Traders Digest 02 - Do NOT Baby Sit Our Robots

WE ARE OVER WORRIED ABOUT OUR ROBOTS PERFORMANCE

People trade robots for various reasons:
* We have full time jobs, cannot afford looking at charts all day
* We are nervous looking at charts watching the UPs and DOWNs
* We want to capitalize chance we would otherwise missed while working or sleeping.

Everyone know in theory
* Losses are part of trading game and we can't avoid them
* We should let robots trade their way and not mess with them

But when our real, hard earned money money money are on the table, usually we can't stand the pressure of losses. After 1-2 losses, some of us began to panic.
* Some of us lower the robot's lot sizes or risk ratio
* Some of us even pull the plug and stop robot from trading
* Some of us just go angry and ask the EA vendor to refund our money

Did you notice I used the words "we" and "us", right, that sometime include myself.


2 SCENARIOS - SAME PROBLEM

I am not persuading you to hold on to a robot or to a certain risk setting even the pressure is more than you can stand. It's your money on the table so only you can tell what risk ratio make you comfortable. Even the robot default is 2%, if 1% make you comfortable, keep it, don't change too often and don't let yourself become a victim of the scenarios I discuss below.

SCENARIO 1: A customer traded SteadyWinner and after a draw down, he changed his risk from 2% to 1%. This could have protected him if he would suffer consecutive draw down(s). But the next several trade happened to win, he only got half the return he would have got if he held on to his original risk profile. Then, after observing certain number of wins, he felt the heat and wanted to change his risk back to 2% but the reality is that after certain number of wins, another draw down was just round the corner. So was god playing him or was the market working against him, not really.

SCENARIO 2: Another customer suffered SteadyWinner losses on week 1, then asked for refund. I wrote to him and ask him stay longer for a fair evaluation of SteadyWinner's performance. Although he agreed, he did not enable trading of the robot. He chose to stay on the sideline for the following week. SteadyWinner won and in fact, the demo balance curve went up to a new high. He then decided to switch on the robot again but after several wins, the robot made another 2 losing trades beginning week 3 and he said he had had enough and insisted refund. Well, we gave him refund but I wrote to him and comment he would never succeed trading SteadyWinner (and any EA).


SO WHAT SHOULD I DO THEN?

Really, we should not baby sit our robots. Too much human intervention make us impossible to assess the robot's natural performance. Doing this alone give us a lot of frustration and pain. We are glued to our computer chair, follow every trades from begin to end. We can't eat well, we can't sleep well and that's not good for our health. To certain extreme, it can drive us down to hell.

We are supposed to trade only spare money we can afford to lose, give our robot a quota how much we allow it to lose, then let it perform within that limit. Then we give it a long enough observation period - say 2-3 months, at least 100 trades to assess its performance. This is the correct way of trading robots. We need management technique rather than trading skills.

But wait, I did not say we cannot make adjustments. We can set higher risk ratio after we win enough and withdraw all the capital. Or may be robot's accumulated losses just exceed the given quota or after long enough observation we decide the it is not good for us, then we can stop it. I just say do not baby sit robots and do not watch them trade by trade.


IN A NUTSHELL

1. Trade only money we can afford to lose, never borrow money to trade
2. Set a risk setting or lot size we are comfortable
3. Set a loss quota and an observation period for our EA, then let it trade freely.
4. Do not baby sit our robots.


It's easy to say but hard to execute but let's try to act as a 5-Star general, not a battle ground mine sweeper, not a back seat driver. That's for our goodness Sir and Madam!


Salute to all Generals :)