Why automation is a must

babyjake1961

Well-known member
391 12
I used to scorn fully automated Forex EAs when I thought I had gained enough trading experience but even more trading experience has brought me to believe they are just about the only way to stay in the game.

The reasons for that is strategy stagnation. Just about every trading strategy (or a combination of strategies) which is profitable in the long run has fairly lengthy stagnation periods of up to half a year. Surely, someone who is not a professional trader working for a big corporate name cannot afford to stay flat for that long.

Therefore, they either quit for good and go back to their day jobs or lose patience, start experimenting, and stop following the strategy which leads to an imminent loss.

With an EA, after making sure it's coded right, you can set it up on a VPS and run it from there while doing your usual daily stuff and not missing on any trades. Needless to say, you also don't feel any stress or emotions which oftentimes leads you to things like reluctance to cut your losses, premature profit taking, or revenge trading.
 

babyjake1961

Well-known member
391 12
Just to provide some examples, here are the equity curves of one algo I'm currently running. The first curve is for February 2007 - August 2007 and the second curve is for January 2007 - April 2016 (to fully include the first time span in it too).

While the second backtest shows a mind-boggling net profit of over 21 million on a 1K initial deposit, the first curve shows a depressive stagnation period of as long as full six months and an even more depressive 75% drawdown.

There's no way a typical financially struggling punter could endure such a drawdown: over those lengthy, depressive six months he/she must earn and consume their daily bread for which they weekly thank their Lord at a local chapel or else life will brutally consummate them in no time.

As such, they will not be able to sit tight and follow the strategy manually. Yet if they toss the bot onto a cheap VPS and only check it periodically for platform crashes, they can confidently wait out any amount of time to come from the rags to riches, provided their trading strategy is sound.
 

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Pat494

Legendary member
13,845 1,399
Automation is getting increasingly sophisticated and I am sure it is only a matter of time before the EAs start to produce regular profits from whatever market condition. What will happen then no one knows.

:clap:
 

babyjake1961

Well-known member
391 12
Automation is getting increasingly sophisticated and I am sure it is only a matter of time before the EAs start to produce regular profits from whatever market condition. What will happen then no one knows.

:clap:
Only if an EA combines several strategies for different market conditions, trending markets and ranging markets being the main ones. I've completed my trending market strategy, now looking for a good ranging one. Are you aware of any?
 

Pat494

Legendary member
13,845 1,399
Only if an EA combines several strategies for different market conditions, trending markets and ranging markets being the main ones. I've completed my trending market strategy, now looking for a good ranging one. Are you aware of any?
Try an oscillator
 

kalott

Established member
681 58
maybe some kind of martingale like milestone or blessing but it will probably blow your account sooner or later if you dont get the MM to work?
 

babyjake1961

Well-known member
391 12
maybe some kind of martingale like milestone or blessing but it will probably blow your account sooner or later if you dont get the MM to work?
Martingale will blow your account no matter what.
 

kalott

Established member
681 58
Martingale will blow your account no matter what.
"Only if an EA combines several strategies for different market conditions, trending markets and ranging markets being the main ones. I've completed my trending market strategy, now looking for a good ranging one. Are you aware of any?"

it depends on how the trending strategy is working and lot size
 

babyjake1961

Well-known member
391 12
"Only if an EA combines several strategies for different market conditions, trending markets and ranging markets being the main ones. I've completed my trending market strategy, now looking for a good ranging one. Are you aware of any?"

it depends on how the trending strategy is working and lot size
It's working really well :) And the lot size can be decreased to any value :)

The ranging strategy must be self-sufficient, profiting in the long run on its own just like my trending strategy does. Martingale is never one.
 

NetTecture

Well-known member
403 12
I used to scorn fully automated Forex EAs when I thought I had gained enough trading experience but even more trading experience has brought me to believe they are just about the only way to stay in the game.

The reasons for that is strategy stagnation. Just about every trading strategy (or a combination of strategies) which is profitable in the long run has fairly lengthy stagnation periods of up to half a year. Surely, someone who is not a professional trader working for a big corporate name cannot afford to stay flat for that long.
It is not only stagnation - you also significantly reduce the drawdown chance because while one strategy may be in a drawdown, others may offset. Every week, some strategies may be in minus - but there is a big chance you STILL take some money home because other strategies may make money. With a good selection of different types of strategies and various markets - "something should work all the time".

And it is trivial to trade 50 strategies each in 10 markets. Yes, you have to come up with them, but a decent computer and an infrastructure written for handling many strategies (sadly most are not - ridiculous if you ask me) have no problem running 500 strategies 24/7.

This week for example I lost big on crude - need really to work some spike protection into my base code so that trades that are not working at all are redirected to simulator (which my framework can do)). But the week still is good - thanks to other strategies winning enough to make it into the green.

For a human, handling a significant number totally separate strategies is simply not possible.
 

IFeelFree

Active member
109 19
Only if an EA combines several strategies for different market conditions, trending markets and ranging markets being the main ones. I've completed my trending market strategy, now looking for a good ranging one. Are you aware of any?
Try Ernie Chan's "Algorithmic Trading: Winning Strategies and Their Rationale". The first half of the book is mean-reversion trading algorithms. He gives you the code (in MatLab) for implementing the strategies, and shows examples of their performance, as well as their rationale.
 

IFeelFree

Active member
109 19
It is not only stagnation - you also significantly reduce the drawdown chance because while one strategy may be in a drawdown, others may offset. Every week, some strategies may be in minus - but there is a big chance you STILL take some money home because other strategies may make money. With a good selection of different types of strategies and various markets - "something should work all the time".

And it is trivial to trade 50 strategies each in 10 markets. Yes, you have to come up with them, but a decent computer and an infrastructure written for handling many strategies (sadly most are not - ridiculous if you ask me) have no problem running 500 strategies 24/7.

This week for example I lost big on crude - need really to work some spike protection into my base code so that trades that are not working at all are redirected to simulator (which my framework can do)). But the week still is good - thanks to other strategies winning enough to make it into the green.

For a human, handling a significant number totally separate strategies is simply not possible.
Instead of increasing the number of strategies and markets, which is a brute-force approach, one may also investigate more sophisticated strategies that have the potential for higher return/drawdown ratios. This would include strategies based on trading a cointegrated portfolio of assets (stocks, ETFs, etc.), as opposed to trading a single asset within each trading strategy. Cointegrated portfolios of 3 or more assets have better statistical properties for forecasting price changes, and so can be implemented in an automated system using a trading algorithm. Chan describes some of these algorithms in detail in the book I mentioned earlier. You may still want to implement multiple strategies, but if you're drawdowns are lower, you don't need to run hundreds of them just to stay in the green.
 

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