To get a computerized system edge, you need to figure out the basic human trading weaknesses and include them in your software. Anyone can buy a trading system these days, but it will have little value unless it is unique and different from the crowd. Here's some easy-to-understand ideas I use that add in the human fears!
These days it's very easy to put together a computerized commodity trading system. The average software program will literally write and optimize itself. You can buy a "black box" that will give you wonderful claimed performance. But what does that tell you? If anyone can do it, then it's of little value and uniqueness in the market and will become a loser over time. To get an edge, you need to figure out the human trading weaknesses and code them into your software. Here's an easy-to-understand program outline I use myself that does just that!
I've talked much about discretionary, intuitive e-mini futures trading. You might think that I have no use for automated computerized trading systems. But that’s not true. I focused on the hardest part first (discretionary trading) to get you headed in the right direction. I didn't want you to get lazy and depend fully on a computer. Let's now talk about how automated computerized trading systems can be very helpful to your e-mini and other futures trading. The following applies to day trading e-mini futures where risk can be closely controlled.
The first concept to understand is that GIGO, (garbage-in, garbage-out) certainly holds true for computerized trading systems. It’s easy to design a system that uses all the canned moving averages, MACD, stochastics , etc, etc, on and on. Everybody has access to these programs and you can be sure there are lots in use every day. Over time this stuff is break-even, a wash at best most of the time.
So why did I take so much time talking about discretionary e-mini futures trading? Why did I stress we need to discover the unique trading patterns exhibited by a market? It’s because you want to program your computer to trade as closely to your perfect self as possible. You want to look at your computer's buy and sell signals and be able to say in hindsight, you, too, would have taken these trades. These trades should be based on your real world experiences observing market patterns. Programming in the human part of the concept is not easy. In fact, it is very difficult to do.
I got the inspiration to write this course lesson because today my e-mini futures “trading companion” (my software program) mimicked my trading almost perfectly. In fact it did much better than I could have done today. It took trades that I was second guessing and afraid of. It was so masterful today it was humbling. It made (on paper) seven profitable trades in a row. Not all days are this way, of course. Many days this program will have bad days, just like me. But today it was “King For a Day." Remember that the markets are always changing.
To get “good in - good out” (GIGO- modified) for your e-mini futures software program you FIRST need to find the patterns that are currently working in the market by simply observing and logging. Then program them into your software so that you can almost anticipate when the program will trigger a signal. You need to know and understand how the program works or you will not have the confidence to always pull the trigger using its signals. This is the first step.
You know step one is correct when you get a strange and gratifying feeling seeing the trading signals go off and the market immediately reacts favorably in real time. This is especially dynamic when the trading system is a counter-trend method that looks to buy panics at lows and sell panics at highs.
The second step is to add a little "salt." Start thinking about the human side of the software programming. We'll talk about this next!
Part Two of Four Parts - Next
There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.
Thomas Cathey - 27-year trading veteran heads the managed futures division of Thomas Capital Management, LLC. View his market forecast TimeLine Trading charts and get his complete 44+ lesson, "Thomas Commodity Trading Course - all free." http://www.thomascapitalmanagement.com/commodity/welcome.htm Main site: http://www.ThomasCapitalManagement.com
