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Home / Psychology / Taking Emotions Out Of Trading: Automation

Taking Emotions Out Of Trading: Automation

I am not a fan of automated strategies. When banks and trading firms throw millions and millions of dollars at their geeks, trying to come up with sophisticated self-learning algorithms that take money out of the markets, how do you ever want to make money with a self-developed trading robot or a so-called “Expert Advisor”? I just don’t believe in it and I have yet to see a working bot.

However, I believe in the automation of certain parts of discretionary systems. This can take a lot of room for human error out of the game. The strongest advantage of robots is, of course, that they do not feel things like greed, fear, anger, and so on, and they never tire. We as humans have to fight our very own nature if we want to become successful traders.

Automation can help as a lot with this process. There are trading platforms that help us do this, and there are trading platforms where we need to employ a few tricks to get automation to work. Here is what I have automated in my trading.

  • Automatic Stop Loss and Take Profit Orders

Whenever I open a trade, either by pending order (preferred) or by market, SL and TP orders are automatically attached to that order. My SL is always set at 10 ticks, my TP at 50 ticks. I then only have to adjust these by dragging them around on the chart. This gives myself no chance to NOT set these orders, and should all my connections get cut off, at least I have an emergency stop of 10 ticks. My stop rarely to never gets bigger than 10 ticks, usually, I decrease it. My TP is just there as a reminder for me to take profit at some point, but I almost always exit manually. It is away far enough so that if the market explodes, I have enough time to drag it further.

  • Automatic Break Even Orders / Trailing Stops

Whenever my trade has reached a certain # of ticks (depending on the market somewhere between 5 to 10 ticks), my stop is automatically pulled to break even. This is a hard rule of my trading and not having to do it by myself saves me a lot of clicks and focus. I watch the trade like a hawk until it is set to BE, then my only focus is on how far I can ride this thing, and I can also focus on other entries in other markets as well. You can, of course, also automatically trail your stops by tick, or in degrees of X ticks, there are a lot of options. Making locking in profits part of your strategy is the way to go.

  • Tick Charts: Automatic Switching In Pace

As I laid out in a previous article, tick charts print more bars when volatility is high, and less bars when volatility is low, basically switching between “timeframes” for us, allowing us to get fast and swift entries when we need it, and keeping us out of the market when we are not supposed to trade. One of the greatest tools for day traders, by far.

  • Automatic Position Sizing

Pre-defining a certain risk you want to take on certain setups and then not having to calculate the size of your trade in the heat of the moment takes a lot of needed brainpower out of the process. This works especially well in Forex, where we can go down to micro lotsizes and thus always risk the same amount of % on a single trade. I like to vary my position sizes based on the grade of the trade, so using different scripts and / or predefined orders is a great thing to have.

  • Automatic Checklisting

A checklist is the culmination of your whole trading plan. Ticking off items, making sure that the trade meets your criteria, helps a lot to eliminate wrong entries as well as emotions when trading. If you have indicator-based criteria, you can automate these. Get a coder and have yourself made a custom indicator that says “Yes, price is above 50 SMA”, “Yes, Stochastic is over 80”, and so on. This will make your decision making faster and easier and at the same time reminds you of when a trade does not meet all your criteria. I never trade without a checklist, neither should anyone else.

  • Asking For Confirmation Of Every Order Change

My software (Sierra Chart) has an option that makes me have to confirm everything I do in relation to orders. Getting in and out of the market, moving stops, and so on, all require me to click YES, I REALLY WANT TO DO THIS. This eliminates miss click errors, but it also lets me hold my breath for a second and rethink what I am about to do. This has kept me out of a lot of bad trades, especially when tilting a bit. An incredibly useful function, although I know not every platform offers this.

  • Automatic Software Shut Down When In Drawdown

While I have yet to see this feature in a trading software, how great would it be, especially for day traders, to get shut out when you are down a predefined amount of $? This would save a lot of money for a lot of people in my opinion, as it is hardest to stop when we are in the whole. But we usually just keep digging it deeper and deeper. If our software would simply not allow us to trade anymore for the day, this would erase the need for the incredible discipline and self-control it takes to stop manually.

Trading Is All About Decision Making: Free Up Brainpower And Eliminate Emotions Through Automation

Even for a very simple strategy, there are a lot of factors to consider and is incredibly easy to overlook one or many of them when trading. That is why practice makes perfect. But we can also help ourselves a lot by eliminating clicks, and decisions, through automation of as many as possible things in our discretionary strategies. Successful people like Mark Zuckerberg or Steve Jobs wear the same outfit every day, for years. Why? Decision fatigue. When you have to make as many decisions as these people, every decision you can eliminate will increase your performance and delay fatigue. 9 out of 10 plane crashes can be avoided if the pilot simply switches back on the auto pilot and lets the machine do what the machine does best: doing its job regardless of how stressful the situation is. Chernobyl was a human error as well.

So while all my points probably seem very basic to the experienced trader, they will make a HUGE difference to your bottom line at the end of the year. The human factor is simply not to be under estimated, especially in trading, and the more tasks we can give to the machines, the better. A checklist is the first step to automation, this is an absolute must-have, all the other steps are bonuses. So, think about it: what can YOU automate about your discretionary trading strategy to make the machines help you become profitable?

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6 comments

  1. When I read the very first line of your article “I am not a fan of automated strategies” I said to myself “well, I have to strongly disagree with this guy”. Then, after I read the whole article I can say I agree 110% with you. 🙂

    I am myself a big fan of small automations, like those you’ve described, automatically position resizing, placing multiple orders at once, custom trailing stops. I don’t believe in fully independent trading robots either.

    In fact I’ve learned to code these automations myself, since in Metatrader is so easy to code them by trial and error.

  2. Felix De Vliegher

    Excellent article, Moritz! As an automated strategy developer, it actually gave me some ideas to automate some parts of my own manual strategies.

    One example: as MT4 doesn’t allow multiple TP levels, it would be quite useful to write something where you could enter your own TP levels and have the order be modified automatically when price reached those levels. You could do order stacking in a similar way.

    • Thank you, Felix! Yes, order managing is a great thing to have in MT4, also partial closing and so on, or opening multiple trades at once with lotsize div. by 3, and so on. Lots of things possible to make trading MT4 MUCH more comfortable!

      Bests,
      M

  3. I really like your article. I got this one through one of the Google Alerts I setup for automation and trading. We are building a software/plaform (Yes, the entire platfrom) for swing trading that will automate a lot of things that you mentioned above. We were doing the research for weeks on what we need to automate, but now, we have a ready check list.

    I agree with you 100%. Trading is more about discipline. The more you automate (for example, I love the checklist part) more you will stay on the horse. And when you do fall off the horse, getting back on the horse become easy.

    Thank you for sharing your secret recipes 😉

    • Hello Madhu,

      thank you for your nice comment and glad I could help out! Eager to see your product, let me know when it’s out.

      Bests,
      M

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