Mathematically Optimal but Psychologically Wrong

November 2nd, 2010

Here’s a good article that relates quite a bit to trading. John Cook discusses debt consolidation and the debt-snowball strategy. His point is that the even though it’s mathematically optimal to tackle higher interest rate debt first, in practice it’s more practical to tackle the smaller debt first.

There are a lot of parallels to trading with this. A good example is scaling out of trades. In most every strategy I’ve come across (and all that I’ve traded), the mathematically optimal strategy is to not scale out of trades but to keep your position until a stop or a target is hit.

In real life though this is often difficult to do. It only takes a couple trades where your target is oh-so-close to being hit and then ends up stopping out to see that scaling out could provide some psychological relief.

Another good example is using an optimal position size for your trades. Depending on your account size the optimal position size for your trading strategy might result in some really large drawdowns to weather. You have to take into account the psychological element – your theoretical backtest doesn’t care that it’s difficult to trade through drawdowns. 😉

StockTickr Trading Robot Now Trades the Canadian Markets

October 27th, 2010

Are you interested in diversifying your trading strategies across markets? The StockTickr Trading Robot now supports trading the Canadian markets through Interactive Brokers. You can trade the TSX and TSX venture exchanges by configuring your Trade-Ideas strategies to point to these exchanges for your strategy.

StockTickr Announces the Sterling Trading Bot

October 6th, 2010

After several weeks of beta testing, the StockTickr Sterling Automated Trading Robot is ready for action!

This robot will let you automate your trading through the Sterling trading platform using your Trade-Ideas trading strategies. You have full control over your trading strategies and can configure your trading instructions in a number of ways.

  • Absolutely the easiest way to start automated trading – no coding required!
  • Full control over what gets traded through the robot.
  • Automatically execute one or many trading strategies.
  • Include a variety of exit orders including stop loss, time stops, trailing stops, and targets.
  • Set a maximum number of orders to be sent per strategy.
  • Extensive position sizing capabilities.
  • Automatic performance analysis and journaling through StockTickr.
  • Much, much more.

This software lets you get the most out of your trading by combining the real time scanning from Trade-Ideas, the advanced performance analysis of StockTickr, and Sterling’s robust and fast execution platform.

There’s a free trial so get started now.

New Trading Robot Version Adds Great New Features

July 1st, 2010

We’ve put the finishing touches on the latest version of the StockTickr Trading Robot. You can use it to automatically trade your Trade-Ideas strategies through your Interactive Brokers account. Here’s an overview of the new features – they open up a whole new world of strategies. We’ll be posting a series of posts over the next few days going into detail about some of the new features.

  • Alert Exit – use another strategy to determine when to exit a position
  • Trend Exit – use an additional strategy to exit all positions from a particular strategy
  • Limit Entry Based on % of Spread – place your limit entry order based on a percent of the spread – great for strategies that trade large spreads.
  • Partial Exits – use scale orders to automatically scale out of your positions within a particular strategy
  • Real-Time Buying Power Awareness – shows up to date buying power in your account and monitors to skip orders that would be rejected due to running out of buying power.
  • Relative Orders – option to use relative orders to enter a position. Also known as “Pegged-to-Primary”, this server held order automatically updates based on the bid/ask. See more details on the relative order.
  • Market If Touched Orders – slightly different than a limit order, the market if touched order turns into a market order if a certain price threshold is met. See more details on the market-if-touched order.

If you’re ready to take your trading to the next level, go grab the robot and introduce some automation into your strategies.

StockTickr / TI Automated Trading Robot No Longer Requires Odds Maker

April 6th, 2010

We’ve recently removed the requirement that our automated trading robot users have to have purchased the Trade-Ideas Odds Maker. It is still highly recommended that you purchase and use the Odds Maker so you can backtest your ideas and easily compare trading results to your backtests.

That said, we know there are traders out there who have already proven their system without using the Odds Maker and want to use the power and ease of Trade-Ideas and StockTickr to automatically trade their strategies and track their trading performance with the trading journal.

Now the only fees that are required to use the StockTickr Trading Robot are:

StockTickr Pro Subscription: $49.99/mo
Trade-Ideas Standard Subscription: $65/mo

Existing subscribers can download the robot here or you can try it for free by taking the trial.

Giving Talk at Las Vegas Traders Expo

October 28th, 2009

I’m scheduled to give another talk this year on automated trading at the Las Vegas Traders’ Expo. I’ve heard from a handful of users that they will be at the expo and we’ll be meeting up there. If you’ve never been to the expo, I’d highly recommend checking it out. There are a lot of speakers who you’d recognize giving talks on a whole variety of trading topics – definitely something for everyone.

Here’s a free signup link if you’re interested in attending.

My talk is called Automated Trading with the Odds In Your Favor and will be bright and early on Saturday, November 21 at 8AM. It will be a modified version of the talk I gave last year, so even if you saw it last time there will be some new stuff to see.

If you are attending and would like to meet up, definitely drop me a line and let me know.

Introducing Automation into your Manual Trading System

January 30th, 2009

heavy load

When a lot of traders think of automated trading, they envision going from completely manual trading to completely automated trading. They mistakenly view this as a loss of control – they are used to being in complete control of their trading making every decision. It’s unsettling for a lot of people to lose this control and offload more work to their computer.

What most don’t realize is that automated trading IS complete control. The factors and inputs are completely designed and controlled by the trader and the computer doesn’t stray from the strategy it’s been assigned. This is just the opposite of lack of control.

A good way to think about switching to automated trading is to introduce automation into your manual trading system. Think of it as a continuum like in the image above. It’s not all or nothing – you can slowly integrate automation into your manual trading system so that over time you’ll do less trading grunt work and become more and more comfortable with automated trading as you move to the right on the continuum.

