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About Mechanical/Automated Trading

  • #1
  • First Post: May 30, 2006 12:55pm May 30, 2006 12:55pm
The first time I heard the term, I was like, what the ... is that. I approached it and learned it and now am testing some strategies live to see if it really worthed the effort.

When you ask about Mechanical trading you might hear that they are really good because...

  1. You automate your trade and let the machine to trade for you 24 hrs a day
  2. The machine exactly follows your strategy and never gets immotional
  3. You usually have the chance to backtest your strategy to make sure it is practical
  4. Mechanical trading could be a great approach to money management, to make sure you won't spend more than what your are supposed to on a specific trade

However, -although it might be to soon to raise these concerns - I'm really concerned about a few things:

  1. Technical analysis is very subjective, a chart pattern that appears to me as a head-and-shoulders formation can be interpretted differently by somebody else. It would be really difficult to quantify such interpretations in an acceptable way
  2. Mechanical trading - to my understanding - focuses more - if not all - on quantative analysis (i.e. technical indicators) and this can be misleading. Although the indicators can be of different nature (trend specific, oscillators, etc.) they are in the end one single approach to analysing the market behaviour
  3. You may lose opportunities created based on Fundamentals

Now, my questions are?

  1. Can we really use mechanical trading as an alternative to manual trading?
  2. Is there a mechanical tool out there that gives us the chance to analyze the charts more broadly? I mean be able to recognize trend lines, channel lines, chart formations, Elliott waves and so on.
  3. What is the best programming tool out there and which brokers use that?
  4. Are there good books written on mechanical trading?
  5. Do you recommend it? (I mean either as an alternative to manual trading or a good approach along with manual approach, or just as a tool to help us to have a better approach to the market)

If you are experienced in the field please answer the above questions. I think many people find the answers useful.

Thanks in advance,

  • #2
  • May 30, 2006 1:25pm May 30, 2006 1:25pm
I am nowheres near experienced, but I think a technique can be automated if it is 100% mechanical; meaning that if 10 people used the entry instructions, all 10 would enter a trade at the same time. I have yet to see a 100% mechanical technique that produces consistant profits.
  • #3
  • May 30, 2006 1:44pm May 30, 2006 1:44pm
Quoting aparsai
. . .

Now, my questions are?

 

  1. Can we really use mechanical trading as an alternative to manual trading?
  2. Is there a mechanical tool out there that gives us the chance to analyze the charts more broadly? I mean be able to recognize trend lines, channel lines, chart formations, Elliott waves and so on.
  3. What is the best programming tool out there and which brokers use that?
  4. Are there good books written on mechanical trading?
  5. Do you recommend it? (I mean either as an alternative to manual trading or a good approach along with manual approach, or just as a tool to help us to have a better approach to the market)

If you are experienced in the field please answer the above questions. I think many people find the answers useful.

Thanks in advance,

IMHO.
1) Not on a Live Account.


2) & 3) TradeStations {Omega Pro} but not Free.


4) Personally, I've never read one. {Which may explain my position on this}


5) Yes I do recommend it on a DEMO account.
Develope your mechanical system(s) then plant it on a chart & put it in a closet in the basement somewhere. Check it every month or so to see if it has sprouted or possibly even has a bud on it. Make sure to snip off any dead leaves and check it for bugs. You may have to give it some food and then put it back for another while.

When it is strong & healthy, transplant it to a DEMO box beside your workstation. This way you will be able to continue working manually while enjoying the fruits of your labours.

Don't forget to check the other seedlings in the basement occasionaly.

Never let yourself be caught in the trap that makes you feel inadequate because "Others are making more pips than you. I want More Pips Now."
They are either lucky or have put the time in to learn & understand the markets. So... If you aren't the lucky kind...
  • #4
  • May 30, 2006 2:18pm May 30, 2006 2:18pm
I'm going to have to disagree with Bemac on a few of the points, and I'll add my own answers to your question.

1) You absolutely can use it an alternative to manual trading if your broker/provider provides you with an API. Most APIs can be used with conteporary programming languages, and you'd actually be surprised with the availability. Furthermore, any broker that utilizes MetaTrader has the ability to program entries. I don't know whether or not you have to manually confirm buy and sells, but I do believe it's possible...I don't really automate MetaTrader, but I believe there are people out there that do. Now, philosophically speaking...whether or not you SHOULD implement automated trading is a much more "grey" question. The answer will ultimately lie in the system itself. If it's a profitable system, go for it...however, you'll find that most "automated" trading suffers from the same problems as technical analysis that was alluded to earlier.

