There are three elements in trading which are essential to success:
- trading system (decision making framework)
- risk management
- psychology
(Alexander Elder - Trading for a Living)
One cannot be consistently successful if any one of the three elements is missing. According to Mark Douglas (Trading in The Zone) and many other authors, appropriate psychological attitude is probably the most difficult part to acquire. This is primarily the reason why so many people fail in this business. Psychological features of successful traders include: discipline, following the system, lack of hesitation, confidence, waiting for the signal (not jumping in too soon nor too late), detachment from fear, etc. Therefore you have to be like a machine, without any emotions, doing what is to be done, when it has to be done without hesitation. If this statement is correct, than why not to simply let an EA do the work? It does not have any emotions, it will do what it is coded to do, and it will never freak out when something wrong is happening. There are arguments for and against. In my opinion, most of people prefer manual trading simply because they lack programming skills. Or they can't bear the pressure of letting a machine manage their savings.
I believe it was in The New Market Wizards (Jack Schwager) where a mathematician initially skeptical towards automated trading, eventually became convinced that if a strategy is worth anything, than it should be possible to code it.
There is an opposing argument stating that in trading as well as in flying human factor is indispensable. Although we have already developed technology which can safely manage hundreds of factors and safely keep an aircraft in the air, we still need pilots. Their experience cannot be replaced by a machine in extreme situations, for example: a computer would have a hard time landing an airplane without gear out. This is the analogy that was used (not sure which author that was) to underline the importance of a trader in a trading process, and dismiss possibility of successful automatic trading. The problem I find with this statement is that trading is nowhere close to flying! When a wing brakes of a pilot can save the plane and passengers by using his skills. This is however like using entire margin on a single trade and having no stop loss. A pilot contrary to a trader doesn't have the option of saving 98% of passengers for the cost of 2% no matter how extreme the situation is. Therefore if one controls himself there is no such thing as extreme situation in trading.
Furthermore with little programming skills testing a strategy is easy, accurate and quick. Much better than manually going through charts and writing down how many pips you would have made. The problem however with automatic trading is that a programme doesn't have an 'eye' to spot trend lines or chart patterns which are subjective in interpretation (at least none that I know of). Never the less if the Curiosity made it to Mars, and giants like Knight Capital depend on software it seems to be within a reach to develop a software which could have an 'eye' i.e. be subjective to some degree.
I always wanted to know if I am following the best possible direction. I can't know that until later, cause I can only take one way at a time. I have number of reasons why I believe using EA is the right way as opposed to manual trading. I had some success with different EAs and I see how much better it is than trading manually. Given all the common sense arguments and my own experience learning how to trade is just a mean necessary for development and use of an EA, but it manual trading is not an ultimate solution. On the other hand I am curious what your opinions are. Take a look at some arguments of mine that I posted above and please let me know what you think and if you trade fully automated EA or you prefer discretionary trading.
Cheers
Casper Coldman
- trading system (decision making framework)
- risk management
- psychology
(Alexander Elder - Trading for a Living)
One cannot be consistently successful if any one of the three elements is missing. According to Mark Douglas (Trading in The Zone) and many other authors, appropriate psychological attitude is probably the most difficult part to acquire. This is primarily the reason why so many people fail in this business. Psychological features of successful traders include: discipline, following the system, lack of hesitation, confidence, waiting for the signal (not jumping in too soon nor too late), detachment from fear, etc. Therefore you have to be like a machine, without any emotions, doing what is to be done, when it has to be done without hesitation. If this statement is correct, than why not to simply let an EA do the work? It does not have any emotions, it will do what it is coded to do, and it will never freak out when something wrong is happening. There are arguments for and against. In my opinion, most of people prefer manual trading simply because they lack programming skills. Or they can't bear the pressure of letting a machine manage their savings.
I believe it was in The New Market Wizards (Jack Schwager) where a mathematician initially skeptical towards automated trading, eventually became convinced that if a strategy is worth anything, than it should be possible to code it.
There is an opposing argument stating that in trading as well as in flying human factor is indispensable. Although we have already developed technology which can safely manage hundreds of factors and safely keep an aircraft in the air, we still need pilots. Their experience cannot be replaced by a machine in extreme situations, for example: a computer would have a hard time landing an airplane without gear out. This is the analogy that was used (not sure which author that was) to underline the importance of a trader in a trading process, and dismiss possibility of successful automatic trading. The problem I find with this statement is that trading is nowhere close to flying! When a wing brakes of a pilot can save the plane and passengers by using his skills. This is however like using entire margin on a single trade and having no stop loss. A pilot contrary to a trader doesn't have the option of saving 98% of passengers for the cost of 2% no matter how extreme the situation is. Therefore if one controls himself there is no such thing as extreme situation in trading.
Furthermore with little programming skills testing a strategy is easy, accurate and quick. Much better than manually going through charts and writing down how many pips you would have made. The problem however with automatic trading is that a programme doesn't have an 'eye' to spot trend lines or chart patterns which are subjective in interpretation (at least none that I know of). Never the less if the Curiosity made it to Mars, and giants like Knight Capital depend on software it seems to be within a reach to develop a software which could have an 'eye' i.e. be subjective to some degree.
I always wanted to know if I am following the best possible direction. I can't know that until later, cause I can only take one way at a time. I have number of reasons why I believe using EA is the right way as opposed to manual trading. I had some success with different EAs and I see how much better it is than trading manually. Given all the common sense arguments and my own experience learning how to trade is just a mean necessary for development and use of an EA, but it manual trading is not an ultimate solution. On the other hand I am curious what your opinions are. Take a look at some arguments of mine that I posted above and please let me know what you think and if you trade fully automated EA or you prefer discretionary trading.
Cheers
Casper Coldman