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When I started out with algorithmic trading, my biggest problem was to create a system that could produce profits on a consistent basis. So, what does really matter? What really matters for you is your own emotional reaction to the facts. I started to write down what I did because I wanted to be able to identify my errors. In my opinion, good automated trading is very boring.
The fact that it only takes a few minutes to do a strategy test doesn’t mean that it isn’t real trading experience. We all think that we can do trading with common sense. We see what works. We are adults and we are smart enough, right?
So how can you find out if something is an advantage? Well, we already have discovered one way and that is to do a lot of back tests for several currency pairs in different trading years. I prefer the equity curve to be as straight as the balance curve. But that doesn’t always work! Especially in the beginning it is hard to make a decision because there are so many possibilities.
If somebody cuts you in traffic, the fact might be that you just lost 3 seconds. But your emotional reaction might be that you start to yell and rage. European brokers are regulated and whenever your account would see a drawdown that is too big, they would stop you out in a minute. There is a reason why most people believe that so called experts might be able to predict the future. If you see a drawdown on your chart, would you rather change your system, take a loss to avoid a bigger loss?
Or would you prefer to believe in what worked so many times before? If you would roll a dice 6000 times, you could be sure that each number comes up about 1000 times. That is the power of probability. Actually, I think that I am a really bad trader. I am wrong most of the time and I have no idea why the price goes up or down.
My results as a discretionary trader are really bad. It is no problem to watch a draw down in a backtest, but you see that the equity line is sometimes far away from the balance line and that is when it starts to hurt. I do extensive back testing, but that doesn’t mean that I can predict the future. I believe in probabilities. The financial industry loves to make it complicated.
But this is about simple automated trading. A fast gain might look very promising, and indeed it is. But please think about the things that need to be in place. Do you check your account conditions carefully? Depending on your broker, you might have very different settings for the required liquidity.
A financial crisis is not so hard to notice. Everybody is talking about it in the news. No matter how many thousand people deny the existence of black swans, a single occurrence of a single black swan will disprove their assumption. I like to close all open positions whenever I have reached my equity goal and the equity and the balance curve are very close to each other. I do know my own results in real trading, they are promising.
But if you can expect the same results, that depends on your account type, leverage, trading costs and so on. One of my former brokers in the UK went bankrupt in January 2015 and thousands of traders have made big losses. If you know what a chart, a bid or an ask price is, then you should probably start to learn the basics about automated trading. You can think of trading system settings like the gas and brake pedals in your car. You use them to adjust the speed of your car.