Big Mike's Trading Blog

Day trading futures, discussing money management and trade management techniques, and more

Automated Trading vs. Discretionary Trading

Today my Symmetry system has called 23 out of 23 trades (100%, 23 points - 0 losers), each was 4 tick target 8 tick stop.

On. Fire.

However, in this video I talk about why I am not making this system fully automated and I show you what it did yesterday in the chop zone vs. what it has done today.

I created this blog about 30 days ago. Prior to that, I spent over a year, 12 hours a day, living and breathing automated strategies. I wrote more code than I've ever written in my life, I created more new ideas and tried to solve more problems than ever before.

I got so caught up in automated strategies that I lost focus on what was previously working for me -- discretionary trading.

It clearly took me a long time to realize this, to realize I had drifted off course. But once I did, it was like a ton of bricks all at once came crashing down. So, I immediately decided I need to change.

This blog was born, and my new focus was to build better tools to help me discretionarily trade instead of trying to automate everything. All the new stuff I've written in the last 30 days has been to that end.

This video illustrates just a small portion of why the human brain can still be trusted more than automated algorithms most of the time. I recommend downloading the full HD version (link below video) to make it easier to see.



Download HD full-screen MP4 video


If you had trouble with the mental aspect of trading, instead of spending time automating to get around that, I encourage you to do what I'm doing -- find other ways to deal with the emotional part and mental shortcomings of your trading.

Mike

32 comments:

Anonymous said...

Yes ... True !

Anonymous said...

Hi Mike,

Thank you for the video. Are green diamonds indicator?

Can you make your symmetry as a indicator? I really don't no how to make indicator from the codes you you posted on your blog.

Thank you for sharing

Big Mike said...

Anonymous,

Yes the green diamonds are Symmetry. However, this is not something that would work on other systems, as it relies on all my personal code, proprietary moving averages, etc.

If you want something like this, you'll need to either have the know-how to create your own custom version using signals from indicators (many of mine have been made available for download on this blog), or hire the work done by a NinjaScript consultant.

Mike

Anonymous said...

Mike,

I agree with your thoughts on discretionary vs. automated trading.

Just curious.. have you tried the high level chope indicator from eotpro.com? I'm trying it now on several different charts. I haven't used it very long but it seems to have some potential. Obviously, you want it to avoid chop while still showing "trend" in the right places so you don't miss the good trades. Let me know if you've tried this indicator and I'll let you know how my continued tests go.

TC

Big Mike said...

Hi TC,

I have not tried it. I have used Blue Wave Trading's BBand oscillator which has a built-in Squeeze detector, but it's just the Keltner inside the Bollinger and nothing ground breaking.

If you have time, please post some pics of your setup and highlight where you think their indicator is helping you. I recommend tinypic.com.

Mike

Anonymous said...

Mike,

Let's see if this works. Hopefully you can click on the link below and see the image of my charts from yesterday afternoon.
http://screencast.com/t/t2vrOuZSmQ


I don't know what's under the hood of the eotpro high level chop indicator but I'm told it has something to do with fractal math. You can adjust the settings which is what I'm continuing to do. You may want to email richard@movethemarkets.com. He is the programmer/trader who works with eotpro. He is a good ninja programmer/trader and I think you would probably get something out of his blog. I've told him about your blog and I know that he has it bookmarked.

TC

Anonymous said...

Mike,

It looks like you will need to copy and paste that url into your browser. I did that and it worked...

TC

Big Mike said...

TC,

The link worked fine, thank you for sharing!

I am studying your screen shot -- there is a lot going on here... :)

I purchased Blue Wave Trading's stuff a while back and found it very beneficial, it took a lot of relatively simple concepts and put them into a single system that works pretty well.

It seems EOT has more innovative methods, but I am confused really on how well they all work together and how much "tweaking" they require on a day-to-day basis (changing indicator settings to fit the market).

One thing I really liked about BWT was there was none of that, the indicator settings didn't need to change and they would work well day in and day out.

I am a fan of Richard's blog and like it. I tried to get a trial of the indicators but if I remember correctly, there is no free trial available. I am burned out on spending money for trials so I skipped it for now.

