Don't Fight the Computers...Get Your Own
12/27/2012 8:30 am EST
Automated trading systems don't necessarily replace the human component, says Rob Booker, but they can be very effective support tools, particularly in trade execution and management.
We're talking about automated trading today with Rob Booker. Rob, a lot of people get a little nervous about the term automated trading, feeling like can the computer really trade better than I can. Give us your perspective.
Well, there's this theory in the market, or amongst all traders, and me included sometimes, where how can a computer really replicate the intricacies of the human brain, like, the human brain, God's creation, is so magnificent, how could any computer ever replicate all of the functions that a brain can do, and I'm like, well, did you see Lehman Brothers explode or Bear Stearns explode? That didn't explode at the helm of a computer.
I mean, the human brain can also do a lot of really, really bad things, and what an automated strategy can do for a trader, not necessarily overtake completely the trading process, but an automated system can better alert a trader to the opportunities. An automated system can alert a trader when it's time to get out and remind a trader with repeated alerts to a phone or alarms on the computer to when it's time to remove the trade. You can set an automated system to close your losing trades automatically.
Most traders, with fully functioning brains, will let a losing trade persist in perpetuity until they run out of money. A computer just says I've lost more than a certain amount of money, I'm turning it off, and there's a lot of ways to use automated strategies to compliment our traders instead of just overtaking the system complete.
Well, let's talk about some of the details then. What are some of the best platforms for traders to use, if they're interested in this?
Well, in the world of currency trading, Meta Trader is a gigantically successful platform that can do two things really well. It can automate the entire process of trading, but it can also just be a radar screen. It can shoot up alerts when trades are ready. TradeStation and eSignal can both do those things as well for equities and futures traders. They can either take over the process of trading completely or they can just flash up alerts when things are ready or when thing are supposed to close. Also, all of these systems can just handle a trade once it's open, and we often don't think about that. We can take control over the process of entering a trade, but then turn on a strategy to manage the trade once it's open in a responsible fashion 24 hours a day and then we can get some rest.
It seems like a lot of people also have some trouble controlling their emotions, their hopes, their fears, and then maybe automated trading might give them a way around that.
You're kidding me. I think the only way to remove emotions from trading is to get a giant amount of Valium and have it right next to your desk as a trader. Otherwise, whether you're an automated trader or a discretionary trader, emotion is going to be a part of the process, and part of becoming a better trader is learning to tame the emotions, to let the emotion guide you in your goals, but not let the emotion overtake your decisions as a trader.