Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

cowcool

Is 100% Mechanical Trading Possible?

Recommended Posts

 

IMHO your time would be more productive learning about context and forgetting about anything mechanical. Count on it taking several years. If you're not prepared to put in several years then best to quit now.

 

Been in that stage for a few years.

 

This topic is an interesting one. Mechanical trading is interesting, completely different equity curve of what you would expect with something more discretionary. In theory, trading Mechanically allows trading to become more about position size and growth, and managing Drawdown, and less about technique.

 

So it's not that one is 'better' than the other, but discretionary vs. mechanical have their seperate pitfalls that have to be managed.

 

Discretionary traders, it seems to be about technique, and being able to recognize a setup. A mechanical traders main problem would be managing the Drawdowns when they come, i.e. knowing what the anticipated Drawdown is likely to be, duration of it etc.

 

So the point isn't that being mechanical is a grail, it's just a matter of which set of problems is one likely to be able to deal with.

Edited by forrestang

Share this post


Link to post
Share on other sites
Maybe you shouldn't be considering systems with a profit factor of 1.15?

 

I think that kinda might be a pitfall of trying to find a mechanical methodology, is that people want too much profit. The idea of a 3x profit to 1x the loss (1:3) is a bit unrealistic for terms of R:R I think. I have done a lot of my own little testing, and win% is usually very proportional to R:R. I.e. raising one always lowers the other.

 

And what I have found is equity curves with higher R:R have more DDs(drawdowns) than do smaller profits with higher win%. Also, the goal of trading mechanically would be the ability to leverage a strategy across a few markets, and SIZING being the most important aspect of it.

 

Like running simulations with various sizing up strategies, the smoother the equity curve, the easier it is to size up. You figure you will ALWAYS go into DD with your largest amount of size, the more losses a system has looking for higher profits, the WORSE those DDs become.

Share this post


Link to post
Share on other sites
Well, for a while now, my goal has been to find 'something,' ..... 'anything,' that leads to a setup with a positive expectancy, that is mechanical.

 

The simplest example of what I mean is, say you had a MA crossover system, simply buy when one is above the other, and reverse when it flips. Something like that, where there is NO discretion, just take the signals as they come. And assume that this generates a positive expectancy over a given sample size. So say given a sample size of a few hundred trades over a varied amount of time, one would generate profits from that setup.

 

So I was just wondering if anyone here has found such a thing?

 

yes, there are systems out there with a positive expectancy.

hell, even tradestation and multicharts have them.

they even give them to you free.

both software come equip with over 150 strategies

you can download some back data and try them out.

 

one qualifier -- they can give you positive expectancy... but no eternity is guaranteed.

Share this post


Link to post
Share on other sites
Well, for a while now, my goal has been to find 'something,' ..... 'anything,' that leads to a setup with a positive expectancy, that is mechanical.

 

The simplest example of what I mean is, say you had a MA crossover system, simply buy when one is above the other, and reverse when it flips. Something like that, where there is NO discretion, just take the signals as they come. And assume that this generates a positive expectancy over a given sample size. So say given a sample size of a few hundred trades over a varied amount of time, one would generate profits from that setup.

 

So I was just wondering if anyone here has found such a thing?

 

you might be interested in this thread

Automated Strategies Risk/return Profiles Examples

http://www.traderslaboratory.com/forums/f106/automated-strategies-risk-return-profiles-examples-9112.html

 

23517d1294753938-backtesting-vba-2010-08-19-15.2301.gif

Share this post


Link to post
Share on other sites

I am with Cunparis about context.....

Which then raises another question, which part is worth automating, and which is the discretionary context element.....

the context of the bigger picture.... eg; uptrend, market specs are bullish, new highs

OR the context of the actual entry, and exits.

 

for me I can easily automate the entry - its about the discretionary element of the bigger picture context, and I would prefer not to automate the exit. This stems from my market making days whereby you are essentially given a position and you have to work out what to do with it - run it, cut it or hedge it.

