You have surely heard of automated trading.
You may have even used it.
Today I want to talk about the mistakes people make when using automated trading.
1. Reverse test or forward test
Who really understands the creation of an advisor will be able to make the advisor make a 100% profit per month during backtesting, while trading almost Risk free.
But don’t just rely on back-test results. Checking the advisor’s track record is of course important and useful, but what is really important is how the advisor shows up in real trading. After all, you can’t win with what you already have. been you must be able to win in the future.
Therefore, it is very important to test any system in direct tests.
Carry out tests of tests in real time in real market conditions. This means that all decisions are made based on trading history, but only the result that is generated in real time is considered a true representation of performance.
2. Data accuracy
70%-80% of the data on the Forex market, including that provided by brokers, is complete nonsense.
Your system is as good as their data, and if you can’t trust their data, then your system won’t be able to either. Valuable data is quite expensive, which is why so few people have it.
You must be able to clean the data for the proper functioning of the system.
A good systems developer, even with a wonderful strategy, will fully understand their weaknesses and will take appropriate steps to eliminate them.
3. Consider all expenses
There are many costs associated with trading, brokers are well aware of this, and you should be aware of it too.
At a minimum, you should consider:
1) Propagation – it is different in different instruments;
2) Commission expenses;
3) Slip into various assets you are going to trade;
4) Delays of brokers in opening orders;
5) Infrastructure costs.
4. Risk and capital management
The key to all trading systems lies in the capital and risk management rules. To completely change the characteristics of the strategy, it is enough to change these rules a little.
The strategy developer must take into account all the details of his system. This is necessary not only in order to avoid everything that could blow up a trading account, but also for the purpose of achieving emotional balance, to calmly abandon your system or a working strategy and not interfere with it.
There is one more thing we try to do – it is a daily analysis of open/closed positions based on the current market situation.
This ensures that any profit or loss is instantly analyzed. This avoids new open positions and some emotional problems. This approach will easily confuse systems with unclear rules and those with a fairly attractive performance curve.
5. Investors are an emotional person
For those who plan to develop successfully, this point is key and must be taken into account by all those who will invest. their funds in trading systems. You must remember that although you may feel good about 30% drawdowns and wild fluctuations in your capital, their Investors will not share those sentiments.
If you want to go to the next level of development, you must cultivate a personality that you can invest in. As a general rule, in the world of investing, this means applying little leverage, allowing low drawdowns, and making consistent profits.
A common and time-tested method of evaluating investments is the Sharpe ratio. For a good investment, it should be at least 3, the maximum leverage should be 10:1, and the drawdown should not be more than 10% of the capital and balance.
6. Consider the limitations
And the final key rule is that you need to know the limitations of your system. This includes both the trading conditions under which it will and will not work (no system is perfect) and its scaling. That is, if I put $100 million into my account and my profit target is 2 points, the slippage will most likely swallow my entire profit target and I will never see a profit on my investment.
Even the infrastructure you use must be taken into account. For example, the MT4 platform, which is used by most brokers, works so slowly that at the time of the NFP exit, the difference between its planned and actual market entry price will be 10 points. If your system is price sensitive, it will kill you.
If it happens. For the most part, our rules are based on common sense, but the vast majority of systems we’ve come across have never accounted for such errors. As a rule, even if the creators claim that the system takes them into account, this is not the case, since in answering these questions they are still far from understanding the essence.
Paying attention to these things from the beginning will save you a lot of time, effort and develop an exceptional personality in you.
Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I’ll be happy