Let me start with a spoiler: algorithm trading is nothing like automatic trading, and automatic trading isn’t like workless trading. This is a fact. However, trading with algorithms and automatic trading scripts can greatly improve your chances of trading success, if you are using them with the right approach and with reasonable expectations.
Let’s face it; trading is a boring job with awesome returns. It requires routine work where, if you have a system that works, you would be doing the same things over and over. In our era, the conventional and obvious action to take would be mechanizing any repetitive task.
Automatic trading or algorithm trading sounds to many novice traders like the greatest shortcut for successful trading. In my early days in trading, I had that same misleading conception. It took me a few months and a few broken accounts to understand that algorithm trading is far from being set and forget trading.
It took me several years to learn how to understand and trade in the financial markets, and to recognize why my expectations from automatic trading were wrong. Once I got the message, I changed my approach toward script trading, so I could use scripts to get more efficient with my trading.
Understanding the Market Presentation
At one point in my early trading career, after testing zillions of trading systems, with zillions of parameters, I realized that I am looking for a systematic mathematical presentation of price. However, it never really made sense for me, since pricing in the financial markets is a presentation of real-life events. Events are driven by human, societies, politics, and all of these have many interceptions and unpredicted effects on how the market reacts.
My common sense told me that it is impossible to expect EMA17, RSI 84, MACD deviation or whatever combination of mathematics applied on price move to work over time. Humanity is far more complex for it to be decoded into a set of algorithmic parameters.
The truth is, the market is ever-changing and evolving like human society. Core influences are always shifting from countries, industries, commerce, just name it. My conclusion was vindicated once I found that the market is more complex to be decoded by simple non-learning hi-end algorithms.
Understanding the Skill of Trading
A common claim made in Forex trading is to use Expert Advisors (A MetaTrader Automated Trading Script tool) because traders face many psychological hurdles during trading, which only a robot can overcome. It is true that trading requires you to be in the zone with the same mindset no matter how the market is changing. You can’t let anything affect your emotions.
I will not paint a pretty picture here; the trading profession is incredibly hard, monotonous, and requires years of practice to master. However, you should never risk your money and time on it if you are looking for a shortcut or trying to make money quickly.
Life has taught me that there are no real shortcuts. Anytime I have tried to take shortcuts, I ended paying the full price through my mistakes. I had the same experience with coding EAs. They worked well on backtesting, they worked well on live, but only for while. The crash was the only thing should have been predictable.
Trading requires you understand the temporary nature of price behavior, and the ability to realize rapid changes and adopt quick modifications.
Setting Expectations from Automatic Trading Algorithm
It takes a glimpse at reading the career section of any major algorithm trading fund to realize that algorithm trading is not a substitute for work. It will not let you do other stuff while it supposedly works for you. In fact, algorithm trading firms work very hard with the best brains to maintain steady operation.
In fact, I interviewed several people who have worked at leading private algorithm trading firms. They had told me that the operation consists of dozens, sometimes hundreds, of different scripts. The vast effort is invested in research and development. These efforts are made for disposable scripts that are expected to work only for a temporary while.
These top firms are working hard to maintain automatic trading, since there is no magic key you can turn on, and head to the beach. If a highly sophisticated scientific business does not expect workless trading by algorithms, so what can you can expect an MT4 code to do for you.
The Good Use of Algorithm in Trading
Ever since I stopped expecting holy grails from script writing, I used my earned skill in MQL coding to create semi-automatic tools, and all sorts of trading support tools that helped me become more efficient, scan for better opportunities, act faster, reduce mental descriptions, and manage running trades better.
All the tools I have created for my own trading were made to ease my routine and to provide me with better efficiency of my time and attention. I have created automatic trade execution scripts, only after I used my brain and eye to approve the trade scenario. I always strived for continuous perfection and modification of my scripts.
Knowing what to expect from trading algorithms will put you in a better position for your trading, but it will never eliminate the human factor, which is faster than code and adapts to changes extremely faster.