new thinking) by keeping lot sizes low. This manages his risk while he keeps his ongoing discretionary, manual trading method. Dave records every trade during this transition using his enormously helpful journal and reporting tool, StockTickr. His progression moves forward based on results from each approach. Imagine a process that you can follow where no emotion is involved, the gut takes a vacation, and the hard evidence leads to refreshingly obvious conclusions. I think he's on to something great.

Early Conclusions from Dave's Automated Trading
  1. Automation is the natural evolution of a trader who develops a detailed trading plan and the discipline to follow it. The more loosely defined a trading plan is, the more indescretion and gut-making decisions there are. These decisions are based on what Dave calls, "a constantly moving target".
  2. Automation gets the flawed human behaviors out of the way while keeping the best parts. Hunched up shoulders, strained necks, blurry eyes all result from the stress at being on high alert throughout the trading session. This only reduces the chances of coming out a winner in any trade - and all it takes is one real bad one to ruin the day. Automation taps into our better selves because it uses our skills at planning and creative design. Behaviors we are much better at during moments away from the day's action. More information about the best behaviors a traders can develop are found reading Dr. Brett Steenbarger's essential TraderFeed.
  3. Automation allows for trading on your terms - based on your timing. Dave designs strategies that work only during certain times of the day - backtested as the best times to be trading. This approach to mining the market during key moments frees up time and means less work for better results.

I encourage you to read the articles in any order. His insights into automation may be what your own trading evolves into. It's good to have an idea where things may be headed.

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