2) The answer is yes, there are many tools out there, but again...mechanical analysis is only as good as the programmer can make it...so if you're good at being able to objectively identify trends, then programming it shouldn't be a problem.

3) If you're looking for actual tools...pretty much any programming language will get you what you want assuming it's compatible with your API. If you're looking for a non-programmer's tool...I couldn't recommend one. It's the nature of the beast, I guess...if you can do it yourself, you're going to be ahead of the game (or if you have access to that type of resource).

4) I couldn't recommend a book on the subject, really...again you're only going to be as good as the programmer can get...

5) I'll have to answer with "no comment"...it's a very subjective answer, really...and unfortunately, the answer will ultimately depend on how much committment to automated trading one can muster. Automated trading is just like any form of trading, except that you will constantly be retooling your application...You will still need to study and do analysis and you'll still have to be on top of your money management. People tend to think that automated trading is some sort of "holy grail" in that they don't have to be present at the market while the system rakes in the dough. However, automated trading isn't exactly like that. You may not have to constantly monitor the market using charts, but you'll have an entirely different set of issues to deal with. You'll have to worry about application downtimes, parameter configurations, and of course, you'll get into the "my system was only off by a pip or 2 on the entry/exit" problem CONSTANTLY. You'll also have to deal with your system performance during varying market conditions. So you will CONSTANTLY be updating and releasing your program...trust me...it'll be a nearly daily (if not hourly) experience.

With that said...the largest financial institutions in the world do some form of this, and some companies almost SOLELY do this.

Think of automated trading as more of technique that works in a lagging (but forward thinking) mode. You'll watch your system perform, and then you'll tweak it here and there, and let her rip again. It'll hit another wall, and you'll bring it down and tweak it and do it again.

It can be a really rewarding experience, just like regular day-trading, but you have to have the commitment to making the best system possible...you'll be the driver and your car will be your machine...and just like any race, you have a goal, but you'll need constantly adjust and probably have to make a pit stop once or twice along the way.

Automated trading IS NOT a SET IT AND FORGET IT method.
  • #5
  • May 30, 2006 2:55pm May 30, 2006 2:55pm
Quoting Bemac
IMHO.
1) Not on a Live Account.
...
...
....time in to learn & understand the markets. So... If you aren't the lucky kind...
Bemac,

Thanks.
  • #6
  • May 30, 2006 3:02pm May 30, 2006 3:02pm
Quoting mrmikal
I'm going to have to disagree with Bemac on a few of the points, and I'll add my own answers to your question.

...
...

Automated trading IS NOT a SET IT AND FORGET IT method.
Mr Mikal,

Nice points. Thanks for your comments. BTW, I've recently learned MetQuote Language (the one that is used on MetaTrader) and you can go live and leave the whole trading to the application. But again, my search to find a good mechanical system (software+method) is not finished yet.

As you said, and it is proved to me within the last few weeks, mechanical trading needs the same dedication as manual trading but in a different way. Anyway, I still feel that I need guidance from gurus.

Have fun
  • #7
  • May 30, 2006 6:58pm May 30, 2006 6:58pm
I'll chime in here with my vote for VT Trader. It comes stock with several mech bots and can be easly (imho) be programmed to do whatever you want. You also have access to the API and can hack it in the language of your choice. (Mine is Python)

The downside is it can only be used with a few brokers, most of whom use CMSFX servers. Some people have problems with CMS but I have had a good experience with them. There are some good threads disscussin and cussin them here at the Factory.
Nolite dormiens pungere ursum. -- Latan Proverb.
  • #8
  • May 30, 2006 8:18pm May 30, 2006 8:18pm
Hello,

I think your questions all depends on your own trading style and what you have found to be profitable with your previous experience. You have to know exactly what those "indicators" are "calculating" and what kind of conditions that it can go well and what kind of conditon that it can went wrong. Then you have to do the calculation yourself (with help of backtesting) what kind of money management that can work with your strategy. Then write the code according to the platform you are using (as you said that you just found out about the metatrader language). Something like Elliot Wave, you will have to define it youself and write the code to the computer so it can actually do what you really wanted it to do. Therefore it is a good exercise for yourself to know what is the your understanding of Elliot wave - if you can't put it down on the paper, I really doubt that you can actually trade it "MANUALLY" for long term. (well, whether you can code it or not depends on your imagination of how codes can be written. Metatrader 4 is quite open in terms of what you can do)

I have been using metatrader for automated trading on live account for last 8 months. The problems I actually encounter are all computer related - broken hard drive, burned CPU, crappy internet etc.

