Do Software Developers Make Better Traders?

Left Brain/Right Brain syllogisms are well known by now.



An "amazing trader" is definitely a goal worth shooting for, no doubt.

Having a mathematics background helps because it allows you to contemplate the exploration of data in ways that might not otherwise be available to the trader. Beyond enhancing the creative exploration of data, advanced math seems (at least in my experience) to offer little other advantage.

Having said that, the ability to "see" patterns in the data is indeed enhanced by having the math tools necessary to build the query against the data that reveals its true self. For example, one does not have to understand Fourier Analysis, but one might be able to envision a cyclical pattern in market data better, if one already used time-series cycle analysis transformations before. You probably won't even use it the exact same way, but at least the Right Side of the brain can "dream-up" an idea to begin working with, that the Left Side of the brain is already familiar with.

How one arrives at a new idea for understanding and/or predicting market behavior, has a lot to do with what one already understands, or has been exposed to - quite possibly, in other areas of life.


I learned the hard way many years ago, to never throw away a trading idea that seems to make no sense at all today. You never know when one of your contemporary ideas will need something that you created years ago, in order to make it work today. What seems like a joke today, might be the missing link tomorrow.

Never throw any idea away. You just never know when it might become important.


"Discretion," is just another integrated layer of logic. The more discretion, the more layers of logic that need to be integrated. The tough part is keeping track of the algorithm that integrates the various layers of logic. This is where I've run into problems with MQL. It does not do a good job of allowing you to build multiple layers of algorithmically wrapped logic layers. It does an ok job, just not enough to allow you to really open up the trade logic flood gates.

This all goes back to my statements about the difference between computer programming skills, and trade logic development skills. I agree, it is an art form in many respects and that is made apparent because we have to isolate and map the consistency within the markets, among all the juxtaposed and apparent chaos within the market data.

The structure within the randomness of the market, is the thing upon which the trading system can be defined, engineered and built. Often times, people get blinded by the structure, because they have a difficult time getting beyond the randomness. So, all they ever see is random market behavior. The data has structure, but finding it can be difficult for some.

It is sort of like the Rice Paper analogy in the old Kung Fu television program. David Carradine, had to get to a point where he could walk across the rice paper without leaving footprints. It would seem antithetical to common sense, but that was the litmus test before he was able to really move on.

Similarly, in my opinion, the trader has to be able to get beyond the noise of the market, before they will be able to see its true structure, so that they can start learning how to work with that underlying structure.

I've found the structure. I'm just trying to valid its consistency in the smaller time frames. That's the only reason why I'm messing with MT4 in the first place.

More than anything, this was about putting on a television production and not real trading. These people were asked to learn a new profession, in an impossible time frame. You just can't pull the average person in off the street and teach them this business that fast. This documentary proved it.

They got a micro-crash-course in technical analysis and the vast majority of the rest was fundamental training. A couple of them actually got the concept of what fundamental trading means, but I doubt any of them got well grounded at all in technical analysis.

Except those few did better than the average fund, they said.
And, why be grounded in something you don't need? TA is a young field compared to fundamentals, and difficult to make rules only for, so I can see concentrating on fundamentals.

The program emphasized what t.v. can present the clearest: Drama. And what better subject?
My favorite trading series; intelligent and well-planned and -executed.

All the psychology was freshly laid up in front of you: Only the strongest psyches survived, and told you why in the moment.
If I knew how to do a study of trading psych well enough, that program would be the first place I'd go.

Very long threads about the series are at both forex factory (now in the bin) and elite trader.

The rules for TA are only difficult, when not understood. It is not the rules in and of themselves that are difficult, but designing the trade logic that wraps the rules together, is what many people find challenging.

Here are some visual rules:



The rules themselves weren't that difficult to figure out. However, developing the algorithm to bind them into a cohesive trading system that actually works the way it was design to work, took a great deal of effort. But, here's the point - when I launch this Bot, I don't have the tons of internal stress associated with having to manually make adjustments during a specified trading period.

