Trade what you see, not what you think....

robster970

Veteren member
4,566 1,390
I came across this post which is an excellent response to a great post from Shakone....

Can I be even more simplistic and just say that humans also struggle to understand, visually, basic geometry. I'm yet to show anyone an example of a smooth MA crossover who, looking at the trades taken, think it isn't overall profitable and are always surprised to find that the ranging periods are actually often more harmful than the trending periods are profitable. The same logic applies to visual confirmation of breakouts, support and resistance, key areas etc. The brain somehow blots out what they don't want to see. Institutions don't trade anything they can't test empirically (any instrument that has been around for years anyway - ignore certain ETFs and exotic indices traded by a certain Whale for this example). Yet retail traders do on the basis that it 'looks right' and all they need to do is sort out their psychology. This, for me, is the most startling difference and a tragic mistake. Method trumps psychology every time. Laziness and ignorance of technology can barely be tolerated in this industry these days - you must be able to thoroughly test your ideas. Go to almost any IB's careers page and see if they are looking for entry level traders. No, they want developer associates and the odd VP P&L controller. Nearly all senior traders will be ex Python dorks in another induction cycle and frankly they deserve it. Market forces at work....

It got me thinking about the nature of discretionary trading and the difficulty in following the maxim, trade what you see, not what you think and how automation takes care of that non-trivial problem.

I can also see from a institutional point of view that automation is the most viable way of scaling a trading operation. The benefits are obvious.

However, after reading 'The Hour between the Dog and Wolf' which is written by a (now) neuroscientist who was a bond trader, covering the neurological and physiological mechanisms that come into play whilst trading, I cannot help but feel that humans, when at their peak, will always outperform machinery. This is largely down to the massively parallel processing capabilities of the brain which still cannot be replicated by machine.

So I believe that human based, discretionary trading will always outperform an algorithm and that system/algo based trading is useful when trying to scale an operation and in itself is a compromise between scaling and individual, human excellence.

Anyway, am curious about other's opinions on this.
 
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BeginnerJoe

Senior member
3,329 350
Machine wins chess. Machine flies planes, drives trains. Machine executes 1000's of trades per second. Humans need to know their limitations and don't let their ego take over.
 
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neil

Legendary member
5,167 749
Machine wins chess. Machine flies planes, drives trains. Machine executes 1000's of trades per second. Humans need to know their limitations and don't let their ego take over.


If you have the machine that taught you grammar and literacy, I implore you to destroy it - immediately. Please.:p:D
 

robster970

Veteren member
4,566 1,390
If you have the machine that taught you grammar and literacy, I implore you to destroy it - immediately. Please.:p:D

Joe is the 'special' kid in the T2W class Neil.
 
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BobbyBB

Active member
176 8
Machines will always struggle to produce anything like the returns of a good human trader, at least in our lifetime, for one simple reason - the markets are made up of humans and it's primarly human emotions that drive prices. Computers have no clue about emotions and it's impossible at present to program them because the variables are too many.

Robots looking for ticks here and there in the sub 1 second timeframe are a differnet matter of course, they outplay most humans every day of the week. However, don't think for one minute that there aren't a few excellent human traders who take on the robots and win, not many but there will be some who have worked out their weaknesses...
 

barjon

Legendary member
10,705 1,809
........Anyway, am curious about other's opinions on this.........

I would hazard that a discretionary trader who operates primarily from a "mechanical" base - ie: see this, do that - could be outperformed by automation.

However, discretionary traders who have such a good "feel" for their instrument that they operate primarily from an "instinctive" base - or the subconscious application of acquired knowledge if you like - will likely outperform automation because the reasons for the instinctive action are unlikely to be definitive.

I once had a fantastic drug catcher on the Customs bench at Manchester Airport, who had a "hit rate" miles above his peers. He couldn't say precisely why he fancied anyone, nor could we establish it when we tried having him professionally de-briefed. Couldn't have replaced him with a robot :LOL:
 

VielGeld

Experienced member
1,421 179
My take is that if your edge is structural, then you may be able to best take advantage of it by automating the process. But if it's a strategic edge, chances are a human with exceptional skill will be better.
 
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robster970

Veteren member
4,566 1,390
Machines will always struggle to produce anything like the returns of a good human trader, at least in our lifetime, for one simple reason - the markets are made up of humans and it's primarly human emotions that drive prices.

I'm not sure that is true any longer and I don't just mean HFT or algo's looking for pockets of liquidity. I get the very distinct feeling that most activity is machine driven these days. Loads of people trading 1 lots don't feature in the mechanics that move price around these days.
 
L

Liquid validity

0 0
My take is that if your edge is structural, then you may be able to best take advantage of it by automating the process. But if it's a strategic edge, chances are a human with exceptional skill will be better.

Agree with you, in a roundabout way.
If you are going to automate, you will fare much better by constructing it
around the limitations of automation, so those limitations don't work against you.

Thats why I personally think its not just hard (even impossible maybe),
but also a complete waste of time to even attempt to automate a discretionary edge.
 
L

Liquid validity

0 0
I'm not sure that is true any longer and I don't just mean HFT or algo's looking for pockets of liquidity. I get the very distinct feeling that most activity is machine driven these days. Loads of people trading 1 lots don't feature in the mechanics that move price around these days.

Absolutely agree, by way of graphic evidence, here's some research by nanex,
its an oldish post, but highlights your observation rather well:
http://www.trade2win.com/boards/ris...4-roro-new-market-paradigm-2.html#post1977540
Instantaneous switch off with ES liquidity, roughly 80% disappears in a split second.
Digital behavior...
 

BeginnerJoe

Senior member
3,329 350
If you have the machine that taught you grammar and literacy, I implore you to destroy it - immediately. Please.:p:D

You composition is somewhat weak with unnecessary sentence breakage. I suggest, more simply:

If you have the machine that taught you grammar and literacy, I implore you to destroy it, immediately, please.:p:D
 
M

member275544

0 0
You composition is somewhat weak with unnecessary sentence breakage. I suggest, more simply:

If you have the machine that taught you grammar and literacy, I implore you to destroy it, immediately, please.:p:D

Yep, much better grammar
 
 
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