To get a computerized system edge, you need to figure out the basic human trading weaknesses and include them in your software. Anyone can buy a trading system these days, but it will have little value unless it is unique and different from the crowd. Here’s some easy-to-understand ideas I use that add in the human fears!
These days it’s very easy to put together a computerized commodity trading system. The average software program will literally write and optimize itself. You can buy a "black box" that will give you wonderful claimed performance. But what does that tell you? If anyone can do it, then it’s of little value and uniqueness in the market and will become a loser over time. To get an edge, you need to figure out the human trading weaknesses and code them into your software. Here’s an easy-to-understand program outline I use myself that does just that!
I’ve talked much about discretionary, intuitive e-mini futures trading. You might think that I have no use for automated computerized trading systems. But that?s not true. I focused on the hardest part first (discretionary trading) to get you headed in the right direction. I didn’t want you to get lazy and depend fully on a computer. Let’s now talk about how automated computerized trading systems can be very helpful to your e-mini and other futures trading. The following applies to day trading e-mini futures where risk can be closely controlled.
The first concept to understand is that GIGO, (garbage-in, garbage-out) certainly holds true for computerized trading systems. It?s easy to design a system that uses all the canned moving averages, MACD, stochastics , etc, etc, on and on. Everybody has access to these programs and you can be sure there are lots in use every day. Over time this stuff is break-even, a wash at best most of the time.
So why did I take so much time talking about discretionary e-mini futures trading? Why did I stress we need to discover the unique trading patterns exhibited by a market? It?s because you want to program your computer to trade as closely to your perfect self as possible. You want to look at your computer’s buy and sell signals and be able to say in hindsight, you, too, would have taken these trades. These trades should be based on your real world experiences observing market patterns. Programming in the human part of the concept is not easy. In fact, it is very difficult to do.
I got the inspiration to write this course lesson because today my e-mini futures ?trading companion? (my software program) mimicked my trading almost perfectly. In fact it did much better than I could have done today. It took trades that I was second guessing and afraid of. It was so masterful today it was humbling. It made (on paper) seven profitable trades in a row. Not all days are this way, of course. Many days this program will have bad days, just like me. But today it was ?King For a Day." Remember that the markets are always changing.
To get ?good in – good out? (GIGO- modified) for your e-mini futures software program you FIRST need to find the patterns that are currently working in the market by simply observing and logging. Then program them into your software so that you can almost anticipate when the program will trigger a signal. You need to know and understand how the program works or you will not have the confidence to always pull the trigger using its signals. This is the first step.
You know step one is correct when you get a strange and gratifying feeling seeing the trading signals go off and the market immediately reacts favorably in real time. This is especially dynamic when the trading system is a counter-trend method that looks to buy panics at lows and sell panics at highs.
What?s another advantage to using a trading companion for day trading the e-mini futures contract? The human emotions are sometimes unreliable for trading. We are all basically hardwired the same. I can tell you how you will react because it?s how I do too. You need to write a program that does the opposite of the normal human tendency.
Panic is a perfect example of human tendency under stress. Another is releasing ourselves from pain as quickly as possible. A third is the desire to enter comfortable situations. A forth is fear of compounding a mistake or painful situation. And a fifth is holding on, thinking good times will never end. All these are clues to what you need to find in the e-mini futures market and program into yourself and computer.
You want to identify things are against the human grain to do and are painful to do – remember that! What could possibly be an e-mini futures trading method that would simulate these ideas? First, a system with no stop loss orders will provide the requirement of not running away and releasing ourselves quickly from pain. Am I crazy? Maybe? but you need to be different, even if only a little bit.
Next, how about adding to a loser instead of running? Well, at least add once or twice, compounding your pain – but having an eventual ?uncle? point, which is also painful. And how about entering a market when they are bleeding in the streets – when you are SURE it?s going to keep going? And, how about scaling out half the profitable position when we think the e-mini market will go on in our favor forever?
All these solutions sound crazy and opposite the conventional trading wisdom of going with the trend, limiting losses, using stops, never averaging down and letting your profits run. The conventional wisdom is meant to make us feel COMFORTABLE! You want to feel comfortable? Then spend a day at the beach or stay in bed. You want to trade e-mini futures contracts and make profits? Then expect to be uncomfortable, to sometimes feel pain, want to run and second-guess yourself!
I have some friends who put up radio towers for a living. I love to climb them. A 200′ climb is easy. I remember the first time I climbed with an experienced buddy. I could barely make it up to 20? before I froze and hung on for dear life. I had this crazy notion that I had to stay below the point where I could fall and die. I figured 20′ was the limit.
My buddy, at 100′ looking down, just laughed at me and said, ?You wanna be a woman all your life?? HA! I saw that he could do it, and so could I! I worked my way higher and higher until I could finally climb to the 200′ top alone. Over the next twenty years I?ve climbed thousands of times and can now climb without fear. Some of my non-climbing friends remark? ?You?d never get me up on that tower!? We are all programmed to fear heights. Unless we get desensitized, it will always remain this way.
I feel my e-mini futures trading companion is the equivalent of my climbing buddy. My computer and program show me how it should be done. It has no fear and can take on positions with nerves of steel. It?s what we would all like to be. The computer is all business, getting the job done. No second-guessing. No fear of averaging down. No greed stopping it from scaling out half the profitable position early in case the market reverses. Isn?t this the biggest problem – not knowing when to get out? I know it is for me, so it is for you too.
The important thing is that we need each other to succeed – I need the computer and it needs me.