Others may find it more difficult to manage the trade, and most systems offer to automate this for people with trailing stops and profit targets......

 

my 2 cents......ultimately either measure still involves the management of the trade once you are in it, and that is the holy grail

Share this post


Link to post
Share on other sites

100% automatic trading is possible!

Products like TradeStation, MultiCharts, TradeLink, etc. exist to meet this need.

Many websites display real-time performance of these automatic strategies.

But I have never found on the web, a trader who displays the logic of a winning strategy.

Share this post


Link to post
Share on other sites

automatic trading is possible -- maybe the question should be - is a l00% mechanical system profitable over the long term - without massive drawdowns :)

(the answer is yes)

so is the question is can a retail punter implement it?

Also there are plenty of systems that can give signals, but do you want to leave a computer to trade those signals? (flash crash ?)

Share this post


Link to post
Share on other sites

During significant drawdowns in equity, a totally systematic trader could/should reduce market exposure by scaling back the overall leverage.

 

Something as simple as that could turn what may appear at first to be a marginally profitable or unprofitable system into a profitable one.

 

...not speaking from much experience...just hypothetically...

 

:2c:

Share this post


Link to post
Share on other sites

 

Does anyone have any experiences to share?

 

I'll share!

 

This was something I called V1.0, which was the first system I ever tried to create and automate. It was basically a trend following system that had an initial stop that was a bit large, and exits where all trails. I did this test back in December. The results were ok I suppose.

 

Shown here are results from EVERY trade the system would call for, over a 24 hour day. This was 100% mechanical, with no discretion involved. I am unable to program it yet, but it is relatively simple.

 

The test ran from August through the end of December, intraday trading clicked off just about 200 trades. This was tested on the spot Eur/Usd using range bar charts.

 

Each trade regardless of stop or target size had the same amount of risk in the trade. I nominalized each trade with a risk of $10.00. So that means if I had an initial stop size of 20 pips, this would call for a size of 5 micro lots.

 

If the initial stop was 40 pips, I would use half that.

 

Problem with this so far as I see is just not enough data. As I mentioned above, i think trading a mechanical system is ALL about being able to deal with the DD WHEN it comes. And as you can see here, there isn't much DD to speak of. So that is a problem. You can see towards the end though, the curve started chopping about, so I really need to see how it recovers from this. I just hadn't revisited it since.

 

I would really like to see several DD periods to see how it performs.

 

I was also dissapointed by the typical R:R per trade. But as I mentioned above, I don't think that is what matters.

 

Here are some details about it.

Prime2011-02-18_005730.thumb.jpg.f2f8734ce8ad3aaa3d1fae573c497160.jpg

Prime2011-02-18_005745.jpg.f398b163ad355a70a036cb7f6c8dcd32.jpg

Share this post


Link to post
Share on other sites

BTW..... with the above system mentioned, there was no type of curve fitting.

 

What I do is try to think of an idea away from the charts, when I am doing something OTHER than sitting in front of my PC. THEN I come and test that idea on a few samples, and if the logic was sound, I might start testing on a larger sample size.

 

But again I think the key is finding those DDs in your testing, so that you can get a more realistic idea of what to expect.

Share this post


Link to post
Share on other sites

Others may find it more difficult to manage the trade, and most systems offer to automate this for people with trailing stops and profit targets......

 

This is the trade-off with automation. It can't be as optimal as an experienced professional trader. For me, trailing stops give up too much profit and profit targets are often missed by a tick or two. That's why, for me, it's important to be able to read the order flow and adapt.

 

If I get long I take my first scale when I see responsive selling come in. Then for my other units I watch the order flow as we approach my targets and if I see strong selling coming in a few ticks from my target I'm not going to risk giving back all that profit just to try and get 2 more ticks. It's a poor R:R to do that. So I will exit a few ticks before my target. It took me a while to learn to do this, but after many targets being missed by a few ticks I started figuring it out.