Here are some ways to start offloading manual work from your trading system:

  1. Use a product like Trade-Ideas to systematically gather stocks that fit your trading system.
  2. Explore using multiple monitors to save you time and effort and miss fewer trades.
  3. Use tools to automatically calculate your position size, saving time and preventing mistakes.
  4. Streamline your trading routine to cut the fat and become a more efficient trader.
  5. Use the StockTickr Trading Bot to get you into trades and then you can manually manage all aspects of the exit.
  6. Use the StockTickr Trading Bot to get you into trades with a time stop and then optionally manage an exit before the time stop expires.

There are lots of ways to become familiar with automation without going all in. Are there other ways you can think of to move towards automation on the continuum?

5 More Reasons to Consider Automated Trading

December 22nd, 2008

This post was contributed by Kelly Kilpatrick, who writes on the subject of currency trading. She invites your feedback at kellykilpatrick24 at gmail dot com.

Each day, more and more traders are leaning toward automated trading. Far more precise and less prone to human error, automated trading truly does seem to be the way of the future. Browse through the following list and see some more reasons why you may want to consider automating your trading and free yourself up for something new.

You Set the Parameters

You may be hesitant about leaving your financial future in the hands of a computer, and that is completely understandable. However, you are the one that ultimately sets the parameters for just how far you are willing to go on any given day. Of course, the term automated trading sounds like you won’t have to do anything, but this is far from true – you ultimately set yourself up for success or failure with automated trading, just like manual trading.

Attend to Learning and Research New Investments

Once you establish your parameters for your automated trading, you are free now to pursue more investment options and continue learning about new strategies and possibilities. This is valuable, indeed, and helps lay the foundation for more earning potential in the future as you continue to develop your skills while the program does the dirty work.

Snap Analysis

Automated trading programs are able to analyze copious amounts of data in a very brief amount of time. This being said, the program can make the best analysis far faster than you can and will make a decision based on the guidelines you have put in place. This can be very beneficial in crunch time and could ultimately save you valuable time and money in the process.

Emotional Detachment

The program itself will not be emotionally attached to the investments or the data. This can be a great thing when you are having a tough time making a rational decision. The fact that the program can crunch more data and use said data to make an informed decision will only serve to help you and your needs down the road.

Results Speak for Themselves

If you look through some of the previous posts on this blog, you will begin to see that this kind of trading has been very good to us indeed. Manual trading can be tough; sometimes we zig when we should have zagged, but automated trading seems to take this phenomenon down to a minor point.

Automated Trading Success: Downtowntrader Doing It The Right Way

December 19th, 2008

Here’s another great post by Joey, the Downtowntrader. Joey was one of the earliest users of the trading robot. He’s trading the right way – he’s tested for several weeks in demo mode and then graduated to live trading, then trading with size.

He talks about his journey and goes into detail describing what I believe is a recipe for long term trading success. Here are some of the questions he answers:

  • Are the results real?
  • Does it ever blow up and have a really bad day?
  • Is your automated system profitable too?
  • How long did it take to develop your system?
  • Could you just use trade-ideas and trade the alerts manually?
  • Do you intervene with your system?
  • Can you use the canned alerts that come with Trade-Ideas?

Different Automated Trading Systems – Which One Is Right For You?

December 18th, 2008

For new automated traders, it’s always interesting to hear what their mindset is. Specifically, it is interesting to know the type of system they plan on trading – not the specific details of their strategy, but from a very high level.

If you follow this blog you probably already realize that there are at least hundreds if not thousands of profitable systems out there. But how do you find one that YOU can use to make money. If you’ve taken the step into automated trading, you have lots of options.

Here’s one way I like to separate systems into categories for the purposes of automated trading – I think this provides a nice blueprint for how to start thinking about automated trading.

1. Automate a Manual System You Already Trade

The most logical step for a lot of traders is to automate a manual system that they’re already trading. I think this is a great place for most new automated traders to start. It allows you to take small steps into automated trading in an environment that they’re already familiar with – their manual trading system.

By doing the prep work to automate their manual system, the trader has an excellent frame of reference to compare their automated results to since they already have extensive experience manually trading the system. Once they’ve converted this system over to full automation, it provides a good foundation to start delving into other strategies.

The other advantage to this approach is that when you start modeling your strategy and backtesting it, you’ll likely learn a lot more about your manual trading by doing so and your results will be more consistent.

2. Trade a Strategy That Looks For Infrequent Setups

There are a lot of profitable manual systems out there that trade really infrequently. While it’s possible for you to stare at your computer screen all day waiting for the setups to materialize, it’s much more efficient for you to automate this type of system. So while it’s not impossible to manually trade these types of systems, automated trading can give you a clear edge since your automated trading software doesn’t need to take a rest or eat lunch. 😉

I’ve traded systems like this before and inevitably a very frustrating thing happens – you wait for hours looking for the setup and then you get distracted for just a brief period and (of course) that’s the exact time that the signal occurs and you miss it and you torture yourself with the decision to chase it or not.

Automating this type of trading system is usually a big time saver and saves you a lot of wasted effort.

3. Trade a Strategy That’s Impossible to Manually Trade

This class of strategies is probably the biggest reason to start automated trading. There’s a whole universe of strategies out there that are simply impossible to trade manually, but that you can unlock by using automated trading software. For example, let’s say you want to enter 50 orders in the first minute of the trading day all with specific entry and exit criteria. You don’t need me to explain why this is impossible for a human to trade. With software, trading this type of strategy is now possible.

Another reason to trade this type of strategy is that there are probably a much larger pool of traders trading the first two types of strategies. However, because this type of trading can’t be done manually, you’ve excluded the vast majority of traders from your “pool of trading competition”. That is, you’ll essentially be competing against fewer traders.

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