Newbie asks - Automated or discretionary trading?

I am a newbie to the trading game, so please treat me genttly!

I am currently trading the "e-mini S&P 500" Initially, I started trading, using my own, very limited judgment, with not too impressive results. However my broker pointed me in the direction of automated trading strategies, and I now have one automated trading strategy running on my account. My broker said that one method of trading which was pretty popular was to have several trading strategies running concurrently, as this could have the effect of "ironing out the spikes and making for a smoother equity curve". Obviously, one should take care when selecting which strategies to run, paying particular attention to risk profile, track record etc.

My question, really, is: Is it possible to build a significant capital base, and eventually draw an income, purely from trading automated systems, and judiciously increasing the number of lots traded as the account grows? Pre-supposing, of course, that the account has been sensibly and adequately funded in the first place, and that the chosen strategies have a proven track record and been chosen with care.

Your thoughts would be much appreciated.

regards,

Chris
(krispy)

Hi,

I would say becareful of broker recommendations as :

1) They are not traders and have less 1st hand knowledge of trading hence they are middle men.

2) Their recommendations may be biased towards " systems" that tend to churn commisions for them .

3) In theory , any system can work but the ultimate test is can you make consistent money with it ?

krispy said:

My question, really, is: Is it possible to build a significant capital base, and eventually draw an income, purely from trading automated systems, and judiciously increasing the number of lots traded as the account grows? Pre-supposing, of course, that the account has been sensibly and adequately funded in the first place, and that the chosen strategies have a proven track record and been chosen with care.

Chris
(krispy)

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The S&P is a highly liquid instrument with plenty of movement where you could trade in 100-contract lots every minute and not move the market. If you can find an automated strategy which steadily builds your capital base then with compounding, you would quite quickly find yourself trading Soros-like quantities of millions and then billions of $$. Nice work if you can get it and there's 43,731 members on these boards who would love to share your method. The reality is that there are a very few who have something that works some of the time, it might take you a little while (massive understatement!) and a lot of hard work to catch up though, with no guarantees at the end of it.

Stockjunkie is correct when he reminds you that your broker has a different agenda to you.
pete

krispy said:

I am a newbie to the trading game, so please treat me genttly!

I am currently trading the "e-mini S&P 500" Initially, I started trading, using my own, very limited judgment, with not too impressive results. However my broker pointed me in the direction of automated trading strategies, and I now have one automated trading strategy running on my account. My broker said that one method of trading which was pretty popular was to have several trading strategies running concurrently, as this could have the effect of "ironing out the spikes and making for a smoother equity curve". Obviously, one should take care when selecting which strategies to run, paying particular attention to risk profile, track record etc.

My question, really, is: Is it possible to build a significant capital base, and eventually draw an income, purely from trading automated systems, and judiciously increasing the number of lots traded as the account grows? Pre-supposing, of course, that the account has been sensibly and adequately funded in the first place, and that the chosen strategies have a proven track record and been chosen with care.

Your thoughts would be much appreciated.


regards,

Chris
(krispy)

Click to expand...

Hi Krispy! (are you a Krispy Creme or a Krispy Cracker I wonder?)

Anything is possible I suppose but there is no quick fix or fast track to wealth on the markets. It is gonna cost you much time and money and nobody will do it for you. If it was that easy to buy a bit of software and program a winning strategy in five minutes then we'd all be sunning ourselves on our yachts and between cocktails checking how many thousands were flowing in to our accounts.

Before anyone else posts after me directing you to various websites purporting to offer the moon on a plate I advise you to protect the two most important assets to any trader. His time and his money. Without these you join the ranks of the other day dreaming wannabes.

The elitetrader site has some good info about auto trading and the real life journals of others seeking this particular Holy Grail.

Bon voyage!

------------------------------------------------------------------------------------------------------------------
"If you want a guarantee, buy a toaster."
Uncle Harry.

As others have pointed out but I will re-iterate.

Using several systems is, as your broker says, pretty popular (with brokers that is) as it generates more commission. This is not to say that you should rely on only one.

I believe you have to develop and test the system(s) you use yourself for two reasons. Firstly despite what some will claim people do not in general give away or even sell vastly profitable systems. Secondly you have to put your own money under the control of the system, what will you do when (not if) the drawdown starts. Unless you understand the systems performance characteristics how will you know when it has stopped working because the market has changed? How long will you keep throwing good money after bad waiting for it to come good etc. - Read about system development and testing, understand curve fitting so you know when you are doing it and why you shouldn't. System testing can be like testing 100 coins to see which one comes up heads most often then paying commissions to trade on the results of the ones that came up heads 12 times out of 20 tests.

Another nuget is hinted at in your post. It is not quite good enough to "judiciously add to the number of contracts". You research money management techniques and have a clear plan for how you will add to and reduce your number of contracts as your capital increases or decreases. Money management is not about placing stops. When you have found discussions of things like fixed fraction vs. fixed ratio you are in the right area.

I know a number of people who have become successful system traders and make a living from it. Personally I have tried and have found it easier to become a profitable discressionary trader, however my research continues.

All this is not intended to be discouraging. Best of luck

Talk about babes in the wood !! ( nothing personal you understand )
There is a quantity of stuff on this website for new would-be traders.
Please read that while paper trading your ideas
Why make it a profitable Xmas for your broker - he won't even say sorry when he takes the shirt off your back !! As for treating you gently oh dear........................

krispy,

Very good advice posted up to here.

The HUGH problem I personally have with purchasing a system is that if it were any good I believe the seller would be trading it not selling it. However, there are web sites that track the performance of various systems so if the tracking is done properly (without financial motive to the web site, and including all costs/slippage relevent to your trade size and set up etc) then in theory there isn't any reason why someone couldn't pick a few of these and trade them sucessfully. I know I couldn't as I wouldn't understand/trust any purchased system and I wouldn't know when it's in a draw down verses failing. Horses for courses.

krispy said:

I. However my broker pointed me in the direction of automated trading strategies,(krispy)

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"Stockbroker: One who looks after your money until its all gone." (Woody Allen)