Lesson I learned a Long Time Ago

There's a huge advantage to day trading, and even more day trading automatically using a flobot (an algorithm if you haven't been reading this blog for a long time). I get reminded of this on most days after a profitable day of day trading futures using my Flo variations when the volatility becomes extreme.

One of the emails that hit my inbox today told the story of Optionsellers.com, a sad story of another options fund wiping out investors. This is a result of people taking unlimited risk and having positions open "overnight". More risk than many people understand.

In the world of today and tomorrow and even the world of yesterday, risk control is everything. For this reason I day trade and, more importantly, nowadays I most day trade using a fully automatic algo, Flo. The reasons are simple:

• I can earn much more money using algos because
• I can look and trade many markets at the same time, even when I'm sleeping or at the beach, and,
• I don't need to be smart every day, only smart once when I build my algo methodology
• I can use my more than 50 years of trading experience in the design of my algos including order flow, and,
• I back test them, stress test them and satisfy myself that they will over time be very profitable for me, and,
• I can enforce the risk control that I want without the chance of them being over ridden, and,
• trading multiple markets makes my average daily drawdowns much lower, and,
• the list goes on.

The picture above show the stats of one of the algos I am running. This is the last back test. I expect to achieve between 50% and 80% of the profitability shown in the back test with strict stop losses in place. You can see that the stops are not too tight as the Max Adverse Excursion (MAE) is fairly loose as it should be.

Transitioning to algos has been quite painless, much less painless than I thought it would be. I still keep my hand in and trade as a discretionary trader but now only a few days a month and only for a bit over an hour at a time. I just don't need to because Flo earns more with less effort and risk.

As there seems to be a bit of interest in this evolution, I'll be posting more detailed info for those who want to continue down this road. I did do a training on algo creation a number of years ago but the technology and my expertise has improved many fold since then and the market has become more saturated with algo trading.

Only trades with defined risk are safe by definition.