Overall, are you finding EOT's stuff beneficial? Since there is no trial I am relying on input from actual users to help me decide if I should look into it further...

Mike

Anonymous said...

if you guys go to the eoc section in ninjatrader fourm you can see my chop indicator that i made for free lol it works pretty well i need mike to tweak it more if he doesnt th9ink its good like it is,and i agree if a good automated system could be built im sure that some computer guru would have made one and sole it for millions already...sam
hey mike keep up the good work brother

Anonymous said...

never mind i got it here look at my chop and if you guys like it i will tell you how i did it...sam
http://i39.tinypic.com/2nhompy.jpg

Anonymous said...

Mike,

Thank you for sharing your experience with auto strategies.

Anonymous said...

Mike,

I think the EOT indicators work well but I'm still trying to come up with the best combination. They've got a lot of indicators in their toolbox.

Bill Dennis...the main moderator in their training room never, ever changes any of the settings on his indicators. He uses the screen set up as shown on the left screen in my screenshot.

I only trade @ES so at least I'm not trying to tweak indicators for multiple instruments. I'm just trying to figure out which ones I like best. I'll keep you posted.


Sam - did you say we could download your chop indicator? If so, where on the ninja site is it?

TC
TC

Big Mike said...

Sam,

Your chart: I like what I see on top, the ADXVMA can help identify trends and using it with a quick moving average looks good.

But on the second panel, the vertical bars -- if that is chop, it is too sensitive -- it would keep you out of most trades, at least most of the ones I would be in personally.

On minute charts you get a lot of wicks and tails which can affect these things. If you are using an ATR then you need those fluctuations. But, I prefer a range chart, so you might try a range chart to see what your chop identifier looks like then.

A very experienced trader once told me how to detect chop using a 1 minute chart:
- tight bollinger band
- std dev of +2, -2 (4 range)
- theory of speculation (math I don't understand)
- bell curve of about 0.7

Over my head. :)

Mike

Anonymous said...

Mike,

Thanks for putting this blog together and sharing your experiences with all of us.

I was playing around with a group of Indicators called Rsqueeze which Roonius posted on NT forum. Here is the link to the thread:

http://www.ninjatrader-support2.com/vb/showthread.php?t=12838&highlight=rsqueeze&page=3

I was trying out the CounterTrend portion of the indicator today. It was pretty impressive in showing where the trend changed and helping me get in early and stay with it to the end. Of course the trades with the daily trend had highest probability.

In times of chop it seemed that you could use this indicator to go from one side of the range to the other. If you took trades in the direction of the daily trend, then you would be all set if it took off. If it didn't you still would have been in for the range.

Your system did very well to show you 23 profitable trades. Good work!

I am also using ECO. I had used it before, but laid it aside for whatever reason. I have learned a lot from watching you apply it.

Thanks again,

Mahlon

haruhi said...

If you want to further your system development, you may want to explore indicators that use OnMarketData or OnMarketDepth.

Cyborg said...

Thx Mike ,your blog is great.
After years of hard work I think for me, the best formula is ,,Man & Machine Vs Market'',and the best indicator is TWYS (Trade What You See ).

Anonymous said...

hey mike i took off the ma from the chop and put it on a 4 range here it is---- hey tc all my chop is is the eco with everything put in neutral except the pink dots i mad them yell and made them hash than sized them at 60 and shrunk the 2nd panel down as small as it would go...sam

Anonymous said...

sorry i forgot to post the pic here it is...sam
http://i44.tinypic.com/20k69gm.jpg

Anonymous said...

here are my trades today...sam
http://i42.tinypic.com/sxj69y.jpg

Big Mike said...

Sam,

Looks much better, I will play with ECO2 in same fashion.

Mike

Anonymous said...

Sam,

you have to much information or indicators.
clear some if you dont need ...
nice trades.

wh

Anonymous said...

http://i42.tinypic.com/2zdsp6b.png

Richard said...

Yeah, fwiw TC is right, we don't ever change our settings from day to day. Our indicators have a lot of inputs because we have clients that trade all kinds of instruments and time-frames. You can spend a lot of time tweaking the settings, but once you find what you like you don't generally have to touch it again.

