Day Trading and Automation

At, we regularly receive questions about completely automated trading or “Black Box” systems. To shed a little light on these complex robotic trading systems is today’s guest, Todd Mitchell, from Trading Concepts. Be sure to comment with ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

I received an interesting e-mail today asking me about a particular futures trading system. The writer wanted to know if I knew of a futures trading system was fully mechanical and automated. I should point out that there are automated or “black box” trading systems employed by large hedge funds and other large trading groups, but I have never come across a fully automated futures trading system suitable for individual traders seeking to day trade the futures markets.

Of course, there are a slew of Forex robots on the market today, and the trading results from these robots have been mixed, at best. In my opinion, this type of question regarding futures day trading is the result of the spillover effect from the Forex trading groups. But I think that this request reflects an even deeper question being considered by new traders as they are entering the futures markets.

What sort of question do you think I am considering?

It's the old goose that lays the golden egg story. In my opinion, the great attraction of Forex robots is the lack of accountability the trader is forced to shoulder. After all, if you have a machine that simply works day and night to create money, why wouldn't everyone own one?

The answer to this question is fairly simple, there are no geese that lay golden eggs and there are few Forex robots that consistently churn out fantastic profits. It would be a wonderful thing if there were trading machines that could consistently initiate profitable trades, just as it would be a great thing to own a goose that lays golden eggs. Unfortunately, day trading doesn't work that way because the market moves in a variety of methods and moods that renders low-cost trading robots impractical to produce.

Nor are there any strictly mechanical methodologies that will consistently churn out an endless stream of profitable trades. No matter what methodology you employ in your trading, you will always be faced with subjective choices as to the merit of any trade under your consideration. At this point in our technological progress, we simply don't have a level of artificial intelligence technology capable of adjusting to the varying conditions that may exist at a given time period in the ever changing futures markets, at least at a cost that the average individual day trader could shoulder.

And I am glad we don't.

I have always considered trading a combination of interpreting formulaic indicators and personal judgment. Some call this form of trading an art, but I look prefer to view it in terms of a learned skill. I am an avid reader of technology and scientific journals and we are years away from developing the level of low cost artificial intelligence needed to effectively day trade futures markets. We have one of the most marvelous computing devices ever designed sitting atop our shoulders. Though I wonder if some individuals care to employ this marvelous device we refer to as our brain.  After all, it takes time and effort to master trading a specified futures contract and we live in a society that values immediate gratification.  Many individuals would prefer to skip the learning curve required to be a profitable futures trader.

A combination of advanced technical indicators that have been developed in recent years and the power of our own brain is what has, in the past and will continue into the future, to be the most effective trading device available. Of course, developing your trading skills (or trading methodology) will take some traders a good deal of training to refine to the point where it is an profitable business venture. There is nothing wrong with this process, in my opinion.

The idea of artificial intelligence machines picking every trade perfectly is something from Aldous Huxley’s “Brave New World”, and not something I would relish. Imperfection and improper trading technique are part and parcel of learning the trading process, especially for traders in the early part of their career. It is the way we learn to trade. If we developed the technology capable of picking all trades as winners, the markets as we know them would cease to function. In every trade, there has to be a winner and loser. It is the very nature of trading. If every trade were a winner, there would be no need to trade.

It's not a trading world in which I would choose to live.

Todd Mitchell
Trading Concepts

As a bonus to Traders Blog readers Todd is offering a crash course in the Trading Concepts trading method. Click here for more information.

11 thoughts on “Day Trading and Automation

  1. There is a very simple answer to people exercising their right to express opinions on trading success and trade triangles - negative or otherwise.
    If you think you can you might. If you think you can't you're right.
    So we all are free do what we want to do and I am firmly of the view that the goal of highly profitable trading is within the range of many many persons - having experienced numerous successes during the ups and downs of my first twelve months trading. Join one of the many trading rooms where there is also plenty of further evidence to exprience what is possible.
    Adam's triangles prove themselves if you care to do a bit of backtesting and study - it is easy enough to see.
    Good luck traders.

    1. Ian,

      Thanks for your feedback and confidence in our "Trade Triangle" Technology.

      Sometimes folks think everything is hype on the web. It is a nice feeling for them when they hear from members like you who have a non biased point of view.

      Thanks again.


  2. One comment says if we reduce trading to computers the market would go basically kaput. That humans use the system as guidance and tweak the programs or make trading decisions. If you take a computerized trading system that issues signals and then decide which to accept and which to disregard you have relegated the system to the emotional level of the trader. We have seen the results of those emotional decisions throughout history as the panic of the masses takes over the market. The ability for a day trader to sit in front of a computer and make decisions all day long and become sustainably profitable is an ability shared by few. Even successful long term traders are so rare in fact one could consider them olympic athletes. I read somewhere the SP beats 90% of all the mutual performance managers. Think about that for a second. Of the 10,000 plus mutual fund managers with their systems, Phds, collective experience a full 90% fail to beat on an annual basis the SP500.

