Automated Trading Psychology

[Simon]

Over the last few months I have met several people that use automatic trading systems for their livelihood (be it on TradeStation, MT4 or Ninja Trader).

After talking to these people, I am obviously inspired that profitable automated trading is a reality (which is fantastic news).

After reading Omar's, Capsmart's and others posts, and after talking to these people, I thought it would be useful to have a discussion on automated trading psychology here.

When dreaming about making money from Forex on autopilot, it's easy to overlook the psychological aspect - but this is clearly not the case when real money is on the line.

Capsmart has spoken frequently of "sleeping well" or "not sleeping well" when discussing Forex Robots, so I kind of want to make it clear that there is clearly a required psychology when using EAs and it is also clear that these have an effect on people.

In my opinion, there are some basic "rules" when using EAs:

- Understand an EA as well as you can before trading it live (in an ideal world it will be one you had programmed for you).
- Don't interfere with what a robot is doing (unless you know how they work and have a clear reason to do so (Murphy's Law is that you will close winning trades and let losers run!).
- Don't spend all day checking into your VPS to see what is happening - you will likely meddle - check it once a day or preferably once a week.

These are just some starters, but I honestly believe that "letting a robot make money for you" is FAR more difficult mentally than product vendors would have us believe and if you want to trade this way, you better be prepared!

Please let us know what you think.

Simon.

[capsmart]

Everything is a matter of trust. In most cases robots are black boxes and you have no idea about how they behave. Creating your own robot is another story. I believe that with our manual systems we are more subjective that we want to admit. And this subjectivity is hard to be transformed to an EA.

[munnyman]

I agree with it all. It takes a great effort for me not to "meddle" I find it most difficult when bot takes a trade when I can see no logic in taking the trade. Being a robot I assume/ I expect it to be rigidly logical which they probably are but not to my way of thinking. I am still trying very hard to come to grips with this. I trade the bots in a very small account so no fear of going to the wall with a loss but it still goes against the grain to watch pips drain away even if they are to be recovered later.
I agree with getting to know the bot you are using this is why I trade it in a small account I feel its better in a live account than a demo account. I would have reservations about only checking once a week unless you are supremely confident in the bot you are using and it has a proven track record.
Having said that I like the idea of trading with an automated system and anyone needing information/assistance should check out Omar's due dligence forum I found this a massive help in getting started.

[pharoh777]

Hi Guys!!

I totally agree with you all. Thanks for the props John! This is actually the trickiest part of trading with EAs. When we start trading we get really wrapped up in all the action and there is so much going on. As we get better, it SEEMS like there is less going on simply because your brain is more trained at picking up on what is going on. Think about how stressful it was when you started driving. Soo many things to pay attention to. Now think about your last drive to the store or work. Autopilot almost right? It's not that there is less going on or that you're not paying attention to driving (well hopefully, get off the phone!!), it's just that you have formed so many neural connections related to driving through repetition that your brain is "tuned" to the task and you have more of your consciousness to attend to other duties either related to the driving task or others. So in fact, although it seems that it doesn't take as much effort, you are actually paying MORE close attention to what is important because your brain knows what to focus on. Where am I going with this??

One of the biggest roadblocks to trading EAs psychologically is the feeling that you have to DO something to make them work better once you have it running. This is why many times very novice traders can have excellent success initially with EAs because they LEAVE THEM ALONE. This is because, there is so much going on in the MT4 that the novice is overwhelmed with information and essentially just trying to figure out what they are seeing. After a while, confidence and knowledge (well hopefully good knowledge) starts to make the same conditions and atmosphere seem boring and now the person feels they should be doing more and start to fiddle with the EA, probably around the same time the program has a bit of a losing streak and then the real trouble starts. The only way I have found to combat the need to fiddle with my EAs I know work, is to spend more time on manual trading education and actual trading. If you can have a separate trading plan/s for manual, the desire to fiddle with the EAs is reduced. It's kind of like the inverse of the theory that EA trading helps manual trading by allowing there to be relieved pressure to trade so you only take better manual trades. They should complement each other and take pressure to trade away from both.

I will discuss the psychology of the losing streak in EA trading sometime soon. I think that is a very important issue to discuss here too.