 

Since most edges are very small (mine has been 2 ticks over the last 4-6 months) getting an extra tick on a target has a huge impact. This is just one reason, IMHO, that mechanical trading will be sub-optimal.

 

Some traders may prefer to live with a sub-optimal method because they feel they can never acquire the skills to trade manually with discretion. This is how I felt for a long time but I realized that I was circumventing the problem. Best to learn how to trade properly and then I don't need automation.

 

This year I made a lot of changes to how I trade and I'm still working them out but for most of last year I had a profit factor of 2.0. I never could make an automated strategy that worked long term, especially not with a PF of 2.0. So if I'm performing better than my automated strategies it makes sense for me to continue developing my skills.

 

Just a point of view of someone who's tried it and chosen the path of learning to trade with a little discretion. I have my game plan before the open each day. I know what I will do, where I will trade, etc. But when it comes to timing entries or passing on a setup, and managing my trades, that's where the discretion comes in.

 

If someone can make an automated system then that's great and I'm happy for you. The risk is that someone will spend 2 years trying and have nothing to show for it. But that's the risk with learning to trade too. It's the risk inherent in any worthwhile adventure. And that's why only a few succeed. So even if it's possible and you see someone with proof they're doing it, that doesn't mean you can do it. The odds are stacked against you with a very slim chance of success.

 

This is not meant to discourage people but rather to show some realism. if you want to do an automated system you have to accept the fact that 99% don't work and that it can take years to find out. If one accepts these odds and gives it a shot then I sincerely wish you good luck with your endeavor.

Share this post


Link to post
Share on other sites

GIGO

 

how the auto-system works depends on your understand of how the market works

 

human mind is pretty intelligent; it can fudge its way through. Computers can't.

Share this post


Link to post
Share on other sites

A number of fascinating posts and feedback here. I will therefore weigh in just briefly.

 

My take has been in trading for the last 20+ years I can get about 90% of the way mechanical. But unless I deploy about 10% trading instinct and adjustment - however moderate, I will not maintain consistent trading over any longer period of time. A few months? No problem. But the longer the data series, the more likely a 100% mechanical will break-down. Which brings me to my second point, even where I've been locked in on rules 90%+ -- I have had to "tune-up" the trade plan on occasion since I have yet to find a market that literally never changes its pattern/behaviors.

 

So, I have found going for 90% mechanical far easier to find than 100%.

 

MMS

Share this post


Link to post
Share on other sites
So, I have found going for 90% mechanical far easier to find than 100%.

 

Can you explain 90% mechanical?

 

I've been doing programming that generates visual & audio alerts and then I decide to place a trade. I know another trader who decides when to potentially enter and he clicks and then his software will enter when certain criteria are met and will exit with other criteria. I think both examples are interesting and something I'm currently researching.

Share this post


Link to post
Share on other sites

I'll will be doing a Webinar here at Traderslaboratory next Wedsday, February 23rd.

It will be a general discussion about the use of Pivot Points in Forex. It is not intended to teach a system, just to possibly shed some enlightenment on some high probability occurrences in the Forex Market. I can touch briefly on a completely mechanical method, not automated, that has been successful for about the last 2.5 years. It's a set and forget, and let it rip. I don't use the complete method myself because to be honest, I am not a set and forget type of person. If You watch this setup play out, at times it feels like having your stomach pulled up and out of your mouth.

 

I should also add that I am not a teacher, instructor, or mentor. Just a trader. So my presentation may be as smooth or slick as you are accustomed to seeing.

 

Here's the link:

https://www3.gotomeeting.com/register/145756302

Share this post


Link to post
Share on other sites

Maybe the other 10% for MadMarketScientist is the pulling the trigger part? Forces you to be there and feel the market. Realise the current nuances and demonstrate awareness of potential system weaknesses. That way, you are quicker to adjust. Maybe. Lol.