    Perhaps somewhere out there are these geniuses who have in fact systems that can beat the market. But they keep a low profile and fly under the radar. There not trying to sell subscriptions, or news letters or systems. There just making money month in and month out. As an example in the presentation Market Wizards the author talks about several famous traders who had unbelievable trading records. If I recall in one of them a fund trader found a weak point in the pricing and capitalized on that for over a decade. He in fact had advanced knowledge. One by one as the mutual fund companies discovered it, they shut his method down. But for a while he had found the goose that continued to lay the golden egg.

    Even though I am in my 30 day trial period for trade triangles. I can see if I go against the signals and use my discretion sometimes I will guess correctly and other times I won't. In the end this will cause me to lose faith in the signals as my decisions will to often be in conflict. This will cause me to in the end move onto another method. Continuing the search for the elusive consistently profitable trading system. However, my thought is that during the gold rush to Alaska. The people who made the money wasn't the gold miners but the operators who sold the food, equipment and supplies to the gold miners. Isn't that exactly what buying even a system like trade triangles or any other system or information subscription doing?

  3. If you go to Track N Trade - gecko Software you will find the best Futures Autopilot, plus the best Futures platform that you could want. The CEO of Gecko Software - Lan Turner has developed these professional trading platform that also helps you trade through his Bulls and Bears and Advantage lines. I hope your Trading improves like mine has - all the best Stump

  4. You are right GS has two advantages which allows them to continue to make such large profits. First one is they have a super fast computer capable of seeing all market orders on the NYSE before anyone else does which allows them to manipulate the market by placing their trades to skew the supply/demand ratio in their favor. The second advantage is called VOLUME. Simple as that!! Good day....

  5. I think the point not to be missed here is that if profitable trading could be reduced to a deterministic methodology, the markets would suddenly cease to be markets. Every foundational principle of market economics would be rendered void. And many would argue that the increasing use of black box systems by GS and others are doing just that.

    Remember that Elliot Wave and other methodologies attempt to model human behavior. Take humans out of the equation, and the models would spew forth gibberish.

    Same thing in weather forecasting. Operational forecasters use computer models as GUIDANCE. The computer does the heavy lifting, but it's the individual forecaster that evaluates the models and determines whether or not they're full of crap.

    MarketClub and similar products are no different. They guide the knowledgeable trader, helping him (her) to be more profitable. But at the end of the day, there's no substitute for knowing what the hell you're doing.

    You can bet that the professionals that run the black box trading systems continuously tweak the algorithms to anticipate market conditions, based on 'intel' that the big trading houses are privy to. Not really conceivable for the individual investor to do that. Easier to just sit in front of the computer and trade while the markets are open.

  6. Michael:

    Please reread the article. His points are valid. In fact he would probably be a fan of the Trade Triangle concept as it would be a tool to use with his nuance. If you think GS has it all figured out then I have two suggestions:
    1) Ask Adam if they do, he's been around the block 2) Read up on the debacle name Long Term Capital Management. A group of Quants, headed by Myron Scholes (as in Black-Scholes Option pricing model) that supposedly had it all figured out and computerized.

    Due diligence shows they didn't either. GS has had great results, yeah partly due to their IT department but also due to the form of legalized front running the is in vogue! Which by the way may do more to destroy the retail trader than anything else!

    Please do some more homework before you lash out!


  7. I have seen one automated futures/commodities trading system demostrated on a webinar. It is called the Universal Trade System developed by Dr. John Clayburgh using the Tradestation technology. His site is The UTS does a premarket and early market analysis for the market to be traded and determines the appropriate setup from up to 16 setups. Sets it to cruise control and let the system perform the trades. This is one of the various systems he has developed. For more info, he may have archived webinars on his site.

  8. well isn't that a nice article. The exception is that companies like GS in fact have trading systems that in some quarters never have a losing day. You read that correct. These guys make a billion dollars a quarter trading. There track record has been consistent so they know something that obviously the writer doesn't. If I recall wasn't there an employee who tried or did sell the black box system to the Russians or some European group?

    Information is everything in trading. The more information, timely information the bigger the edge. While that kind of system will always be out of the range of the small individual trader it is obviously not outside the range of the top companies in the world. In the last quarter banks made billions of dollars. Not in lending money to the citizens but by trading.

    Based on the traders comments I should immediately cancel my marketclub subscription as I am doomed to failure with trading triangles....

  9. I know of Todd Mitchell's Trading Concepts and think very highly of them. Trouble is, you have to sit at the computer all day to observe and react to the best entries. I think if Todd had his formulas programed into Meatrader language and sold them as a robot he'd make (another) fortune.

Comments are closed.