Do I recommand auto trading? well not to everyone. I will only recommand to the person who knows exactly what he is doing for his trading because if trading went sour, he knows how to "adjust" it.

However I do recommand everyone to do some kind of coding and test different "strategies" to know the strength and weakness of different indicators before they actually jumps in to trade.

For example, I am using SMA for trading. It is the easiest indicator to know and trade. The strength is when market go into the "trend", you make money and the weakness is when market is ranging, you lose money. The money you are trying to make is the "middle" part of the trend. Therefore you need to find the MA length that is short enough to get you into the trend early and long enough that will keep you stay in the trend longer. What can you do?? You can make the code, and use the optimisation feature in MT4 to "backtest" it. You should be able to find out that 1. there should be a range of numbers that you can use for MA to get similar results. 2. You are actually losing $$$ by using MA because most of the time, market are "ranging". Then you can read more about how to use MA in different ways from all the books or internet and test it again. Therefore you can get more understanding of how to use the indicator to "improve" you trading.

Hope you have a happy trading
  • #9
  • May 31, 2006 6:52am May 31, 2006 6:52am
Quoting Puppy
Hello,

I think your questions all depends on your own trading style and what you have found to be profitable with your previous experience. You have to know exactly what those "indicators" are "calculating" and what kind of conditions that it can ...
....
....most of the time, market are "ranging". Then you can read more about how to use MA in different ways from all the books or internet and test it again. Therefore you can get more understanding of how to use the indicator to "improve" you trading.

Hope you have a happy trading
Hi Puppy,

Thanks for your post. It seems that I finally found my guru. I beleive in what you say here. I've tried several combinations of indicators (trend & oscillators) to find the opportunities both in a ranging and trending market. So far there has been one that showed success in backtesting sessions. Now I'm testing it on my demo account to make sure it really works.

I'm not done yet. I'm trying to simulate some of candlestick patterns and combine them with western approach to create an even more sophisticated system.

As far as Elliott Waves are concerned to be honest with you I've found them very subjective. It's sometimes almost impossible for me to count the waves correctly. Somthing that looks like a Zigzag to me may is translated as a flat pattern by somebody else. I've decided to put it aside for the moment and approach it after I'm done with my second CMT exam. I was hoping though that there might be a more userfriendly application in the market that can help me recognize them.

Anyways, thanks for your help. I've added you to my list of favorite writers and will follow up with you whenever I have more questions on this subject. Is there any other forum that is focused on Metatrader programming?

Thanks
  • #10
  • May 31, 2006 6:53am May 31, 2006 6:53am
Quoting MrWhipple
I'll chime in here with my vote for VT Trader. It comes stock with several mech bots and can be easly (imho) be programmed to do whatever you want. You also have access to the API and can hack it in the language of your choice. (Mine is Python)

The downside is it can only be used with a few brokers, most of whom use CMSFX servers. Some people have problems with CMS but I have had a good experience with them. There are some good threads disscussin and cussin them here at the Factory.
Thanks Whipple.
  • #11
  • May 31, 2006 7:08am May 31, 2006 7:08am
Quoting aparsai
Is there any other forum that is focused on Metatrader programming?
http://www.forex-tsd.com/
http://www.strategybuilderfx.com/
I'm not insane; my mother had me tested.
  • #12
  • May 31, 2006 7:13am May 31, 2006 7:13am
Quoting RoBiK
http://www.forex-tsd.com/
http://www.strategybuilderfx.com/
Thanks RoBik
  • #13
  • Oct 29, 2007 2:54pm Oct 29, 2007 2:54pm
Does anyone have any opinions about what "administrative" things a mechanical trading system "MUST" do to be safe/profitable?

For example, what is the accepted method to keep track of how many positions to allow being open vs. available funds/risk?

