This is the third in a series of posts about how and why and how I started down the path of automated trading. Here’s the first, second, and third posts in the series (RSS). Our automated trading robot is available now. Trade your own strategy automatically with no coding required.

When I first started trading, I worried that I didn’t have enough market knowledge to come up with a strategy on my own. Since then I’ve traded a manual system that I’ve made some tweaks to to make it more consistent. There are some important changes that I made to it, but nothing that I would consider groundbreaking. I know people have differing opinions about this, but I think a lot of traders abandon strategies too quickly. There are so many variables that can be tweaked in a trading system. Of course, some are irrelevant to the strategy and modifying others just over-optimize your trading system. I don’t think there’s anything wrong with tweaking your system – perhaps a lot – if the changes make sense to the logic behind your overall strategy.

Everyone wants something that works right now and makes money every day without taking the time to develop a strategy. The problem with this approach is that if you trade a strategy profitably for a while and then you run into a drawdown (they are inevitable), you’ll give up on it precisely you haven’t done the work required to develop it. Drawdowns are valuable learning opportunities but you have to be willing to swallow your pride and be humble – if not then the market will gladly humble you forcibly.

There are plenty of strategies all around you that will work pretty well, at least as a starting point. Just think about what you see occur in the market every day. There is a tremendous amount of price movement everyday. Are some of those price movements tradeable? Probably so. Test them and see if they are. You’ll know pretty soon if something is worth more testing time. A lot of them won’t be, but some will be. A lot of it is counterintuitive as well – some ideas that you’re just sure will pan out won’t test well at all while others that don’t make any sense at all at first will test really well.

Once you start brainstorming for automated trading strategies, you’ll start gaining some momentum – those ideas will generate other ideas and strategies. A couple of my better automated strategies came from testing ideas that weren’t at all related to my initial concepts. One was purely accidental – I had a concept for a strategy and when I modeled it, it turned out that I modeled it incorrectly. I didn’t discover this until I had pretty thoroughly tested and refined the strategy. It turned out to be a pretty profitable system, but the event that I was trading wasn’t at all what I started out trying to capture.

I’ll write about how I’m doing testing in the next post.

There’s a new image markup tool that is really fantastic. It’s called Skitch and it’s free – unfortunately it’s only available on the Mac for now.

I’ve got a MacBook and I spend a good bit of time in the Mac (occasionally I’ll boot up into Windows via Bootcamp). Skitch has been getting rave reviews and there’s little doubt why. The developers say there’s a version for Windows coming “soon”, so I fully expect to convert from Snagit once it comes out for most chart markup stuff.

While I have the Mac readers’ attention and any other readers that occasionally are annoyed with Windows, you’re not alone in your Windows frustration.

Jeff White from TheStockBandit.net penned this guest post about the value of reviewing your trading results. This very topic is why StockTickr exists, so whether you’re trading manually or have moved to automated trading, I think you’ll enjoy it. This is the first in a series of guest posts on trading improvement. Subscribe to this blog to follow them (it’s free).

Is it me, or is the new thing to be “retro?”

From hair styles to clothing, there’s definitely a trend in pop culture these days to find some value in the past and bring it into the present.

Now I’m never one to fight the trend, so let’s just go down this road a little while and see what it might mean for us as traders.

It’s hard to argue with the idea that hindsight is 20/20, so naturally it behooves us to take a gander in the rearview mirror and see what we can learn from our past trades. After all, history can be our guide, right?

Looking Back Means Stepping Forward

I’ve always found it to my benefit to reflect on my trading results periodically. I want to find some statistics which can help me going forward. I want to see the data that tells me which trades are working best, and which ones I should be avoiding. Oh sure, I’m very aware of how profitable my trading is over a designated stretch of time, but to see some substance behind those results is often an eye-opening exercise.

Just recently, I was reviewing my trades which fit into a particular category for the previous two months, and I was pretty shocked at what I found. The P&L for these particular trades was a superficial afterthought, and truth be told, the top-line number provided me with no useful insights about any adjustments which may have been needed going forward. It was acceptable, but the diligent trader is always seeking to build his edge.

