SYSTEM TRADING IS NO BETTER THAN THE TRADER
“Having worked on developing automated trading products in the past, I know from experience that robots do not work long term.” – Kathy Lien
Hello:
I said in the Part 1 of this topic that automated trading has come to stay. New programmed EAs are being made everyday and marketed aggressively to traders. Usually these programs are black box so that you really need to trust in God before using them. The idea of making money automatically without lifting one’s fingers sounds fantastic, but many people have suffered serious financial damage without lifting their fingers as well. Whatever people say about an issue, it’s prudent to base our final decision on reality-based statistics.
When it comes to trading, majority of traders are under strong illusion. When they fail manually they start looking for robots with which they can entrust their financial fate. How many of us have enough patience to test EAs thoroughly until we can be sure they can survive the markets? We want to buy and apply them straight. I was told of a trader who always talked like an expert in trading. One year, I came across him and our discussion was later switched to trading. I asked him if he was trading at the moment. He replied that he wasn’t trading at the moment, but he was panning to replenish his account and resume trading by using a robot. When he mentioned the name of the robot, it turned out to be the robot that has been put in our ‘crash and burn’ category several times. I just walked away from him without telling him anything. He was plainly talking out of ignorance. One mentor of mine (an old man with several PhDs) once told me that trying to correct an ignorant person is a thankless effort. Many people won’t listen to you until they learn from harsh and trying experiences. There are many reasons why people become mad at the markets and quit trading. The most remarkable reason is disillusionment. Disillusionment comes in when people get what they’re not expecting from the markets.
Many an EA performs well only during certain market conditions. If the market conditions change, the trading portfolio suffers. There’s an article in which someone I interviewed talked about robots. He has vigorously and conscientiously tested many of the most popular robots for long periods of time. What’s his conclusion? “Manual trading is the best!” he says. Why would you make your portfolio automatic without even knowing the reasons why trades are placed on it?
There’s one very popular Forex company website (one of the most popular out there) which has dedicated a department to testing EAs. Most of FX EAs have been tested and are still being tested since all EAs are welcome. But what’s the ultimate conclusion of the CEO of that company? He says, “I personally don’t use Forex robots, but I can say with certainty that any robot will eventually blow your account. It may happen in a month, it may happen in a year or it may happen in 5 years, but eventually it will happen. But this doesn’t mean that you can’t make a bunch of money with it.”
This article is hereby concluded with an eye-opening report about the past automated trading championships organized by Metaquotes company, the manufacturer of the Metatrader:
“In the first year only 44 of the 258 trading systems submitted managed to produce profits. While 603 Expert Advisors were entered in the second year, 93 profitable systems didn’t represent much of an improvement over the previous year. More than 80% of the participants lost money in each of the two years. And of the 705 participants in the 2008 Championship, which was the most recent one, 142 systems managed not to lose any money. While this is a higher success rate, the conclusion can be drawn that it doesn’t seem to be that easy to find the Holy Grail. Systems that automatically produced the first millions are just as rare as highly profitable traders.”
Your questions and opinions are highly welcome.
Thank you.
With best regards,
Azeez Mustapha
Forex Signals Strategist, Funds Manager &Coach
Senior Analyst
FX Instructor, LLC
Email: amustapha@fxinstructor.com
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