Edited by TheNegotiator

Share this post


Link to post
Share on other sites

I second what Mysticforex says above.

 

Jump in on the free forex webinar we're holding on Wednesday Feb 23rd

 

Here's the link:

https://www3.gotomeeting.com/register/145756302

 

How often do you get pro level training and a Q&A session with real traders and it's costs.......zilch.....nada.....nothing. Nothing to be pitched but good information. Hope to see a lot of you there!

 

 

MMS

Share this post


Link to post
Share on other sites
Well you know what they say..

 

Try it out and let us know.

 

Right, that is the attitude! It's is there just to be tried by people and gather and implement as much feedback and constructive criticism as possible. [ Many fund managers are already testing it severely. See for instance:

 

Forums - Trading FUTURES with IB ]

 

not claiming anything, clearly. Just hard work and dedication.

 

But putting together all the suggestions from many traders around the world, something good has hopefully to come out ;-)) Right ?

Share this post


Link to post
Share on other sites
Just remember that just because you haven't seen something, or think something is not possible, does not mean that this is impossible.

 

Imho think this is a common misconception that people think successful traders are profitable because they use intuition or have some magical gift. Some probably do, but I would venture that they are in the minority. When I created a trading plan with strict rules, my trading turned around. When I don't follow the plan and follow my "intuition", my account very quickly tells me why I have a plan. I think having a solid plan provides you with much better odds to be successful than trading on intuition/gut feel/seat of your pants.

Intuition is mechanical as are your feelings; they are simply a reaction to your environment. It is our assumptions that we wrap around our feelings and how we judge our intuition that distorts everything we perceive. But I do see what you are getting at. The magic bullet / secret sauce is in knowing that there is no secret sauce. Nothing exotic is needed to succeed in automating your strategy.

If you are going the full mechanical route it might be wise to run a couple (or more) systems on several instruments. This approach is more robust.

 

There is a bit of an art (so I am told) knowing when a system needs tweaking when it needs a rest (some stop working then start again) or when it needs retiring.

Why the need to run on multiple instruments? what is the end goal. When you are experimenting on demo account, this might be ok, but when creating automated trading system, everything in the system must have a purpose. It is a systems approach and needs redundancy built in after the fundamental parts of the TC are acquired

Share this post


Link to post
Share on other sites
A number of fascinating posts and feedback here. I will therefore weigh in just briefly.

 

My take has been in trading for the last 20+ years I can get about 90% of the way mechanical. But unless I deploy about 10% trading instinct and adjustment - however moderate, I will not maintain consistent trading over any longer period of time. A few months? No problem. But the longer the data series, the more likely a 100% mechanical will break-down. Which brings me to my second point, even where I've been locked in on rules 90%+ -- I have had to "tune-up" the trade plan on occasion since I have yet to find a market that literally never changes its pattern/behaviors.

 

So, I have found going for 90% mechanical far easier to find than 100%.

 

MMS

 

Maybe the other 10% for MadMarketScientist is the pulling the trigger part? Forces you to be there and feel the market. Realise the current nuances and demonstrate awareness of potential system weaknesses. That way, you are quicker to adjust. Maybe. Lol.

 

