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Misconceptions of Automated Trading

"A lie or misconception left unchallenged becomes the truth."
This is the purpose for my note on the "Misconceptions of Automated Trading".

Appended below are some of the misconceptions that I have compiled from my recent interactions in Facebook and my responses to them:

1. If a trading success can be implemented into a automated system then I don't think the turtles would have existed. Dennis Richards wouldn't have had the need to train turtles to trade for him. Call me skeptical but I've yet to see any REAL success with automated systems.
Answer: In the 70s and early 80s, the technologies were unavailable to take advantage of automated trading. Just because someone does not see REAL success with automated systems does not mean that they don't exist!

2. People who say things like "an automated system will overcome human emotions" are those who have never traded or are still losing money.
Answer: The sun will rise from the west if emotionless machine can't and emotional human is better at following rules with discipline and consistency.
Sweeping statement like "...are those who have never traded or are still losing money" is baseless and the result of misguided arrogance and does not deserve a further rebuttal.

3. Not directing at anyone but I just don't see anyone on wall street journal or Forbes saying I made millions on an automated trading system. It would really be a joke.
Answer: Those who have made millions did so over a period of time. I know personally of local fund managers who are making use of trading robots to improve their profitability.
It would really be a joke if these Wall Street smart traders are ignoring the trading robot's competitive advantages of alertness to price signals, speed and precision in trade executions and obedience to perform, unaffected by the emotional ups and downs that are likely to cause a human trader to falter.

4. Ask ourselves one question: If the machine keeps failing me, and i totally not understand how it works, what will i do? I don't know your answer, but i personally will throw it away! So how to stick to the rules with consistency and discipline? Man control Machine or Machine control Man?
Answer: You are absolutely right to discard any manual or automated systems that you don't understand and do not work. You are also right to conclude that Man controls machine. If this is the case, then it is absolutely possible for a profitable trader with the help of a good programmer to develop a trading system to automate his trading based strictly on his winning strategies.

5. Haha, i will definitely stop using the stupid EA that causes me losing money. But if i am IB or EA retailer, the story will be different. I will encourage all traders to use EA (of course i won't use lah) , otherwise, how can i make fast and easy money? If all traders are turtles, like what the Chinese Proverb Says : Brokers and IB have to "Eat West-North Wind" lor...
Answer: Automated trading does not necessary equate to high frequency trading or for that matter, short-term trading. Trading frequency is determined by the trading strategy. An EA or robot can be programmed to wait for days before a trade is triggered and ride the trend for weeks before the trade is closed for profit taking. Hence it is incorrect to assume that IBs and brokers will benefit more from automated traders. It's irrelevant to associate automated trading with the IBs' and brokers' earnings.

6. Someone argues that Auto system is like machine which can stick to the rules better than human. But if it keeps losing money, will you still let it carry on following the rules without interruptions!
When the panic owner keeps switching among different auto systems, there is no difference like nervous losers chasing their own tails...
Answer: This is clearly an issue of an emotional trader switching from one unprofitable trading robot to another and has nothing to do with the merits of automated trading.

7. There's a reason why every single broker out there is promoting automated trading. I think Warren Buffet says it best.
Answer: What Warren Buffet actually said was "Stay away from any environment that stimulates activities! Wall Street makes their money from activities. You make your money from inactivities.".
Taking the saying out of context by associating high trading volume and activities with automated trading is not only misleading but mischievous.
It's misleading because trading volume and activities are functions of the trader, his trading strategy and is not the fault of the trading robot which simply obeys what it was programmed to do.
It's mischievous because Warren Buffet's saying was twisted to justify and discredit  automated trading and the brokers at large.

8. People who don't understand the way we trade will think it is dangerous. Trading risk cannot be overcome by automation. Trading risks are managed by using a solid money management plan... Today, there are hundreds of super-advanced robots, systems and indicators. And yet 95% of traders are still loser today. :o)
Answer: I agree wholeheartedly that trading risks must be managed by money management. But what logic is there to state that "Trading risk cannot be overcome by automation"? What's the big deal to program rules for money management for automated trading?
Coupled with another illogical statement like "Today, there are hundreds of super-advanced robots, systems and indicators. And yet 95% of traders are still loser today. :o)", these statements are also baseless and can only reflect the ignorance of the subject matters.

As I had pointed out several times in Facebook and other forums, automated system is like a power tool that that can save time and make money for the users if used properly and is proven useful.
If it is absurd to blame the cars in road accidents instead of the drivers, then why make trading robots the scapegoats for traders' failures? Automated systems can only be as bad or as good as their creators and users.

Just ask yourself this question: "Why take an hour to walk to your destination under the hot sun when you have the choice to travel faster and in comfort by taking the train?" and you will understand the reasons for automation and the wisdom of making good use of available resources for our benefits. BTW, new trains are driverless in the increasingly automated Singapore Mass Rapid Transport System!

I am an advocate for automated trading because I believe in the merits of automation.
I don't enjoy sparring with my online opponents if I can avoid them.
However, I will be compelled to respond if "A lie or misconception left unchallenged becomes the truth."

Moreover, a debate can and should be won with facts that can be substantiated.
It's alright to have differing opinions and we can attempt to agree to disagree.
To belittle and slam others down in order to elevate oneself with baseless, sweeping, irrelevant or misleading statements will not win respectability but reveal the shallowness of one's arguments.

Matthew 7:12 - Therefore, whatever you want men to do to you, do also to them, for this is the Law and the Prophets.

For further information on the merits of automated trading, kindly refer to http://agape.com/Forex/holygrail.htm .

A proven trading system is not measured by the thousands of pips that one trade alone can make out to impress. Any trader can achieve this feat if his wining trade is held long enough in a trending market. Consistency in the ROI is the only way to separate the chaffs from the grains of profitable trading systems.

Be wary of those gurus or their supporters who claimed that they are the only ones who have the secrets to trading profit. I wonder why would they need your dollars in exchange for their training/mentoring if they are the only ones making millions with their trading secrets?

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