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How successful is automated trading when almost all the world’s major markets are falling? Can any strategy save you

(Last Updated On: August 11, 2011)

How successful is automated trading when almost all the world’s major markets are falling? Can any strategy save you or you rather stay away from market?

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Can do both (save you and put you in cash).

If your strategy can go both long and short, then volatility can only help you.

If you are monitoring the performance of your systems, then there can be a signal to go to cash (ergo no volatility).

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Don’t think so. One of the person using tradestation lost about a million using tradestation and has to manually cut his trade…
still, could u explain more?

A short term trend following strategy could have done very well in this market. Here is the intial blog post in a series about a filter to avoid extreme markets:http://marketsci.wordpress.com/2008/10/10/when-adaptive-systems-fail-and-what-i%E2%80%99m-going-to-do-about-it/

Correlations often come closer to 1 when there is panic (Ralph Vince has some good books on that topic). People tend to not include in their analysis:

Correlations between asset classes are not static or linear. (and yes, cash is an asset and can be a position).

The nature of strategies is constantly changing. As more people know about a strategy, the less profitable is becomes (hence, the profitability of a SP-500 mean reversion intraday strategy vs the old Turtle rules from 30 years ago).

Those 2 issues are usually not included in strategy backtesting. In addition, software programs like Tradestation do not let you backtest a portfolio of strategies – hence an incomplete picture.

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Let’s try to explain a little more:

A trading strategy can take a short trade as well as a long trade. If your strategy can take short trades, then even if a market is trending down, you can make profit.

Something like 90% of stock traders don’t know how to go short.

If you are analyzing your strategy to see if it is making money, or losing money, when your strategy starts to lose money, you can turn off your strategy, which would be “putting you in cash.” Which Anthony pointed out — is also a position.

In other words, doing nothing, taking no trades, and keeping your money in cash, is a very valid position. Most stock traders do this when they sense trouble in the market, or algorithmic traders when their strategies start doing poorly.

If you need more clarification, please feel free to contact me.

Good luck!

 

Actually when the markets become saturated with “autobots”, I switch to manual. An over-crowded playing field creates a vacuum as everyone’s “Bots” are draining spreads as they keep trying to “one up” their price points. I turned my bot off this morning (it made me good money the last couple weeks) and grabbed the wheel myself. It is good to shift gears

 

 

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