Friday, 23 September 2011

Algos for Discretionary Traders

I have had a few emails asking what use is an algo for a discretionary trader.

The main benefit, and there are many, is that with an algo a discretionary trader can test an idea.

I get lots of ideas, some good and many useless. Just eyeballing a chart does not really do it for me. I want to see the numbers. For example, how much of a larger stop loss do I need on an entry that is further from the 33 EMA? What about the target? Does it need to be closer?

The algo can give me these answers, which I can then fine tune at the right edge of my chart after having the basic information, rather than putting my money at risk blindly.

The second main benefit, and there are many more, is that I can mechanise my entries. The algo can recognise the picture faster than I can and execute the trade more quickly too.

The third main benefit is that if I have tested metrics, I can see when the market changes so that I can make my own adjustments. Different stops and first targets apply in different market volatility environments.

And the list of benefits go on. With today's technology, a trader doesn't have to be a real programmer to be able to use the technology to make it into his own personal holy grail.

When I woke up this morning here in France, I saw the ES rally had continued in Asia after the NY close. What were they thinking? My vision was still a retest of the lows and a probable break of them. I turned the Flo algo on that fitted with that idea. The morning trades were 3 for 3. Learning to use the right algo for the conditions is a great improvement on just one algo. Knowing that if I had picked the wrong algo I would still make, but not so much, was an important confidence building factor. Testing!!!

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