Automated Trading Systems, Uncategorized

How Innate Human Behavior Limits Effectiveness of Trading System Development

Designing any form of automated trading system is filled with follies of basic human behavior. The ceaseless desire to identify patterns in otherwise abstract data to the lust for wealth all cloud the appropriate diligence in creating a system with a measurable and meaningful competitive advantage.

Systems are developed with the idea of an initial truth, or the basis of how the system can otherwise find a way to generate a favorable reward to the risk applied. Once the idea of the initial truth is established, the process of creating the system is underway. This process plants several inevitable debts which can lead into a sunk cost fallacy which causes one to forcibly look for favorable outcomes in system performance.

  • Your time into creating the system
  • Your money into developing the system
  • Your ego of seeing your system succeed

Once your trading system is created and ready to test, the first two debts are already in play – you want the system to test well or that time and money invested would have otherwise been wasted. If the initial test looks poor, you will innately attempt to find ways to make it look better rather than scrapping it altogether. This approach leads to curve fitting performance as the data is already known and therefore used to your advantage. Tweaking the system to validate yourself will produce a system destined for failure in the uncertainty of future price data.

If the initial performance is good, while a positive sign, can be just as detrimental. The reason for this is that the acceptance of success puts a lesser emphasis on testing the fragility of the system with the fear that the initial results were unreasonable or just lucky.

Any system developed needs to be put through the proper stress test before it should be run in a live setting. In order to do this, you need to know the proper way to test the system in a way that honors the logic and perceived edge, but also shield yourself from walking away if the system is proven invaluable. The latter can be a difficult thing to overcome depending on how much time, money and effort was put into its development.

Lucrum Trading Systems is capable of being the unbiased third party to shield the inherent bias of a system designer and perform the necessary tasks to give confidence to proceed into a live environment. Schedule a consultation today to see how Lucrum can assist you with your trading system.

Your time and effort were put into the development of your trading system and while the initial investment may be great, the potential loss is even greater if it is not properly tested for live trading with the complete uncertainty of the future.


Building a Simple Automated System With Ruby and BloodHound

Learn how to quickly and easily begin building simple automated trading systems in NinjaTrader utilizing Lucrum Trading Systems Ruby and SharkIndicators BloodHound and BlackBird software.

This strategy, tested for the E-mini futures market uses Ruby’s trade trigger signals that are filtered with two other Ruby outputs. Watch the video to see how the system was created and how it performed in our backtest.


The Likeness of Entrepreneurs and Traders

When you think of the word entrepreneur, you may identify them as individuals who take on an assumed calculated risk to start a business in an attempt to become successful. While full time traders don’t directly create businesses that offer a particular good or service, traders need the same discipline, motivation and adaption to risk and other challenges along the road.

1. Any Venture is Risky

Entrepreneurs with the goal to start their own business will face the most difficult and often the most disabling element to achieving their endeavor. That challenge is overcoming the risk involved in starting your own business. No longer can you rely on the steady paycheck you have seen every couple weeks and no longer can you hold others accountable for your own financial status.

The risk factor is not something that I would suggest diving blindly into, mortgages, supporting a family and other debts can and should be an inhibitor to putting in your two week notice. Be sensible and weigh how much income you need to survive (not on the streets)  and calculate what you would need to accomplish to make that happen. Be conservative with your figures as there is no method to predict the unpredictable.

Always wade into a new venture and dedicate any available free time to develop your craft to build a foundation to transition to. If you’re a new trader always begin with paper trading to establish your trading style and what you build confidence with. For more experienced traders looking to go full time, focus more on reliability and keep performance outliers to a minimum.

2. Maintaining Discipline

A trader, especially one full time and reliant on performing is an extremely demanding job and somebody without much discipline will have a tough time seeing success in this industry. Each trade must be methodical, researched and undoubtedly to you, the right move at the right time. Often times, traders will begin to get sloppy after they get seduced by previous success.  When trades get sloppy, your risk grows exponentially and devastating mistakes can be made. Be sure to do your homework and be confident in your trades. Although you no longer have a nine to five, your day will be much longer researching, deciphering and searching for the next trade opportunity.

Maintaining methodical and rule based trading practice can help alleviate the stress and streamline your daily demands. Technical trading systems such as Ruby for NinjaTrader can provide a streamlined process to identifying trade opportunities.

3. Staying Confident

Successful entrepreneurs are the ones who can look you in the eye and with the utmost sincerity and say that they are confident that their idea will be successful. Traders must have the same mentality every day and on every trade. You must  believe in yourself and your trading system, when you begin to doubt, or let the irrationality of your thought process override your rules, you will never succeed.