If you can automate 90% of the strategy (which is obviously better than 0%, what is stopping you from automating the other 10%? if this "discretion" that you speak of has specific rules, why can't it be automated? Perhaps you are afraid of what pure objectivity will reveal about your strategy.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • NFLX Netflix stock watch, local support and resistance areas at 838.12 and 880.5 at https://stockconsultant.com/?NFLX
    • NFLX Netflix stock watch, local support and resistance areas at 838.12 and 880.5 at https://stockconsultant.com/?NFLX
    • Hello citizens of the U.S. The hundred year trade war has leaked over into a trading war. Your equity holdings are under attack by huge sovereign funds shorting relentlessly... running basically the opposite of  PPT operations.  As an American you are blessed to be totally responsible for your own assets - the govt won’t and can’t take care of you, your lame ass whuss ‘retail’ fund managers go catatonic  and can't / won’t help you, etc etc.... If you’re going to hold your positions, it’s on you to hedge your holdings.   Don’t blame Trump, don’t blame the system, don’t even blame the ‘enemies’ - ie don’t blame period.  Just occupy the freedom and responsibility you have and act.  The only mistake ‘Trump’ made so far was not to warn you more explicitly and remind you of your options to hedge weeks ago.   FWIW when Trump got elected... I also failed to explicitly remind you... just sayin’
    • Date: 7th April 2025.   Asian Markets Plunge as US-China Trade War Escalates; Wall Street Futures Signal Further Turmoil.   Global financial markets extended last week’s massive sell-off as tensions between the US and its major trading partners deepened, rattling investors and prompting sharp declines across equities, commodities, and currencies. The fallout from President Trump’s sweeping new tariff measures continued to spread, raising fears of a full-blown trade war and economic recession.   Asian stock markets plunged on Monday, extending a global market rout fueled by rising tensions between the US and China. The latest wave of aggressive tariffs and retaliatory measures has unnerved investors worldwide, triggering sharp sell-offs across the Asia-Pacific region.   Asian equities led the global rout on Monday, with dramatic losses seen across the region. Japan’s Nikkei 225 index tumbled more than 8% shortly after the open, while the broader Topix fell over 6.5%, recovering only slightly from steeper losses. In mainland China, the Shanghai Composite sank 6.7%, and the blue-chip CSI300 dropped 7.5% as markets reopened following a public holiday. Hong Kong’s Hang Seng Index opened more than 9% lower, reflecting deep concerns about escalating trade tensions.           South Korea’s Kospi dropped 4.8%, triggering a circuit breaker designed to curb panic selling. Taiwan’s Taiex index collapsed by nearly 10%, with major tech exporters like TSMC and Foxconn hitting circuit breaker limits after each fell close to 10%. Meanwhile, Australia’s ASX 200 shed as much as 6.3%, and New Zealand’s NZX 50 lost over 3.5%.   Despite the escalation, Beijing has adopted a measured tone. Chinese officials urged investors not to panic and assured markets that the country has the tools to mitigate economic shocks. At the same time, they left the door open for renewed trade talks, though no specific timeline has been set.   US Stock Futures Plunge Ahead of Monday Open   US stock futures pointed to another brutal day on Wall Street. Futures tied to the S&P 500 dropped over 3%, Nasdaq futures sank 4%, and Dow Jones futures lost 2.5%—equivalent to nearly 1,000 points. The Nasdaq Composite officially entered a bear market on Friday, down more than 20% from its recent highs, while the S&P 500 is nearing bear territory. The Dow closed last week in correction. Oil prices followed suit, with WTI crude dropping over 4% to $59.49 per barrel—its lowest since April 2021.   Wall Street closed last week in disarray, erasing more than $5 trillion in value amid fears of an all-out trade war. The Nasdaq Composite officially entered a bear market on Friday, sinking more than 20% from its recent peak. The S&P 500 is approaching bear territory, and the Dow Jones Industrial Average has slipped firmly into correction territory.   German Banks Hit Hard Amid Escalating Trade Tensions   German banking stocks were among the worst hit in Europe. Shares of Commerzbank and Deutsche Bank plunged between 9.5% and 10.3% during early Frankfurt trading, compounding Friday’s steep losses. Fears over a global trade war and looming recession are severely impacting the financial sector, particularly export-driven economies like Germany.   