Es Emini Day Trading: How Far To Go With Automation
In recent years there has been a growing trend toward black box trading systems
, which are programmed computers that trade on signals generated by market position and price and automatically execute and exit trades. In using these systems, the user sits back and the computer does all the work and the user checks his account every night to see how he has done. Many of these systems claim fantastic rates of return through using their system. These systems, quite simply, should be considered trading bots.
This is in sharp contrast to another group of traders that are adamant that no oscillators or momentum indicators are required to trade, and price action is the prime methodology for entering and exiting trades. Chart formations and market movement is the prime variable in this style of trading, and some traders claim some fairly impressive returns.
The third type of trader uses observed price movement along with a battery of oscillators and momentum indicators to bolster their investment decisions. From the onset, I will admit that I fall into this category, as I feel the more information at your disposal the better your trading decision. In the extreme, I have observed some traders who may have two or three screens of oscillators they use to determine their trades, and I have thought to myself, how in the world could someone possibly keep track of all those different indicators?
For example, I am an instrument rated pilot and when flying in IFR (zero visibility) situations we are taught a scanning technique to watch seven indicators simultaneously. This technique is practiced at length and is no small skill to develop. Of course, the secret is to move you eyes from instrument to instrument without stopping for any period of time on a single instrument, thus scanning the instrument panel for any abnormalities that may crop up. I can scan seven instruments, but I dont think that I have the ability to do many more, so I have serious doubts that these multiple screen of indicators are of much value to a trader in that it is practically impossible to interpret the results simultaneously.
So I am going to throw the multiple screen watchers out of this discussion as their methodology is nothing more than overkill.
The bots, though, are a different story. I actually purchased one of the most famous forex bots just to see how it worked and determine whether I could figure out the formulae it used to buy and sell. Unfortunately, I never fully understood its buying and selling signals fully. On the other hand, the bot did not perform as advertised. To be sure, it made some good trades and I actually ended up with my account in black at the end of the month, but the results were less-than-impressive. I have read non-scientific and unsubstantiated posts on chat boards that claim a similar experience as mine. I shut the bot down and havent used it since, but it was an interesting experiment to perform and perhaps I will fire the software back up sometime and give it another chance.
Hedge Funds have been notorious users of automated trading systems over the years, and there has been no small amount of debate as to whether they are good for the market, as oppose to detrimental. In times of market turmoil, there are regulations on the NYSE which require the hedge funds and institutional traders to cease an automatic trading activity. There is no doubt in my mind that bots create a degree of volatility in the market that would not be there if they were not used. The ES Emini contract is starting to have a larger number of bots in use, and this may account for some of the absolutely irrational price action behavior you see on the chart from time to time. (I want to point out that opinion is purely my own, not based on science but observation)
The price action alone guys, the ones who dont use indicators and abhor bots, are another matter all together. Past experience has taught me that it is entirely possible to trade the markets on price action alone, though it is my opinion that you lose a bit of your accuracy and precision in trading when you intentionally exclude helpful information. This only makes sense to an extent, the more information you have at your disposal should give you a better view of what the market is actually doing, which can be difficult to discern in situations that are extremely chaotic. Just the same, I will give the price action guys their due, they are able to make money trading on chart formations and price action, though I think they are missing the boat.
As for me, I prefer to use four momentum and price oscillators and chart study to trade. This has produced optimum results in my personal trading for more than a decade, and I am often able to discern market trends the price only guys cant see yet. As for the bots, I have no idea what they are seeing, and that alone worries me. I would prefer my future in my own hands, not a machine.
by: David S Adams
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