Big Mike said...

Richard,

Thanks for the clarification, I am glad to hear it!

If I could put in a request for your blog, I'd like to see a couple of recap style videos where you go back and review the market and describe why you would take a long, or a short, why it worked, why it didn't, etc.

Have a great holiday,

Mike

HPT said...

I'm sure you already know this, but the answer to your problem is simple. Most traders are looking for the holy grail, ie a system that trades all day or a set of indicators that work throughout the day. Thats what it sounds like you were looking for but couldn't find. Traders sometimes get stuck for years looking for the perfect indicator. But why can't you find a niche? or 1-2 particular setups that occur everyday or two that have a high probability of working. You don't need to trade all day nor would should you necessarily want to trade all day if there is no difference in probability of you being more profitable. Lets look at the facts, most of the volume is occurring in the first hour of trading and at the close. Why trade during the dull drums. You don't need a special indicator to tell you when it's too choppy to trade its called "turn off ATS between 11:30-2:30 EST". Yes, you may miss some trades along the way, but the goal is to limit risk, and preventing over trading is a facet to limiting risk, especially in the long run. Optimize your strategy based on time of day traded. Systems tend to work better on higher volume days and higher time frames. I find it hard to believe that a system with a 2pt stop and 1pt target will be profitable over time. The cost of commission relative to profit and the Risk to reward are against you by a big factor. I would not trade that system based on backtested results alone. I would at least watch it live on the sim account first. Also, the most important factor that traders forget is trade size management. Kelly criterion is a good place to start research.
I enjoy your blog.
HPT

Anonymous said...

if you are talking 2tick/1tick stop/target, that is madness.

2pt/1pt (ie 8/4 tick on ES) is very doable however with good money management.

I agree with the jist of what you are saying though, and a system like this will definitely be much more profitable if you use 'chasing targets' rather than hard 4tick profit target.

Also definitely recommend using OnMarket* as haruhi mentioned above.

Chris said...

Mike, it seems that you automation risk profiles are all wrong. You are risking two points for 1 point gain. You will never win over time with that ratio.

Here are a few suggestions:

Monitor your intraday gains. For example, if you want to achieve 4 points in a day, then when your strategy achieves that, program it to prevent it making any more trades. You are losing further potential profits that day, but you are also preventing your profits being lost.

Back test, then backtest again to find the optimal trading times. For example, I have found turning the strategy off at 3.30pm EST prevents that last 30 minutes of rapid reversals which generally results in loss for auto traded systems.

Go up in your time frames to 15 minutes or something unusual such as 13 minutes. Backtest to find the optimal time frame. 15 minutes might work, 20 minutes might not.

Have your strategy initiate stop limit orders, that are only triggered when price passes through them. You said that your auto strategy failed by trying to go long at the peaks, but if you had set those as limit orders, they would not have been filled as price fell below them.

Lastly, you have to accept that an auto traded system will make losses (as will any trading system). As long as you build in good money management and have good risk/reward ratios, then you will make money far more consistently than via discretionary methods.

Trading said...

SAM

I could not see the channel in ur above posted charts can u please high light them
Thanks

Anonymous said...

i made the channel invisible because its just to much to look at...sam

shodson said...

Why not just automate your trading during the most volatile hours, the opening hour and closing hour? The middle of the day is often very choppy because volume is low, unless some news comes out.

Also, do you consider volume at all on any of your indicators as well? And if not, why?

Big Mike said...

Hi shodson,

Yes I know what you mean and have tried it. For now, I am focusing on discretionary for a while, sort of like getting back to my "roots" if you will.

Yes I do use bid/ask volume and volume based indicators, not all of which I share on the blog :)

Mike

Anonymous said...

One thing to look at to avoid choppy days is the European markets. If the DAX, FTSE, and CAC40 have barely budged that often means there isn't enough news to generate volatility.

I just found your blog thanks to Trader Eyal. Nice hardware you've got there! And brave to be running the Windows 7 Release Candidate version (I'm assuming)

Rick

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