Eurozone Growth at Risk   Eurozone officials are bracing for economic fallout, with Greek central bank governor Yannis Stournaras warning that Trump’s tariff policy could reduce eurozone GDP by up to 1%. The EU is preparing retaliatory tariffs on $28 billion worth of American goods—ranging from steel and aluminium to consumer products like dental floss and luxury jewellery.   Starting Wednesday, the US is expected to impose 25% tariffs on key EU exports, with Brussels ready to respond with its own 20% levies on nearly all remaining American imports.   UK Faces £22 Billion Economic Blow   In the UK, fresh research from KPMG revealed that the British economy could shrink by £21.6 billion by 2027 due to US-imposed tariffs. The analysis points to a 0.8% dip in economic output over the next two years, undermining Chancellor Rachel Reeves’ growth agenda. The report also warned of additional fiscal pressure that may lead to future tax increases and public spending cuts.   Wall Street Braces for Recession   Goldman Sachs revised its US recession probability to 45% within the next year, citing tighter financial conditions and rising policy uncertainty. This marks a sharp jump from the 35% risk estimated just last month—and more than double January’s 20% projection. J.P. Morgan issued a bleaker outlook, now forecasting a 60% chance of recession both in the US and globally.   Global Leaders Respond as Trade Tensions Deepen   The dramatic market sell-off was triggered by China’s sweeping retaliation to a new round of US tariffs, which included a 34% levy on all American imports. Beijing’s state-run People’s Daily released a defiant statement, asserting that China has the tools and resilience to withstand economic pressure from Washington. ‘We’ve built up experience after years of trade conflict and are prepared with a full arsenal of countermeasures,’ it stated.   Around the world, policymakers are responding to the growing threat of a trade-led economic slowdown. Japanese Prime Minister Shigeru Ishiba announced plans to appeal directly to Washington and push for tariff relief, following the US administration’s decision to impose a blanket 24% tariff on Japanese imports. He aims to visit the US soon to present Japan’s case as a fair trade partner.   In Taiwan, President Lai Ching-te said his administration would work closely with Washington to remove trade barriers and increase purchases of American goods in an effort to reduce the bilateral trade deficit. The island's defence ministry has also submitted a new list of US military procurements to highlight its strategic partnership.   Economists and strategists are warning of deeper economic consequences. Ronald Temple, chief market strategist at Lazard, said the scale and speed of these tariffs could result in far more severe damage than previously anticipated. ‘This isn’t just a bilateral conflict anymore — more countries are likely to respond in the coming weeks,’ he noted.   Analysts at Barclays cautioned that smaller Asian economies, such as Singapore and South Korea, may face challenges in negotiating with Washington and are already adjusting their economic growth forecasts downward in response to the unfolding trade crisis.           Oil Prices Sink on Demand Concerns   Crude oil continued its sharp slide on Monday, driven by recession fears and weakened global demand. Brent fell 3.9% to $63.04 a barrel, while WTI plunged over 4% to $59.49—both benchmarks marking weekly losses exceeding 10%. Analysts say inflationary pressures and slowing economic activity may drag demand down, even though energy imports were excluded from the latest round of tariffs.   Vandana Hari of Vanda Insights noted, ‘The market is struggling to find a bottom. Until there’s a clear signal from Trump that calms recession fears, crude prices will remain under pressure.’   OPEC+ Adds Further Pressure with Output Hike   Bearish sentiment intensified after OPEC+ announced it would boost production by 411,000 barrels per day in May, far surpassing the expected 135,000 bpd. The alliance called on overproducing nations to submit compensation plans by April 15. Analysts fear this surprise move could undo years of supply discipline and weigh further on already fragile oil markets.   Global political risks also flared over the weekend. Iran rejected US proposals for direct nuclear negotiations and warned of potential military action. Meanwhile, Russia claimed fresh territorial gains in Ukraine’s Sumy region and ramped up attacks on surrounding areas—further darkening the outlook for markets.   Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Andria Pichidi HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • AMZN Amazon stock watch, good buying (+313%) toi hold onto the 173.32 support area at https://stockconsultant.com/?AMZN
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.