Good Read on the Rise of Automated Systemized Trading/Investing Vs Humans

We can see the effects of automation all around us and how it is impacting the job market. The advent of self driving cars will soon be upending the taxi industry. What many people may not be aware of is automation is moving into many job categories previously thought to be “robot proof”. There are inroads being made in law with automated systems replacing the tasks done by paralegals. Robots can now perform complex surgeries that most thought could only be done by a human doctor. Some news articles are now being generated by computer, and the list goes on…

The trading and investment industry has certainly not escaped this phenomenon. Discretionary traders and portfolio managers are under pressure from automated index funds and system trading programs that are proving to be superior, at least under current market conditions over the last few years.

Here’s an interesting read on the rise of automated systems squeezing out human traders:




Trading/Investing/Life Essential Requirement: The Ability to “Systematically” Learn from Errors



The percentage of successful traders is quite low compared to the amount of people who attempt it. The odds for success are higher for those who properly train and prepare  to trade professionally as opposed to using the market as a gambling casino outlet.

Even among those who take trading seriously, being consistently profitable is a goal that eludes many. The biggest hurdle is being able to develop a system that takes into account the market activity of all its participants so that one can forecast price movement going forward.

This is the area that trips people up the most – trying to find an effective way to trade the market. There are books written that list many diverse trading strategies aimed at trading successfully. Of course, any system used is only as good as the person using it. From my experience there are no “book written” systems that guarantee satisfactory results because it depends on how well the trader can master that system. Similar to books on how to excel in certain sports or careers- the information has to be combined with proper action and preparation.

One key item in successful trading, and really life in general is the ability to be good at systematic problem solving.

A successful trade really teaches one nothing except that what was tried worked. The true learning opportunity stems from carefully analyzing trading errors made. When an error is made the following questions arise:


1) What was the error?

2) What was the correct solution?

3) Why was the correct solution missed?

4) What changes need to be made so the error is not repeated?


Of course these questions are based on the premise that one is trading systematically – by a set of rules they have developed over time that allows them to trade consistently based on those rules. If one is trading by “instinct” with no rules, then it becomes a very difficult task to make systematic corrections as there is no system in place.

Having a system in place allows you to make improvements based on the answers to those questions. Not that solutions come easily, but it sets up the groundwork to move forward over time.

Each question if properly researched can be very enlightening. Take question #1 – an error doesn’t have to result in monetary losses, although that is usually the case. If the system wasn’t followed correctly, that would be an error- even if the trade turned out to make money.

Question #2 can be difficult to answer as sometimes one has to figure out why prices moved to a certain area using their system methods. Question #3 puts the burden on you to examine your system to see if you missed the signal, or if the signal can’t be determined from the system.

Answering question #4 helps improve your system going forward. If you’ve done your homework right, you are now guarded from making the same or similar mistakes. That’s the good news. The not so good news is the market has a lot of different ways it can try to trip you up, so “debugging” your system can be a long arduous task.  This is the area that holds back the bulk of seasoned traders. You have to be organized, meticulous and enjoy problem solving.

The good thing is as your system evolves over time with persistence and dedication, you can reach a “critical mass” of system development where your system is starting to produce enough reliable signals where the iteration of answering those 4 questions become easier and easier. At this point, you aren’t really building as system as you are smoothing it out with minor rather than major adjustments to improve accuracy.

This process can be applied to most areas of life in general to get the results we desire over time.



Those Who Can, Do – Those Who Can’t, “Preach” That it Can’t Be Done


Put “Day trading” in a search engine and all kinds of articles will come up – most of them warning against it and it being a “sure fire” path to lose money.

It’s important to always consider the source when evaluating information offered by others – too many people try to pass off their opinions as “facts”, and therein lies the danger if one makes the mistake of believing their misinformation.

There are people doing this for all subject matters – it seems the internet is a breeding ground for false prophets. In the case of day trading or investing, it goes like this:

1) Person  realizes that have no ability to day trade/invest.

2) Person than makes the leap that the problem can’t be with their ability, or lack thereof, and therefore day trading must be impossible for all.

3) Person then proceeds to share this “deduction” with others as if it’s an undebatable fact.

I recently read another blog written by some “Investment Capital Firm” that more people are starting to dabble in day noting the rise in active trading activity reported by brokerage firms, and warns them not to do it based on the “overwhelming odds” of likely failure. They even threw in some statistics to support their sentiment, such that 80% of all traders lose money and an extremely small percentage of people who actively trade are consistently profitable.

As Mark Twain is quoted as saying- “There are lies, damned lies, and statistics.” One has to be careful analyzing and interpreting the significance of what is presented as “statistical revelations”.

The dismal active trading stats needs to be examined more closely for a better understanding.

It’s important to understand that “anyone” can be declared an active trader by virtue of having enough money to open a brokerage account. There is no “pre test” or standard used to separate those who know what they are doing from those who don’t. Throw in all the commercials and ads painting the market as a way to get rich quick, and you have a ton of inexperienced and ill prepared folks trying their hand at trading- leading to an obvious high rate of failure. This doesn’t mean that day trading isn’t viable, but rather that it’s not easy and requires real skills.

If one could be declared a “doctor” by just buying a white coat and stethoscope, you’d also see an extremely high rate of failures among these doctors, but that also doesn’t mean one should give up on the prospects of being a “good” doctor whose willing to take on the proper education and training.

The writer also mentions day traders being more emotionally driven compared to the more “rational” longer term investors. Unemotional investing applies to day trading as well. Active traders getting emotional highs/lows from their activity are really just gamblers in disguise.

All the beneficial applications and behaviors of long term investing applies to day trading as well, only on a much smaller time frame.

One can systematically and unemotionally day trade the market with the same level of professionalism and savvy as an experienced long term investor. I would make the argument that a good short term trader makes for a good long term trader because the market’s nature is fractal and exhibits similar behavior over different time frames.

The bottom line is there are many day traders that lose money because they have not properly prepared and have no business being in that activity- and the same thing applies for longer term investors, or any profession requiring skill/training for that matter.

Day trading, like investing, can be done well if one is willing to put in the necessary study, training, and overall preparation in order to succeed. Those looking to get rick quick in either time frame are much more likely to fail in their quest.

It’s interesting to note  that these articles warning people not to “speculate” on markets and leave it to the “professionals”  could also be fueled by a hidden agenda besides basic ignorance. After all, a person who knows how to manage their money and invest well on their own is one less potential customer for a professional investment firm.