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Automated Trading 2: Is It Good For Beginners?

18 Sep 2017,

“I’m a beginner, automated trading is probably not suitable for me”. This is something I hear quite often. Is it actually true? Is automated trading also suitable for beginners?

As we have said in the previous article, automated trading has lot of advantages – it does not make mistakes, it is more comfortable from the mental point of view, traders are statistically more successful. From this we can conclude that automatic strategies should be suitable for beginners. Today are going to say something more about it …

 

Automated strategies: Benefits for beginners

As we have said above, automated strategies are having advantages that are of course interesting for the newcomers. There are more of them, so  let’s go through it.

Advantage 1: Psyche

Psychology is alpha and omega of profitable trading. It is very challenging specially for beginners and often they do a lot of mistakes in it. Because of few bad trades, they feel that every trade they open is losing. Imagine following situation in the market(image bellow). The beginner has received entry signal based on his strategy, but since he has lost several trades, he is hesitating. The market goes according to the plan but he is still not there. He could have 1O dollars, but he is still not there, he is still considering the situation. Market grows even further and then he decides to buy. But the market is already overbought and goes down. Our beginner is finishing with stop loss instead of having some nice profit.

 

Automated strategy does not have emotions, so it decides without hesitation, and it simply realizes the trade immediately. This is a great help for the beginner.

Advantage 2: Mistakes

Beginners make many mistakes – they incorrectly understand the market, etc. The automated strategy does not make mistakes. Strategy just does what you have ordered.

Advantage 3: You will find out what works and what does not work

Do you know what is backtest? Backtest performs strategy simulation on historical data. Thanks to this, we know what would had been the result of the strategy in the last 10 years, for example. With backtesting of the strategies, you’ll see what works and what does not. And the market gets faster “under your skin”.

Advantage 4: Automated strategy does not  panic

I remember the classic behavior of beginners when a series of losses occurs.

  1. loss: OK, that’s normal
  2. loss: Cool, the next I will be a profit
  3. loss: Damn, is there anything going on? I’ll have a look at the fundaments.
  4. loss: Well this …It must be different next time. I’ll make another trade with 10x bigger position and I’ll get back to profit.
  5. loss: Damn five losses and so much is lost.. I have to change the strategy

The automated strategy does not panic, it trades exactly as it should. It’s another great benefit for the beginners. It must be taken into account that loss and series of losses are belonging to the trading and without them it is not possible.

Advantage 5: Time

I remember times when I traded discretionally. I had my strategy that I traded. I sat in front of the PC for several hours a day, watched the market, and waited for the signals … I observed the market for almost all of my time. There was little time to study, to develop strategies, etc. As soon as I have started with automated trading strategies, I started to have lot of free time. I could study, search for strategies … Automated strategy traded alone by itself and I just checked the results. Suddenly, I began to gain experience much faster and started to study other markets, which is something I had little time to do before.

From my perspective, automated strategies have a positive contribution for newcomers, and it is certainly pity to avoid them. You gain the experience through them gradually, and I am not afraid to say that even faster than when you trade just discretionary, i.e. manually.

 

 What’s next for us?

Now we have said whether the automated trading is also suitable for beginners. Maybe you say “this is fine, but I don’t know how to program it”. You know what? I do not know it either. Therefore, in the next article, I will show different approaches for building strategies, including those where you do not need to program anything.

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