It’s definitely time for me to start looking for another trading computer – I built one back in 2004 and it’s still doing pretty well, but it’s showing its age. My CPU gets humming pretty good around the market open these days with all the tools I’m using.

I told myself I wasn’t going to go the “build my own” route this time, so I started looking around the major PC makers for a decent system. I was surprised at the cost of some of them – still pretty expensive after all these years. I stumbled upon this post (specifically this comment) which got me thinking again about building my own. I did a little bit of research and have come to the same conclusion I did over 4 years ago – you can get a LOT more computer by building your own.

So I’m leaning toward the do-it-yourself route, mainly because of cost. I found some good buying guides that are kept up to date and started putting together some components.

Here’s the list of components I came up with (Newegg is awesome, by the way). I’d love for you to take a look and make suggestions. (Note – I’ll be reusing the monitor setup I have now which uses 4 monitors and requires a PCI (old school) slot on the motherboard for the video card which restricts my choices somewhat, but not much).

Any thoughts?

I wrote an article for Technical Analysis of Stocks and Commodities magazine this month. I haven’t received my issue yet, but I’ve heard from some folks that they have received a copy.

It’s call Streamline Your Trading Routine and it’s in the September 2008 issue. Take a look and let me know what you think.

And welcome new Stocks and Commodities readers!

I’ve seen some new automated traders start using the bot and there are some pretty common mistakes that I see people make over and over. When it comes down to it, they are pretty much the same mistakes that you see manual traders making, but there are a few mistakes that are specific to automated trading.

Here’s the list not in order of importance:

1. Trading Too Large, Too Soon – It’s tempting to start trading with size soon, especially when you look at the results of a backtest for a decent strategy. As with any new trading strategy, but especially with automated trading, you need to trade really small in the beginning – so small that 10 or more losing trades (with slippage!) in a row will do no emotional harm to you (I’m not kidding here).
2. Trading Strategies that Trade Too Frequently – There are strategies out there that you can find pretty easily that trade over 100 times a day that appear to be really profitable in a backtest – certainly when you look at the number of dollars per day. Besides the fact that you probably don’t have the account size to trade this system profitably, taking too many trades will make it much harder to go back and examine the trades. If anything, you should start off trading too infrequently.
3. Doing No “Forward Testing” – For each strategy that you find that you want to trade, don’t jump right in and do a cannonball in the deep end off the high dive – dip your big toe in the water a few times and see how the water is. The water might be full of piranha. OK, this analogy is over the top but you get the point. I call this process “pilot trading” – take some very small trades and see how they matchup with the backtest.
4. Blaming the Money You Lost on the Backtest – This is common. While I do believe the Odds Maker is the best backtester out there, it is still, well, a backtester. If you’re trading results don’t measure up to what the backtest results look like, then figure out why (there are a variety of reasons why this happens). Trust me, it’s not the backtester’s fault.
5. Not Comparing Actual Results with Backtested Results – Everyone is lazy, me included. If you lost money on some trades, the last thing you’re probably motivated to do is go back and examine each one – but this is absolutely critical for your automated trading success. StockTickr now includes an automatic comparison tool that shows a trade by trade comparison of live trade versus backtest result. This will save you a lot of time and show you why there are differences between your actual results and your backtest results.
6. Using Market Orders for Entry without Reason – I haven’t found a strategy yet where I’ve concluded that market orders are the best way to enter your positions. I’m sure they exist, but I haven’t found one that I’m comfortable using market orders. Trust me – start off using limit orders and if, over time, your analysis shows that you’re missing a lot of good trades then adjust your limit order so that you’ll capture more of those.
7. Ignoring Slippage and Commissions – These are HUGE factors in automated trading. There are ways to keep both at bay, but there are strategies out there where the slippage will be too much to overcome. StockTickr automatically tracks slippage for you so it shouldn’t be too difficult to determine this.
8. Not Spending Time Learning Why Some Unprofitable Strategies Backtest so Well – The quicker you learn this the better off you’ll be. Once you understand why some unprofitable strategies can be made to look awesome in a backtester, you’ll learn how to recognize if the strategies you model are showing backtest success because of these reasons and you’ll be able to avoid them.
9. Manually Overriding Your Automated System – You can probably guess how I feel about this (see this post). There are situations where it makes sense to do this, but introducing your discretion makes testing and improving your performance more difficult.
10. Not Understanding that It’s a Marathon Not a Sprint – Automated trading is not, well, automatic. It takes time and hard work and money to start off. Make sure you leave yourself plenty of rope, because it will take some time and “tuition” to figure out what works. Many times small adjustments can make a huge difference in a strategy’s performance.
11. (Bonus) Using Stops that are Too Tight – I see this time and time again in every type of trading and it’s no different in automated trading. In fact, the effects of using stops that are too tight are magnified. You’ll have a better chance at success if you look for the loosest stops and work down if your live trade analysis concludes that they’re too loose.

As you can see, successful automated trading is still hard work just like any other kind of trading. However, the obvious benefits are simply too good for me to ignore.

Update: My buddy Eyal had another one which I kinda touched on but should have devoted more to. New (automated) traders expect too much – keep your expectations on the low side of reasonable. Also, I always encourage traders to have a range of goals from conservative to radical. If you aim for the moon and you don’t meet the mark, then you’re just setting yourself up for disappointment and frustration.

Dr. Van Tharp’s much anticipated new book on position sizing is now available. As good traders know, position sizing is everything, and if Van did anything close to the ever popular Trade Your Way to Financial Freedom I’m sure he knocked it out of the park with this one.

I’m pretty sure StockTickr is highlighted in the software section of this book, but I’m not positive – I’ll have to wait until I get my copy to verify.

Although it’s essentially the same as for manual trading, position sizing with the higher frequency automated trading I’ve been doing has presented a couple more variables to the mix which I’ll discuss in a future post.

I’ll post a review once I get my copy.

Update: I have received a copy of the book and it does mention StockTickr as a recommended service for improving trading performance! If you like Van Tharp’s ideas about trading, you’ll love StockTickr. Take a free trial now.

Trade-Ideas has just released some new fundamental filters to their filter set. This is great news for traders that keep an eye on fundamental data.

So now you can base your automated strategies on fundamental data as well. For example, you could design a strategy that trades new highs from stocks with earnings per share of at least X. Or with a market cap of at most Y. You get the picture.

This opens up a whole new universe of automated trading strategies through the robot. There has been a nice, steady stream of improvements coming from Trade-Ideas.

For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Andrew Allen from Humble Money. Andrew is an independant day trader and has a chess background.

Read on for a great interview and learn more about how Andrew trades, more about his chess background, and how he got started trading.

Read the rest of this entry »

I had to run an errand yesterday right at the open, so I couldn’t be in front of my trading screen until 10:30AM ET or so. In my manual trading days, of course, this would have meant a wasted opportunity. Instead, I prepared the automated trading robot and enabled the four strategies I’m trading and went about my business.

When I returned the robot had traded several times and made about 10R without me lifting a finger or even keeping watch. I’ve let the robot run unattended during lunch several times before, but this was the first time I’ve let it trade the open where most of the action is.

The robot does have the ability to send the trades it makes via email alerts, so you could have them sent to your mobile phone or BlackBerry. I turned this feature off though – I didn’t want to have to wonder how each trade was going while I was away.

As I’ve mentioned here in the past, there are so many benefits to automated trading but the ability to have your computer trade normally while you go do something else ranks right up there at the top. What a great feeling!