All types of trading has its ups and downs, and it would be irresponsible if I gave you the impression that automated trading solves all problems, because it doesn’t. So I thought I would share with you 5 reasons why automated trading may not be right for you.
- Crap In – Crap Out
You might be thinking that the problem with your strategy is your human frailties, that you can’t hit the entry just right, or you exits are not optimal, and maybe by automating my strategy all those problems will go away. And you might be right.
But wait, do you even know if your strategy makes money? Have you back tested it and know what your edge is, I mean really know, not just some flowery endorsement by a trading guru. Maybe that strategy is pure crap, and no amount of automation will fix it. It’s quite possible that by trading it by hand, and injecting some of your intuition, that you’re doing better than if it were automated.
Never assume that just automating a strategy will produce profit, because it won’t. Developing and putting a strategy to work takes a lot of effort, with some very specific things you need to do to give your strategy a better than even chance. The results you get are directly proportional to the smarts and effort you put in. - Your Emotions Won’t Just Disappear
You’ve probably heard the gurus, and everyone else you know, tell you that you have to take your emotions out of your trading. Sounds easy right, just act like a robot, but it’s not…so why not let the robot do the trading, then I can offload the pain and accept what the automated systems gives me, right? Wrong!
As long as you’re putting your money into the game, and putting it at risk, those emotions will be there, there’s no escaping it. While it’s true that automation helps relieve you from making hard decisions, the stress, greed, anger and elation are all still there. Don’t let anyone ever tell you different.
The only thing that helps temper your emotions is the confidence you have with your system, and that comes from knowing how it will behave, and having the experience of how it works in real-life situations. - Automation Won’t Make You Disciplined
One of my customers was marveling on how well his automated system was performing. He said I turned it on last week and it made $700 fro me. I thought…great, maybe he’s finally gotten over his impulsive ways, that led him to selling out at the bottom and piling in after the market had already run up. Then he drops the bomb…”Yeah!” he says. “I had to turn automation off a few times and manage the trade.”
I pointed out though, had he not touched the system at all, he would have made over $3000. But he said…”I didn’t seem like it was making the right decisions.”
Let me just say this. If you’re gonna interfere with the automation everytime you think you know better, then you’re no disciplinarian. You’re just a discretionary trader with an expensive toy. Discipline is born from good habits, that follow a prescribed plan, reinforced through repetition over a period of time. It’s up to you whether your discipline is focused on the goal or not. Automation should be left alone, that’s the plan. Another part of that plan is to periodically review the performance and make sound decisions based on objective evidence, not gut feelings as you go. - You Can’t Compete With the Big Boys
Don’t think for a moment that because you are now automated, that you can go out there and just turn the money spigot on, like those big hedge funds and their high frequency trading. You can’t. They operate in a completely different world, with huge infrastructure, dozens of highly paid data scientists, and specialized networks that use order types that you don’t have access to.
There’s simply no way you’re going to take your scalping bot and compete as a retail trader, against the pros. It’s like saying you’re little league baseball team can compete with a major league team. Not gonna happen.
But, the good news is that you don’t have to. There are plenty of opportunities for you to exploit that the big boys won’t even touch. You can work in the crevices and cracks of the system, with a kind of nimbleness that those huge behemoths simply can’t. And there’s lot’s of money to be made there, because now you’re competing with all those other retail traders, most of which are as clueless as you once were. - You Can’t Just Forgettaboutit
Unattended operation, leaving your systems to go on their own for days or weeks on end is simply stupid, and you’re asking for the trading gods to punish you, and they will. While it’s true that you don’t have to stare at the screen all day, which is a big relief. You do have to check in periodically to make sure there are no problems, like runaway trades, or orders that didn’t get filled, of feeds that went down, or computer systems that decide to freeze up or crash. All kinds of things can happen.
So, you have to check in periodically. On my intraday traders, I check in several times a day depending on when they trade, on my swing traders I check in at least once a day.
If you have a full-time job, and you think you’re going to run multiple strategies, then you better have pretty good flexibility in that job and a lenient boss, so that you can check often and take action when necessary. My systems have gone weeks without issue, but if I were not there when a serious problem arose, like a runaway trade, it could’ve cost me months of profits, even with all the safe guards.
There are things you can do to mitigate risks, like trade multiple accounts, and divide your trading capital among them. Also, run multiple strategies, with tight risk controls on each, and distribute the risk across all the strategies. This is just good practice.
I hope this list has opened your eyes, and made you aware that automated trading may not be for you, or that trading in general may not be for you. My goal is to provide you with quality systems and then train, coach and mentor you to ensure that you have a great chance for success and will make money. If I were to mislead you and tell you automated trading is like a money printing machine, and all you have to do is turn it on, then that would be grossly irresponsible. My number one goal is complete transparency, because only then can you know the truth about automated trading.