I can fire and forget, knowing that any outcome (negative or positive) will be within my range of tolerance. Second, it would be physically impossible for me to trade this same system manually. For one thing, the degree of precision for the Entry level, is beyond what I can reproduce with hand/eye coordination. For another thing, I would have to be able to work 24/7, in order to replicate the trade sequences of the Bot.

I'm good for about 12 hours of straight manual (physical) trading. After that, I start to become:

- Impatient
- Quick to pull the trigger
- Slow to pull the trigger
- Mentally fatigued
- Physically fatigued
- More of a doubter about my own skills (even after 10 years of trading)

Why grind myself that way, when I can do all of the tough work up-front.

Each time I sit down and watch Million Dollar Traders, I can't help but wonder how well these individuals would have done, had they known how to develop Trade Logic, as opposed to spending so much time on Fundamental Analysis, right at the start of the Great Recession.

Oh man, I can relate to this. This held me back enormously, more than I care to think about.

During my very early days, I back tested a method for weeks on end. It was a really simple method using Bollinger Bands and one indicator (the days before I had any understanding of PA) and it was sound. It was very sound over a decade of data on 3 majors. Win rate fluctuated between 55 and 70% but it was a money maker and had a good set of strict rules. R/R was fine too so the whole thing had a solid positive expectancy to it.

I never traded it live once. There was no reason not to but I wanted better. I wanted 80% and perhaps if I tested something that had an 80% win rate, i'd have pushed for 90%. It's a very unhelpful mindset indeed.

When I finally accepted that a method that allowed me to enter 10 times a day with a 60% win rate was way better than one which gave you 10 entries a month with a 80% win rate, I began to progress.

A lot of traders seem so hung up on number of pips, win rate, R/R rate and rarely making bad trade calls that they are actually smothering their own ability to make money. All that actually matters in the end is equity growth, regardless of how you get there.

Manual trading all the way for me too. I am sure that some coders make excellent returns from their EAs with little stress but I just couldn't let a bot mess about with my money that way. I'm a control freak and that's what actually makes this an interesting passtime/career. All manner of different people can actually thrive in many different ways....and all manner of different people can also lose their shirt in many different ways too!

Cheers!

Double Cheers!


LOL! Wait a minute! Then the Bot is your ultimate Freaky Solution. All traders are control freaks, if they tell you the truth.

Code your Bot with what you would do in any given situation, and the Bot becomes just as paranoid and Type-A as you. Now, of course, make sure you stay away from the paranoid "delusional" Bot. That's a loser right from the word go.

Bot Design 101 (just for fun):

1. Keep the Bot on the edge, but don't turn him into a dive bomb.

1. Make him salty and a little hungry - not too greedy. Greedy Bots are disgusting pigs.

1. Make him slightly paranoid, but not clinically insane.

1. Make him alert, but not overly sensitive.

1. Make sure his feathers are not easily ruffled, but don't let him get pushed around too much either.

1. Your Bot, needs to be able to stand his ground, but also smart enough to not pick a fight that he knows he cannot win.

1. Make your Bot read the "Art of War," so that he understands when to engage and how to wait patiently.

1. Your Bot should be something very close to a Professional Assassin when completed.

1. Remember a Bot with too much attitude, can become a problem child and you'll end up having to re-train it too many times, before it learns its lesson.

When you are done, name your Bot something like: J.Bourne.ex4.



Cheers and very true.

THEY DON'T.

Try teaching a few to buy low sell high, they don't have a clue, because there are too many variables, supply, demand, weather conditions, time of day, time of month, colour, style, fashion, the list is endless.

You have a certain style to your prose sir!

"Code your Bot with what you would do in any given situation"

Here's the nub about bots for me. I wouldn't know where to even start with this. I now trade things just because "i've seen this before". I am having a hugely difficult time documenting my entries to try and get a little more structure to my trading to form some sort of plan. They are so discretionary and the R/R so inconsistent that I really am struggling enourmously trying to wrap a trading plan around the entries. I can't even imagine the amount i'd want to cave my own skull in after trying to make a bot understand my mind.

