Computer Trading
In early May 2010 the DOW Industrial averages dropped 1000 points and recovered, all in the space of about 15 minutes, and billions of investor money was lost. Stock trading computers may have been responsible, but nobody is saying for sure. Humans have not yet figured out what caused the greatest single price drop in stocks in investment history.
I think it is a little strange that human brains have not yet figured out what really was the problem with these computer stock trading programs, these machines of the mind. They were programmed by humans but once networked and acting in unison, they seem to have defined their own sinister domain. Personally I think Machines understand Wall Street, but the human mind cannot and the machines are taking over. And if the machines take over Wall Street you are going to need a machine to make money. If you are going to survive Stock Market Trading you must learn to Love Honor and Obey Your Computer.
EFFECTIVE MECHANICAL TRADING SYSTEM
What I am really saying is that using a computer and an effective mechanical trading system to make consistent real money in the stock market is the only way to go. Your brain, no matter how brilliant you think it is, cannot do it. Your brain cannot follow enough markets plus data and process that data fast enough. But the greatest problem that the human brain has when competing` with computer stock trading programs is that the human brain is infected with the most nefarious of viruses, human emotions.
Nearly 20 years ago while on a skiing trip I developed a trading method, written on a yellow legal pad at that time, that, with a few modifications, I continue to trade to this day. I subsequently programmed this trading system, wrote a book, “How I Quit My Job and turned $6,000 into a Half Million Trading”, and I even published a hundred pages of my broker statements.
I remain sensitive to the fact that many tend not to believe that my unique approach to trading works and today I satisfy my need to “prove it” by putting my real time trades in 70 stock markets up on this web site several times a day. You can follow all my trades right here as they unfold. I have been doing this since December 2009.
My goal now is the same as always, to utilize short term stock trading methods to get at least 50 percent annual gain on my investment and to do so with very low risk.
WHY USE A COMPUTER?
When most people start talking about stock trading they start by talking about their favorite broker who gives good advice. Or perhaps they talk about a good “stock picker” they have found on the Internet. Or maybe they do it themselves through lengthy research of various companies and economic fundamentals.
In my opinion all such methods are doomed to failure over time because they involve human judgment and human emotions. A much more effective and consistent way to trade is to use a programmable trading system and follow the instructions of your
computer religiously day after day, month after month and year after year. And to this I might add: diversify by taking many trades and hold nothing longer than three days (Please see: Trading Tips).
Putting your own emotions aside along with your brilliant judgment and letting your computer do the thinking is not easy. In fact judging from my conversations with hundreds of traders, few can do it. But if you can do it, if you have the right stuff and if you can come to truly believe in the superior wisdom of your computer, riches in the marketplace can be yours.
WITH COMPUTER TRADING YOUR COMPUTER FOLLOWS THE SYSTEM AND YOU FOLLOW THE COMPUTER
“Following a trading system” is what few people can do. Most people can “follow the system” for a few trades, but then if the system starts losing a little they will start skipping some trades or getting out of some trades early and so on. Pretty soon they no longer have a system and they are losing money.
In order to “follow the system” you must surrender all trading authority to your computer and do exactly what it tells you to do, day after day, year after year. Do you think you have the right stuff?
WHY YOU MUST BOW TO THE AUTHORITY OF A MACHINE
The “authority of a machine” is your computer stock trading program. I post the results of one such program on this site several times daily and you can buy the program and a trading platform here (Automated Stock Trading Software). But there are others and if you are really good you can program your own.
I have been trading this way for nearly 25 years and getting those 50% to 100% returns almost all the time. But let me pull out an old EXEL spread sheet to illustrate with real time results just why I believe in the superiority of machines.
A Spread Sheet Confirms the Superiority of Computer Trading
This spread sheet is for real time trades I took in 1999, for four months, trading an account of about one and a half million dollars. Most do not have that kind of money to trade, but trust me; these identical methods can be used on an account with as little as $3,000.
I took 1899 trades in those four months and the spread sheet listed the real time profit and loss for each trade. So I started by arranging all those trades in descending order from most profitable to least profitable. This is some of the initial statistics I came up with:
1899 trades
Most profitable = 11,792
Least profitable = (-6,675)
Net profits = 437,305
Average trade (win loss) = 230
Please note three things:
- I trade a lot in order to spread risk over many trades.
- The average trade (win loss) seems small.
- The returns on the initial investment are about 100% adjusted for annual return.
If you go to my front page, Today Stock Market, and examine my current trading statistics you will see results similar to these 1999 results, but adjusted for a $1,000,000 account.
Computer Trading Allows you to keep Track of Many Markets
OK back to the importance of bowing to the authority of a machine. First of all it should be noted that a trader could not possibly keep track of 1899 trades without a computer. You are not going to find 1899 stock picks any place and you are not going to have time to research 1899 trades. The only way to trade this way is to relax and let the programmed computer do the thinking for you.
But there is another even more critical reason for bowing to the authority of the computer when trading this way. Do you remember I said earlier that many wannabe traders will start ignoring the computer and start skipping some trades?
Computer Trading may keep you from Skipping Trades
Skipping trades and ignoring your computer is the worst thing any trader can do.
This is why. I took this spread sheet and figured how many trades would equal 5% of the 1899 trades. I came up with 95 trades. So I then put the top 95 trades into a separate column and summed the total. The sum of those top 95 trades was $433,116! That is almost equal to our net profit of $437,305 on all 1899 trades!
Put another way that means that only one out of every 20 trades is going to make this system profitable and only one out of every twenty trades is going to result in those 100% annual returns that we are seeking. Remove those one out of every 20 trades and we have nothing, but a lot of hard work with no positive returns at all.
So if the wannabe trader starts skipping trades rest assured he will skip these 5% great trades. The reason why he will always skip the good trades is that good trades usually look terrible at the beginning. To win in the marketplace you must be in the minority betting against the majority and if the trade looks bad the majority will not take it. That is why good trades look bad and why the novice trader will ignore the computer and skip all the good trades.`
The only way around this is to park your brilliant trading mind someplace else and surrender to the computers that are running your stock trading programs. Your computer will not skip trades and your computer will always follow the system. LOVE, HONOR and OBEY your computer and you will realize riches in the marketplace beyond your dreams. For a successful stock trader Computer Trading is the only way to go.
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Robert Buran