Archives of “automated trading” tag

rss

15 Common Sense Rules For Traders

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Common sense can be brutally honest sometimes. As traders we get so focused on the little inconsequential detaisl sometimes that we miss the world around us. I have had this discussion with too many people over the last two months that told me they were bearish on the market and were taking a beating on the “high probability” that the market would reverse. Who sets those odds by the way? Are trends more likely to reverse than persist? If so, why the hell are we studying technical analysis?

Take a look over these trading rules I stumbled across last year and see if there are any realities that surface from them. Each time I look these over it reminds me of the realities of what we do here.

1. No matter what you read about trading, until you use an approach and test it with your money on the line you will never learn how to trade. Paper Trading is NOT Trading!

2. If it were really possible to “Buy Low Sell High” or “Cut your Losses and Let your Winners Run”, then almost everyone would be making money rather than losing it.

3. Remember that there is ALWAYS someone on the other side of your trade who is using a trading technique exactly the opposite of yours who hopes to make money with his system.

4. If 90% of all traders lose money, they must be following generally accepted trading rules. The 10% who win do not!

5. You trade your beliefs and your beliefs about your system. If you have a problem with yourself, fix yourself first.

6. Impatience, Fear and Greed will make you poor. Any need to trade is rooted in greed and impatience.

7. If you really understand the markets then YOU KNOW that there is the same opportunity on every time frame, in every market, every single day.

8. Waiting for the perfect trade is “chickening out”, and caused by your lack of faith in yourself or your system.

9. Any hardwired, automated trading system sold that truly works 70 or 80 or 90 percent of the time in every market would be worth hundreds of millions of dollars and would not be for sale at any price. (more…)

Money-Mind-Method

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Mind: The key to winning is inside the Mind. As Master of your mind, you have to manage and understand your emotions very well. It is extremely important to understand not just the individual’s psychology, but also the crowd psychology of the markets. To become a successful trader, you must have sheer perseverance and discipline.

Method: There is no Holy Grail in the search for the perfect method to trade. Follow the wisdom of ‘Plan your Trade and Trade your Plan’. A good trading plan should cover your entry, exit and position sizing requirements. My method consists of discretionary trading techniques that combine both fundamental and technical analysis, in addition to my own proprietary automated trading system. Coming up with a good trading plan requires lots of market experience, as you modify, conquer and solidify your trading techniques. Don’t be duped by charming salesmen selling get-rich-quick-without-effort secret recipes. 

Money: Overall profit/loss depends on money management. The first goal of money management is capital preservation. If you lose 10% of your capital, you have to make 11% just to break even. If you lose 40%, you need to make 67%, and if you lose 50%, guess what? You have to make 100% just to recover! So before you think about making big money, first you got to think about not risking your capital unnecessarily. Money management is too important to be overlooked.

Zubulake and Lee, The High Frequency Game Changer

  
Analysis, Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

The High Frequency Game Changer: How Automated Trading Strategies Have Revolutionized the Markets by Paul Zubulake and Sang Lee (Wiley, 2011) is not an engaging book. It was definitely not written for the retail investor. Instead, it reads like a series of mini-reports from a consulting firm. It should therefore come as no surprise that the co-authors are a senior analyst and the managing partner at Aite Group, “an independent research and advisory firm focused on business, technology, and regulatory issues and their impact on the financial services industry.”

Rather than write a standard review, I’ll pick out two data points from the book that I think might be of general interest.

The number of electronic trade messages quadrupled between December 2006 and 2010. “If U.S. equities continue their pace, Aite Group expects message volumes to average 1.2 billion messages per day by 2011. The market already saw peak days approaching this number in late 2008. … Options pricing is exponentially worse than equities market data volumes. Current … OPRA data peaks exceed 1 million messages per second. Aite Group expects OPRA will generate peaks exceeding 2.2 million messages per second by the end of 2010.” (p. 47) I don’t know whether this projection came to pass, but the infrastructure demands are evident. No wonder some brokers charge for cancelled options orders.

I wrote about the importance of high performance databases in an earlier review. Zubulake and Lee confirm this: “Speed is essential for firms running strategies that feature both real-time and historical data. Aite Group estimates that 90% of quantitative trading firms currently maintain or are developing at least one trading strategy that requires playing back historical data in conjunction with real-time data.” (p. 113) Sure beats trying to keep all that history in your head!