Or another example, what type of safeguards are typically used to make sure you have contact with your server, and the normal process to follow if you reconnect after a server disconnect?

I am not using any of the "standard" platforms (MT4, etc) as my trading platform, so am open to any suggestions/sources that may add insight.

Thanks
  • #14
  • Oct 30, 2007 10:12pm Oct 30, 2007 10:12pm
Sup guys,

Yeah, you all have good points. There is only one way to make the program make you money, you have to copy what the big guys are doing, regardless of the small returns. The only way i'm trusting a computer to trade, is with volatility being canceled out with pairs trading. Hedge funds use this strategy on everything, it is the safest strategy, not 100%.

So what have i programmed?

I have developed an automated system for 50 pairs on 1:500 leverage with north finance broker. Since the nature of hedging does not allowe me to backtest anything, i have to forward test. I have developed the classic mean reversion strategy based on ratio and correlation of two instruments, and it's all mechanical 100%, i never touch it, i just look at results. And yes once it is ready, i will go live with it........................

But my ideal goal, is to get hired by the hedge fund automated trading department, learn what they are really doing with their super computers................
  • #15
  • Oct 30, 2007 10:47pm Oct 30, 2007 10:47pm
Quoting c0d3
Sup guys,

Yeah, you all have good points. There is only one way to make the program make you money, you have to copy what the big guys are doing, regardless of the small returns. The only way i'm trusting a computer to trade, is with volatility being canceled out with pairs trading. Hedge funds use this strategy on everything, it is the safest strategy, not 100%.

So what have i programmed?

I have developed an automated system for 50 pairs on 1:500 leverage with north finance broker. Since the nature of hedging does not allowe me to backtest anything, i have to forward test. I have developed the classic mean reversion strategy based on ratio and correlation of two instruments, and it's all mechanical 100%, i never touch it, i just look at results. And yes once it is ready, i will go live with it........................

But my ideal goal, is to get hired by the hedge fund automated trading department, learn what they are really doing with their super computers................
You lost me at the BOLD
  • #16
  • Oct 30, 2007 10:59pm Oct 30, 2007 10:59pm
Could you list some of the API out there?ty
  • #17
  • Oct 30, 2007 11:25pm Oct 30, 2007 11:25pm
I've been turning this question over in my head for awhile too...

For me there are 2 scary issues with 100% automated trading. I don't know if they are realistic issues or just my own paranoia, but here they are:

1) No room for discretion or "feel" as some put it. Anytime I've read about various successful traders, this element seems to come up eventually. IMO it might be the difference between 10% a month and 10% a year. I don't think any of us are in this game for 10% a year...

2) EA's are too easy. As a former programmer, I have a hard time with the idea that a little script based on some relatively simple mathematical "indicators" is going to park the gravy train in front of my house. I imagine that a program that would reliably evaluate market conditions and make consistent profits year on year would be incredibly complex. I've played with many of the popular EA's and it's amazing how well they back test for the few months or even a year or two prior to their introduction. Then they fall flat on their face as market conditions change a few months later. That's because they were programmed to "fit the curve"... which seems to me an almost inescapable delimma for automated trading.

I tend to think of automated systems as tools in a trader's toolbox. If I am utilizing an automated trading system, all I have to do is turn it off occasionally and I have just reintroduced the key element of discretion into the process. However, then it's not really automated is it! So really the whole thing is still a manual trading strategy. The key difference being that I don't hit buttons to initiate a trade. But if someone provides assurance that my 2 issues can be resolved then that would be great!

Thanks for reading!!
  • #18
  • Last Post: Jun 28, 2008 11:11pm Jun 28, 2008 11:11pm
MrWhipple,

I would like to see how an API works for VT Trader. Can you post short sample code that does something very simple such as:

buy 1 minilot of eurusd and then exit.

that's it. I just want to see how this is done and then I can add the rest. Can you do it in C# or PERL?


Thanks,

Frank

Quoting MrWhipple
I'll chime in here with my vote for VT Trader. It comes stock with several mech bots and can be easly (imho) be programmed to do whatever you want. You also have access to the API and can hack it in the language of your choice. (Mine is Python)

The downside is it can only be used with a few brokers, most of whom use CMSFX servers. Some people have problems with CMS but I have had a good experience with them. There are some good threads disscussin and cussin them here at the Factory.
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