The E-mini Trading Professor

Archive for the ‘futures markets’ Category

I got an interesting e-mail today asking me about a particular futures trading system. The writer wanted to know if the system was fully mechanical and automated. I should point out that there are automated or “black box” trading systems employed by large hedge funds and other large trading groups, but I have never come across a fully automated trading system suitable for individual traders seeking to day trade the futures markets.

Of course, there are a slew of Forex robots on the market today, and the results from these robots have been mixed, at best. In my opinion, this type of question regarding futures day trading is the result of a spillover effect from the Forex trading cabal. But I think that this request reflects an even deeper question being considered by new traders that are entering the futures markets.

What sort of question do you think I am considering?

It’s the old goose that lays the golden egg story. In my opinion, the great attraction of Forex robots is the lack of accountability the trader is forced to shoulder. After all, if you have a machine that simply works day and night to create money, why wouldn’t everyone own one?

The answer to this question is fairly simple, there are no geese that lay golden eggs and there are no Forex robots that consistently churn out fantastic profits. It would be a wonderful thing if there were trading machines that could consistently make profitable trades, just as it would be a great thing to own a goose that lays golden eggs. Unfortunately, day trading doesn’t work that way because the market moves in a variety of methods that makes low-cost trading robots impractical to produce.

Nor are there any strictly mechanical methodologies that will consistently churn out an endless stream of profitable trades. No matter what methodology you employ in your trading, you will always be faced with subjective choices as to the merit of any trade under your consideration. At this point in our technological progress, we simply don’t have a level of artificial intelligence capable of adjusting to the varying conditions that exist in the futures markets.

And I am glad we don’t.

I have always considered trading a combination of interpreting formulaic indicators and personal judgment. Some call this form of trading and art, but I look at it more in terms of a learned skill. I am an avid reader of technology and scientific journals and we are years away from developing the level of artificial intelligence needed to effectively day trade markets. We have one of the most marvelous computing devices ever designed sitting atop our shoulders. Though I wonder if some individuals care to employ this marvelous device we refer to as our brain.

A combination of advanced technical indicators that have been developed in recent years and the power of our own brain is what has, in the past, and will continue to be in the future the most effective trading devices available. Of course, developing this trading machine will take some traders a good deal of training to refine it to the point where it is an effective trading machine. There is nothing wrong with this process, in my opinion.

The idea of artificial intelligence machines picking every trade perfectly is something from Aldous Huxley’s “Brave New World”, and not something I would relish. Imperfection and improper trading technique are part and parcel of the trading process, especially for traders in the early part of their career. It is the way we learn to trade. If we developed the technology capable of picking all trades as winners, the markets as we know them would cease to function. In every trade, there has to be a winner and loser. It is the very nature of trading. If every trade were a winner, there would be no need to trade.

It’s not a trading world in which I would choose to live.