Some things are just best kept within!

First: You start by deciding why you are even in this business. You have to derive some justification for wanting to put yourself through the ringer of such a steep learning curve and the frustration that will inevitably become your closest ally, as you develop the level of tenacity necessary to truly become successful as a trader. So, figuring out and fully understanding why you are a trader, or want to become a trader, would be the very first place to start. Most people never bother to stop and ask themselves this question, and then wonder why they have no guidance and direction when things get tough.

Second: You need to pick your Number. Everybody has a Number and no two Numbers are alike. You need to figure out how much is enough. You need to figure out for yourself, what your financial target is and why that target important to you. Nobody can pick your Number for you - it is a very personal thing that only you can figure out for yourself. But, one thing is certain: your Number needs to be real. It needs to be something that fits a bigger purpose in your life. Money is nothing more than a means to and end - it is not the end game. However, it does enable other things (projects, organizations, etc.) that would be much more difficult to do without it. You need a sound Number. Most traders never take the time to do this, so they never really understand what they are shooting for, or how to go about getting there.

Third: You need to decide what type of trade you want to be. Intra-Day Trader, Inter-Day Trader, Swing Trader, Position Trader, or Investor. Each category of trader comes with a different set of obstacles to success. Each category of trader demands a different set of skills and knowledge. And, each category requires a different approach to Entry, Exit and Hold decisions. The level of start-up equity you have will also determine which category is more appropriate. Each category comes with a different level of time commitment. So, you need to determine exactly how much time you can commit per day. You might have to start in one category and then migrate to a different category, depending on the level of your start-up capital. Most importantly, the tools you trade with will be highly dependent upon the category of trader you decide to be.

Fourth: You need an Edge. The Edge is what helps you reach your Number, so that you can fulfill the reason behind Why you are in this business. No Edge, no realization of the Number and no fulfillment of the Why you are a trader. Your Edge can be anything that gets you into and out of the market on a consistent basis with profit at the end of the trading cycle. Your Edge could be Technical and/or Fundamental. It needs to be well defined, logical, repeatable, highly available in the market and sustainable in the market conditions in which it was intended to perform. The best Edge is one that can perform under all market conditions. They are also the most difficult to come by.

Fifth: You must learn how to conduct Research. There is no such thing as a successful long-term trader, who never learned how to conduct Research. The best traders, are those with solid Research skills and disciplined study habits. There are no shortcuts, unless someone hands you what they have slaved over for years and that does not happen very often in the life of a trader. If you don't have good Research and Study skills today, you will before you become a successfully consistent long-term trader.

Sixth: You need to develop Indicators that work. It does not matter whether you select the Fundamental path, or the Technical path, or a combination of both paths, all traders use Indicators. An Indicator is nothing more than a Logical Algorithm that tells gives the trader information about a Buy, Sell, or Hold decision. That's it. That's all an Indicator is, and that's all any Indicator ever will be on its own. But, you need at least one (1) solid Indicator that you can rely upon to fulfill the mandates of the Category of trader you have selected for yourself. Having a solid Swing Indicator, when you are in fact an Intra-Day Trader, won't help you reach your target Number. All FX Indicators are built on OHLC Data Analysis. So, number Five and Six, go hand in hand. This means that you need to learn HOW to explore OHLC FX data, for patterns that have a history of repeating themselves. If they don't have a solid history of repetition, then leave those patterns alone and continue searching for those that do.

Seventh: No successful long-term trader fails at being Creative. If you are not Creative now, then you will be before you become a consistently profitable trader long-term. The ability to Think Outside The Box, is severely underrated in the retail trading business, but it will become a distinct advantage for you. Creative thinking is necessary to help you locate those patterns that repeat with enough historical frequency, to provide a statistical basis and the justification for spending the time, energy and effort necessary, for the development (design & engineering) of your own Indicator. Creative thought is what will enable you to uncover the hidden meaning behind the Indicators that YOU design and that YOU create. This will further enhance your Edge.