When market conditions are unfavorable or a trade has gone sour, you must stay confident and not go into “system-override mode.” You can, and should look back as to why it happened, but when you start blaming the markets for being wrong or irrational, you might have a problem. While the negative attitude exists, your head is not in the right place to make successful trades. Taking a break and letting your mind come back to center is the best defense against this attitude. Brash trades with a negative attitude will be your Kryptonite. The markets and new opportunities will always be there tomorrow.

4. Cherish Supporters and Value Pessimists

For any new venture, there will be two sides to every proposal and generally they are one of these two: The supporter who feels that this is a great opportunity and they will do whatever they can to support you and the pessimist who will outline every possible situation on how it may fail. Both sides have valuable wisdom.

The pessimists will often have genuine concerns, doubts and hurdles to think about. Sometimes the excitement of something new will blind you from seeing very real challenges that you will need to consider.  The optimists will continue driving your passion and excitement. Embrace those who support you and take the advice of the nay-sayers without letting them slow you down or derail your dreams.

Traders will inevitably see a wide spectrum of varied success and failure stories from other traders. By maintaining proper practice in discipline and risk management you can put the odds in your favor to becoming another success story.

5. Motivation and Passion

Motivation and passion are almost synonymous however motivation has a distinct difference. Motivation is what keeps your eyes on the horizon and doing what is needed to keep tabs on everything to make great trades.

Keep setting the bar higher every day and never be content with where you are at. Keep on growing and be better every day.


Day Trading From Home Since COVID

It is no doubt that 2020 is a year that will live in infamy, unfortunately due to a less than ideal situation. COVID-19 has ravished the world, changing how people live, work, socialize, taking away jobs and many more lives. This disruption to the way people function within society has and will continue to shape the world economy for years to come. Many industries will die and many being founded now will flourish.

As the number of jobs moved to home operations sits at an all time high, many project that this trend will persist and perhaps even continue to grow after the microscopic threat subsides. An April 2020 MIT survey of 25,000 Americans has shown an increase of working from home of over 100% of pre-COVID levels. That means that nearly half of the U.S. workforce may now be remote workers. Many companies have noticed increases in overall productivity, employees enjoy the freedom of working from home, no more commuting and more opportunities to pursue hobbies and personal interests. It’s very likely that the work-from-home movement, at least to a higher capacity, is here to stay.

The COVID Market Impact

Due to the pandemic and its global implications to the world economy, 2020 to date has been an exceptionally volatile period as nobody seems to know the long-standing impact this pandemic will have. These are unprecedented times of which speculation of what is going to happen is running wild and that uncertainty is causing many to panic while others are seizing opportunities in a phenomenal trading environment.  

Long term investing will always shy away when volatility peaks. The common buy and hold, stay the course mentality has of course historically done well however that is also the investment strategy that can be extremely vulnerable during severe market declines. Long term implications of a post-COVID world has many traditional investors worried.

Day traders have begun seeing their time in the sun lately by being nimble during volatile times and taking advantage of many opportunities that have become apparent. The ability to be on either side of the market at all times will provide opportunities regardless of the macro economic situation.

Is it Time to Become a Day Trader?

Many who aspire to be day traders are unable to do so for various reasons, a large one being the fact that they are at work during key trading hours and are simply unable to participate. COVID has unlocked opportunities for some who would like to day trade and are now able to do so by working from home. While I’m not advocating abandoning your actual job while telecommuting to day trade; You can absolutely be involved in the markets with less attention and focus than you think.

Trading programs and systems exist which can help take some of the guesswork out of finding trading opportunities throughout the day. Lucrum Ruby is capable of generating audible alerts when the system identifies a trading opportunity. This allows you to keep minimal focus on the markets themselves until a signal is generated. Once generated you can do a quick analysis of the opportunity and see if it is a signal you feel like taking and execute the trade. Following rule based or mechanical trading lessens the impact of intra-trade analysis to keep you focus where you need it to be.

It is very evident that this uncertain trading environment breeds volatility which means more opportunities for the day trader. The real kicker is that now, thanks to telecommuting, the dream of becoming a day trader for some may now be a reality.

Stay Safe

Regardless if you’re new to trading because of work-from-home opportunities, new to trading in general or even an experienced trader it is more important than ever to look out for the stability of yourself. If COVID has taught us anything it is that things can change quickly and there is no amount of planning you can do to be fully risk-averse. Day trading and trading in general is not an easy endeavor and many for whichever reason will not succeed at it. Do not jeopardize you or your family’s well being by trading on an account that you could not survive without.

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