Trading with algorithms and what returns to expect
Okay. This is a question that comes up every now and then. Has trading become more difficult with the algorithms and what returns can a good trader expect?
Trading room audio extract — Friday May 8, 2020
Algorithms challenge traders
To be honest, I think the trading is more difficult with all the algorithms, but in a way, I like the challenge, so I’m doing well. Makes me feel good. There are smart guys, and gals. I have daughters, very smart. There are smart people running those algorithms. And to me, I like to play tennis. And I like to beat people. I like to win. So, for me, I like to take money from the algorithm computers. So it probably is more difficult. But I like the challenge.
And you’re also asking what is reasonable profit goal for traders? That is so vague. I can tell you this right now, if you are a trader and you trade your own personal account and you make 10% this year on your stocks and 10% next year, 10% the year after 10% the year after, you probably could manage a fund.
There would be a lot of people who’d be very happy to have you make 10% for them, and if your timeframe is shorter, the percentage gains will be higher.
When I used to trade, I had trading buddies online, we used to talk about how many points per day relative to what the day’s range is. Let’s say the day’s range is 10 points.
At a minimum, you’d want to make five points, so half of the day’s range, and if you made equal to the day’s range, 10 points, you’d be happy and every now and then you’d make twice the day’s range 20 points, and you say, yeah, I’m a really great trader, so you kind of strut and show off. Even that is, I think, unnecessary.
Only one goal
I wouldn’t worry about profit targets like that and goals like that. There’s only one goal that I worry about – I don’t even worry about it. But there’s only one thing that I want to do. I want to do good. Okay. And every part of my life I want to do good. I’m 68 years old. And I just want to be a good person.
I want to be a good trader. I don’t care if I’m the best trader, I don’t care if I’m the best person on the planet reading charts, I don’t care. That’s not my goal. My goal is I want to be good and I want to be consistently good. Every day I want to do good. I want to do good things. I want to be nice to people.
I want to trade well. I don’t want to make mistakes. If I do something dumb, I want to fix it immediately. If I do something dumb with person in my life, I want to apologize, you know, I’m sorry. If I do something dumb in trading, I want to get out. I don’t waste any time, so anytime I do something bad. I immediately stop it. I immediately get out, so if I do something dumb in trading. I get out. I do something dumb in my life, I stop doing it, I apologize. Right?
So I know it’s really not the answer that you were expecting, but that’s how I look at it. The goal is to be consistently good and you don’t have to be great. Okay? You always hear about the gold medalists in the Olympics. You know the personal wins, the Super Bowl or the World Cup. And that’s fine, but it’s not my goal. My goal is to be good. Every day I just wake up, it makes me feel happy to be good. So that’s one of the reasons why I want to be good.
Don’t worry about being the best
So I don’t worry about being the best. I don’t care somebody else’s 10 times better than me. I don’t care. I just care about doing what’s right and being consistently good. I miss a lot of trades. I don’t care. Sometimes I take trades that I should not have taken. I usually quickly get out and sometimes I get out with a loss, but my goal is trying to find trades that I think I can manage well and profitably, and I take those trades and I stick to the goal that I had when I went into the trade.
If I think it’s a good trending day, I’m more inclined to swing trade if I think it’s not such a good trending day I’m more inclined to exit. I often exit with less profit than what I could have exited with, but I just set a goal on the trade and if it looks reasonable, I get out, take the profit that I was expecting, and I don’t worry if the trade ends up making many more times what I would have made. If it keeps trending, I’ll look to enter again, and again, and again, or I’ll switch to swing trading.
But, as a trader, all I care about is doing things that make sense and managing things well and not doing stupid things. All of you, every one of you is trading well enough to make a living as a trader. Okay? So, you’re all taking enough good trades. But if you’re not making money consistently it’s because you’re also taking trades that you should not be taking.
And most of the trades, you know you should not be taking, but you’re still taking them and you got to stop doing that. So, the market has a lot of two-sided trading. You don’t want to be selling low, hoping that it’s going to become a trend. If you don’t sell low, you look to sell high. And if it’s low, you’d look for a reason to buy.
And the opposite is true. If it’s going up, you don’t want to be buying big bull bars near the top. If you have a lot of Trading Range trading, you either sell those bars, sell the close, or you look for a reversal down to sell. If it keeps going up, then maybe it will become a strong trend and then maybe you can buy closes.
Doing nothing when needed
A lot of time, you gotta get rid of the bad trades and the result is that you end up spending a lot of time doing nothing. Just sitting there. I fly fish, not as much as I used to, but I like to fly fish. I fly fished with one guy, buddy of mine for years, and he used to, at the end of the day, tell me Al, I caught 15 fish.
But that was not my goal. That was his goal. And a lot of times he would go to little holes where there were a lot of little fish and he’d catch all these little fish. I’m usually trying to catch the most unusual fish, so the biggest fish. So a lot of times I’ll just sit. I would sit on the bank or even lie down on the bank, so I wouldn’t cast a shadow and the fish wouldn’t see me.
If I see a fish, or I see where a fish is, I would just keep working it. Just trying to cast well, try not to spook the fish and trying to catch that one big fish. And I’ve caught a lot of big trout doing that. And it makes me happy. It’s fun to catch a lot of fish, but for me it’s more fun to catch special fish.
So sometimes I’ll just be very patient and just lie there on the grass trying to catch that special fish. So it looks like I’m doing nothing, but I’m actually fishing. And when I’m trading, a lot of times when the market gets really quiet, middle of the day, in a tight range. I don’t do anything.
I’ll just sit there and patiently watch it. I might take some trades, but the range gets very tight. I just patiently wait. I know that it will change. It’s not going to last all day and if it does last all day, it won’t be there tomorrow. I’ve been doing this for almost 35 years now.
Reasonable trade setups keep coming… and coming…
There’s a stream of reasonable setups that just keeps coming, and coming, and coming, and coming. Even with the computers dominating markets, there are always going to be reasonable things to do and reasonable things that can lead to a pretty-good living as a trader. I hope that kind of answers your question.
Alright, hope everybody has a good weekend.
I didn’t understand why did Al say that trading is more difficult because of algorithms. Aren’t algorithms also using PA or any PA derivative (human behaviour). So on a TF which is not in seconds or 1, 2 minutes, won’t an algorithm be just alike any other participant?
Also, I remember in one of the videos in the course AL says that because of computers he thinks that the S&R levels are accurate to the tick (in Emini), they are not that accurate in forex because there are less computers, but over time forex would also become that accurate.
To me it seems like accurate levels should make trading easier, isn’t it?
In another video he has said that algorithms don’t care about signal bars mostly (just the context), so sometimes without a good signal bar you get abrupt reversals. Is that the reason for algorithms making trading difficult?
Would love some insight.
Great perspectives Al.
It’s amazing how much Al teaches us and give us what to think with a simple question. Thank you Al.
Thanks BTC Admin and AI for the audio.
I have learned lot from you AI, not just trading and also many valuable skills of being good person.