I was discussing this topic with a fellow trader and wondered if I could get some feedback here.  I trade a mathematical system and I have recently automated it so for me and my trading, emotion no longer has anything to do with it.  On the other hand most people do not use automation yet which means they are forced to wrestle with the psychological side.  So my question is this:  Does having a mathematical edge that is automated really alleviate the psychological side of trading?     

Views: 889

Tags: forex, math, psycology

Comment by Derek Frey on February 28, 2013 at 3:58pm
who is "They" and how could they twist my algo when "they" will never and could never see it??
Comment by Derek Frey on February 28, 2013 at 4:09pm

Ok well i wish you and your birdie all the luck a trader can have.  You may want to look into some other animals to listen to.  I heard a great story that involves three pigs but i digress.

Comment by Derek Frey on February 28, 2013 at 5:52pm

I see this idea all the time "...market conditions change so much that any automated ea has to have regular tweaks and be adapted to market changes ie ranging and trending etc."  This is simply NOT true.  While it is true for some automated strategies it is not true for all.  The edge that I have coded has been around for almost 100 years and has not needed any changes at all since then, especially in the last 20 years while markets have been very volatile.  So I must, based on my own experience, completely disagree with this idea, in fact i will take it a step further and argue that the ones that need the constant tweeks are crap, because as Lisa said "...so technically they are discretionary traders with a robotic arm", and that is correct, and not at all what I am talking about. There seems to be even more misinformation about automation than there is about trading in general.  Yes most EA's are crap, but that in no way shape or form means they all are.  And when you look at your competition (i.e. banks) it is clear that they are using algo's for almost all their trading now a days.  So why is it that the retail side of the biz is so far behind?  

Comment by Derek Frey on February 28, 2013 at 6:03pm

The reason I posted this is because in my situation I am completely removed from emotion in trading.  I basically have forgotten what it is like to care about the outcome of any trade.  And it was only by automating my strategy that I was able to do this.  The automation routinely takes trades that manually I would not take but do, in fact, fit my rules so there is an example of overcoming the emotion and mathematically doing the correct thing above the emotion.  I struggled with the emotional side of trading for years and still would be if I hadn't evolved into a Math over Mental trader and was just looking for other who have perhaps had a similar experience.  The only mental part left is reconfirming that the math is correct which after almost 100 years of testing is hard to refute, for me at least.  

Comment by Derek Frey on February 28, 2013 at 6:14pm

And btw i am not posting any of this in some shady effort to sell you my EA.  It's not for sale at any price.

Comment by Derek Frey on February 28, 2013 at 6:20pm

Peter jcp : your comment: "If you are using the same system that wa developed over 100 yrs ago - that worries me - It like comparing a Model Ford T to a Bugatti Veyron - "light years" in difference."  This is part of the problem with the lack of understanding about math.  While you are correct that the technology has changed, the mathematics that make both cars possible has not and never will change.  Me using a system that is "old"  worries you is like saying that 2+2=4 is suspect because it has been proven so many times.  ?!@#$%^  

Comment by Derek Frey on February 28, 2013 at 6:36pm

I mean no disrespect, I simply want to point out that the logic in that argument is flawed.  Technology evolves as we discover more and more of the mathematical truths that have always been there.  A discovery is exactly that, it is not creating something new, it is realizing that it was always there but we just could not see it.    

Comment by Derek Frey on February 28, 2013 at 6:57pm

I agree completely, Most EA's are doomed from the start and the need for constant changes is the first sign that the algo is not solid to begin with.  Another reason many fail is they are based on some sort of Martingale strategy (doubling down after a loss) which is mathematically guaranteed to fail over time.  Many others are just glorified moving average crossover trades or some other backward looking "indicator" that at best is right 50% of the time.  And many were "created" late one night in a dorm room after binging on Mt. Dew and Pizza.  Sad but true.  I am not trying to encourage any of you to run out and find one of the few good EA's that are out there, what I am asking is if we all know that emotion is the enemy of trading, and automation is one of, if not the solution, why is not every trader trying to automate their strategy???    

Comment by Derek Frey on February 28, 2013 at 7:03pm

Brian, I would love to chat with you more about the Math you are using.  I am an old school pen and paper guy myself.  I did not do the coding just wrote out the rules and let a coder that I trust handle the coding itself.    

Comment by Derek Frey on February 28, 2013 at 7:15pm

Peter, 

Respectfully a sample size of 22 trades is meaningless.  You need hundreds if not thousands of trades before you can claim that the data has "normalized".  Also I am not guessing that my math works, I know it does(not be cavalier about it, but it has been independently verified by over 100 other Math nerds:).  I am not trying to figure out a system (yes any system without stops and MM is also doomed to failure even if it has a 99% edge which itself is impossible).  I am trying to figure out why everyone isn't using some kind of system/automation, given what we all know about emotion and trading...???

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