Eighth: You will need to develop the mental skill to be able to see 30 Thousand Foot Views, while simultaneously working at sea level. You will have to develop a Strategic Thought Process. One that enables you to see both the trees and the forest. When Researching an Indicator concept while doing OHLC data analysis, you have to be able to determine how and where such a new concept would fit into the Category and type of trader you happen to be. Any new Indicator concept you discover, will either need to stand on its own, or it will need to be integrated into a larger system, strategy, tactic, or methodology - where its value as a contributing factor to aiding you in the Buy/Sell/Hold decision, is known by its relationship to and with other Indicators in the circuit. This means that as you progress along the path of new Indicator discovery, that you also maintain a good top-down view of the entire trade decision making process.

You will also need a good Money Management Philosophy, but that cannot come until after you solidified the trade decision support platform, which is predicated on the Indicators you use in your final solution.

This enumerated summary is a good place to start thinking about how to approach the business of trading, in ways that 99% of retail traders don't.


Seeing it before, and having statistical historical evidence born out of research, study and analytical proof, might be two entirely different things.


No better tool than Excel, for such analysis.

However, unique to FX might be MT4's MQL and its Backtester engine. I'm not a programmer, so I've opted for a Visual development tool to build some EA components, such that I can get a better understanding of what my indicator designs can do in the smaller time frames. I am an Inter-Day Trader, but that will change, if I can convert some of my indicators into functional EAs that take advantage of the lower time-frames, where my current system does not.

After you've created an EA based on your indicators, you will need to conduct tick data backtesting and not the modeled backtesting that is native to MT4. A guy by the name of "Birt," created a free script and a process for getting the right onto your file system, for such testing. Just google Birt's EA Review, for more information on tick data backtesting using MT4.

Even though you believe your trading style to be "discretionary," that does not mean that it cannot be encoded. If it cannot be encoded, then it is probably illogical and/or circular. Circular trade decisions are nothing more than 50/50 guesses. They have nothing to do with repeatable, historical patterns in the market. You can create a Circular Indicator, but it would just be a 50/50 Guessing Indicator and nothing more. If your discretionary style is illogical, well that should speak for itself. How would one expect to reach their Number, predicated on illogical discretion.

So, discretion does not equate to unable to code. All trade decisions (discretionary included) have Input(s) to some kind of process tree. The entire mental process of making any decision, is predicated on Input(s). If you have Input(s), then you can encode a logical algorithm for its counterpart Output. Why? Because, Cause must always precede Effect. There can be no Effect, without their first being a Causality. Input, must precede Output. In between both Input and Output, is the algorithm that controls the decision.

When people talk about discretionary trading, what they are really talking about is what they believe to be a decision making process with a high number of variables. They then conclude that since their trade decision process contains such a high number of variables (Inputs), that there is just no way that it can be codified. This is of course, not true. It might be the case the MQL is not capable of handling all of the Inputs, but rest assured that if you can conceive of the trading idea, it can be algorithmically controlled in the same way.

Even when it comes down to that "hunch" about not taking a trade, that "hunch" came from somewhere. You saw something, or you heard something, that caused you to either take the trade, or not take the trade. Whatever it was that you saw, or heard, is also an Input to a decision making process.

So, what's left? Pure Intuitive Trading. And, who among us does that full-time, consistently and with reliable profitability? Pure intuitive trading is someone who literally needs no charts, no data and no computer. All they need is a phone, so they can call their broker to place the order. All they do, is intuit the trade decision. They get a feeling: "Hey - I should go Long now," and then they pick-up the phone and place the order.

That's pure "intuitive trading." And, once again, who among us can do that consistently?


Discretionary Trading? Or, Intuitive Trading? The two are not the same. One is sustainable and one is not.

Regards,
iD