Amazingly, examining the trades in closer detail offered me a very clear-cut shift that I needed to make in order to increase my profitability on those types of trades. By making even a minor modification to my exit strategy, I realized that I’d quickly see better results in my overall profitability. As a result, I found the review to be well worth my while.

Review Results, Revive Your Trading

Taking a trip down memory lane for a little while with your trading can ultimately propel you forward at an alarming rate down the road to profitability. Regardless of your trading method or activity level or timeframe, you’re sure to see some clear ways you can improve your trading results if you’ll start looking in the right place.

The reports that StockTickr generates automatically have a wealth of knowledge in them just waiting to be discovered. Whether you’re reviewing Trade Type Performance, Time-Based comparisons, or just looking at your Win % for a designated period of time, there’s no doubt that you’ll uncover info which sheds some light on your trading.

As you realize the benefits that “going retro” with your trading can offer, you’ll commit to doing it more often. We all make time for the things which are important to us, so it’s only natural that as traders who seek to increase our profitability, we take an occasional step back in time so that we can jump forward with our future.

A couple of months ago I implemented YUI on StockTickr (Yahoo! User Interface). The menu component is really nice and I also implemented the DataTable component which converts any HTML table to a great looking widget with sortable fields and nicely colored rows.

The menu now lets you get to any page or report from anywhere in StockTickr with a single click. Subscribers loved it immediately.

I just implemented the menu component on this blog as well. The latest posts from three select categories (automated trading, for example) automatically appear underneath the menu headings at the top of the page which is much nicer and saves a lot of room compared to listing them in the side bar like you see on a lot of blogs.

Check it out and let me know what you think.

Here’s a screenshot:

I wrote a guest post over at my good friend Jeff White over at the StockBandit’s blog (RSS).

Skipping trades is something I’ve been thinking about more and more especially since I’ve started automated trading (which of course doesn’t skip trades).

Jeff often posts about trading improvement and other topics that are useful to traders which is why it’s on my blog reader.

Thanks, Jeff!

This is the second in a series of posts about how and why I started down the path of automated trading. Here’s the first and second posts in the series (RSS). Our automated trading robot is available in beta now.

Over the past couple years, I’ve been continuing to refine my manual trading system and automating as much of my manual trading routine as I can. As I have devised and implemented more rules, it suddenly dawned on me that I was really trying to trade like a computer. That is, by creating rules so that I realized that I was removing more and more of my discretion from my trading – I was trying to trade like a robot!

Aside from the obvious benefits of just having a well defined trading plan, there’s a hugely valuable reason for doing this. Imagine a very loosely defined trading plan (that is, a plan with a good deal of human discretion in it and “going with your gut”). After you trade for a while and you start reviewing your results.

This is where it gets really tricky because that “discretion” is such a huge variable that is extremely difficult to quantify. Not only that, but it often changes through different times and markets. So even tiniest bit of discretion in your trading system will be the biggest and most uncontrollable variable in your system.

So when you analyze your results (which is by far the best way to improve your system and make more money) that discretion is a moving target. You’ll need a larger sample of trading data to start making conclusions and improving your system and even then those conclusions will be less reliable.

You can see where this post is going. Trading an automated system completely removes the biggest and most unreliable variable from the equation! It allows you to trade like a scientist – using hard evidence to draw concrete conclusions.

Discretionary trading certainly has its place (it’s still my primary trading style), but there are huge benefits to automating your manual trades and taking that to the next step – completely automated trading.

I’m “piloting” an additional automated strategy – a process that I’ll explain fully in a future post. Basically it means trading small until enough meaningful data has been collected to determine whether a system can be profitable in real world trading and not just simulated backtests.

This new strategy has backtested really well, so I’ve been trading it for a few days. It scored a knockout on Friday and made +30R in a single day! Even with small risk that’s a substantial amount.

My manual trading had a good day, too, for the first time in what seemed like quite a while. Friday basically saved what almost turned into a poor, breakeven month for May.

I hope everyone has a great week this week!