CONCENTRATE ON EXECUTION

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #

Trade execution is very important.  It is the same in sports – you can have a good team, a very talented team that you put on the field.  But if they don’t execute the plays like they’re trained to, the team will probably not win.  It’s a simple fact of life.  You’ve got to be able to execute.  Tiger Woods can have a game plan when he hits that course, but if he doesn’t execute and follow through his game plan, no matter how talented he is, the competition is going to beat him.  This is a very important factor in trading a portfolio of technical or priced based strategies that is grossly overlooked. You need to get the execution of trades correctly day in and day out, because there’s just one or two missed opportunities which get away that could have made your month or there can be mistakes that can take away weeks and weeks of profitable work.  This is where the use of good automated trading software can control some of these variables. 

15 Common Sense Rules For Traders

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #

1. No matter what you read about trading, until you use an approach and test it with your money on the line you will never learn how to trade. Paper Trading is NOT Trading!

2. If it were really possible to “Buy Low Sell High” or “Cut your Losses and Let your Winners Run”, then almost everyone would be making money rather than losing it.

3. Remember that there is ALWAYS someone on the other side of your trade who is using a trading technique exactly the opposite of yours who hopes to make money with his system.

4. If 90% of all traders lose money, they must be following generally accepted trading rules. The 10% who win do not!

5. You trade your beliefs and your beliefs about your system. If you have a problem with yourself, fix yourself first.

6. Impatience, Fear and Greed will make you poor. Any need to trade is rooted in greed and impatience.

7. If you really understand the markets then YOU KNOW that there is the same opportunity on every time frame, in every market, every single day.

8. Waiting for the perfect trade is “chickening out”, and caused by your lack of faith in yourself or your system.

9. Any hardwired, automated trading system sold that truly works 70 or 80 or 90 percent of the time in every market would be worth hundreds of millions of dollars and would not be for sale at any price.

10. Asking “How small an account do I need to begin trading” is asking to be wiped out.

11. Having a series of winning trades early can be more hazardous to your account than a series of small losses.

12. Learn to trade before you trade. If you win or lose without understanding why, you will never develop a winning strategy.

13. Ninety five percent of everything you hear from everyone about the markets and the markets “reasons” for doing what it did or will do are lies. Neither you nor anyone can predict the future. You can only make educated guesses about potentialities.

14. Asking someone (such as using a service) for advice on where the market is going is a sign you should be on the sidelines until you understand the market better. If the upcoming market direction is not obvious to you, you should not be risking your money. You will lose often enough even when you are right.

15. There is NO GUARANTEED way of making money in the Markets or anywhere else. NONE, NADA, ZIP, ZERO! All you can do is increase your knowledge about yourself and how to estimate the probability of placing a winning trade. Then trade by taking controlled and measured risks.

What Greed and Fear do ?

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #

                                                   

 

 What greed and fear do:

  • Not setting a stop when the method requires placing a stop (fear of taking a loss).
  • Moving a stop when it shouldn’t have been moved (fear of taking a loss).
  • Removing a stop when it was already in place (fear of taking a loss).
  • Taking profits too early when the signal to exit has not been given (fear of profits being taken).
  • Taking profits too late when the signal is already given (greed).
  • Chasing the market when the entry is already past or no signal was given (greed of missing profits).
  • Not making the entry when the signal is given (fear of losing again).
  • Buying the pullback that is no longer a pullback but a decline (greed based on judgment that it’s now cheaper) or short selling when the rally is now a continued primary direction (fear of losing).
  • Adding on a losing position, i.e. averaging down (fear of losing).

How does a trader go about trading without fear or greed? Although no one can really trade without them, the emotion will still be there, especially when the position is still on. However he can keep them under control by not acting on them.

                                            There are few solutions to this problem:

  1. Write a trading plan for each and every trade and referring to it when he feels the emotion is overtaking him.
  2. Keep a trading journal with each trade taken along with thoughts and emotions during the open position. Recording these moments will reveal how much or how little control he has over emotions that influence or interfering with his trading method.
  3. Use an automated trading system to avoid interacting and interfering with trading. When no trading decisions have to be taken, there is less of a tendency to interfere.
  4. Once the trade is taken and stops and targets are set, walk away from the trading station or go about with other tasks. Stay close and follow every up and down ticks will increase emotions and will eventually affect trading.
  5. Keep the Profits and Loss (P/L) columns out of the desktop. This is the most important factor of all emotions: counting money. By having it readily available emotion will be exaggerated swinging up and down according the profits or losses going up or down. Removing this information is especially recommended for day traders.
  6. Trade small size until emotions are under control. By doing this, it’s obvious that it’s not about making money but about trading the method properly. The further away the thought of money is, the better the emotions are kept at bay.
  7. If trading is technically-based, focus on the charts, not on the quotes windows. Scalpers spend so little time in a position that using quotes and ticks are a necessity. For other traders, these can only increase emotional states.
Go to top