Semi Versus Fully Automated Trading

Last week we looked at the benefits of using an algorithm to trade versus trading manually. The overall message was that an algorithm will outperform any manual trader as it does not suffer from emotional attachment to a trade and will flawlessly execute its trading plan. In this article we compare semi automated algo trading with fully automated to see the pros and cons of each approach.

But why?…

The first question which you may be asking is why have a semi automated system if you have a fully automated one? Well, the answer is control and preference. A lot of people will find it hard to trust an Algo to do all the trading for them and instead prefer to sit in front of screens and watch as it trades…and probably be tempted to tamper with it as it does so. Although this seems silly, it comes down to psychology. If you are struggling to trust your system then the only alternative is to work with your psychology and find a way to feel in control without interfering with its performance. How do you achieve this? Simply by setting up an extra step in your Algo that requires you to confirm a trade before it takes it.

To leave or not to leave…

Can you sit back and let your system trade for you without interfering? Are you constantly tempted to intervene? Do you adjust your stop or your profit target or skip a setup altogether because you second guess your strategy? In that case its best if you start off with a semi automated solution rather than a fully automated one. What you need is to build a control panel into your Algo so that as soon as it identifies a trade it pops up a box asking for confirmation to take the trade. At least in this instance you will feel you’re in control while still adhering to your Algo.

Easier transition

Can you sit back and let your system trade for you without interfering? Are you constantly tempted to intervene? Do you adjust your stop or your profit target or skip a setup altogether because you second guess your strategy? In that case its best if you start off with a semi automated solution rather than a fully automated one. What you need is to build a control panel into your Algo so that as soon as it identifies a trade it pops up a box asking for confirmation to take the trade. At least in this instance you will feel you’re in control while still adhering to your Algo.

Another important reason for having a semi automated solution is that it is an easier transition from manual trading. Going from manual to Algo in one step is quite a jump. If you are used to being in front of charts, placing a trade, watching it, etc. then you will struggle to have confidence in an Algo where you effectively do nothing while it trades for you. What are you going to do with all of your new found free time? Traders often are trapped into feeling that they need to do a day’s work to justify their earnings.

We are all used to the “hard work” mantra and although we know Trading is totally different from any other business out there, we still approach it as though it’s a conventional business. It is unconventional to earn more in one trade than what most people see in a month especially when you consider that the time you put into that trade may have been minutes or hours rather than a full month’s worth of hours! So if you need to feel like you have “worked” then a semi auto solution may be best.

It’s all about efficiency

Isn’t it strange that we normally look for efficient ways to run our businesses yet in trading, the majority of retail traders still trade in the least efficient manner possible i.e. manually? Considering how sophisticated Algos have become now because of Artificial Intelligence it is baffling that most traders still choose to trade the old fashioned way.

Nowadays it’s possible to automate your entries, your risk management, trade progression and many other aspects of trading. So instead of having to rely on calculating how much to risk on a trade manually, you can create a script that calculates what percentage of your account to risk on a trade the moment you hit the buy or sell button. Let’s say you went long and wanted to trail your stop loss every 10 points or below the low of every bar that moves in your favour then you can create a script that does that and switch it on as soon as you are in the trade. In fact even if you want to do your analysis and trade execution manually, you can hit a button to take over from the moment you enter a trade to manage it to a profitable outcome.

One size doesn’t fit all

The overriding message we want to get across is that when it comes to using Algos, one size doesn’t fit all. The best option is to have a fully automated system which also has semi auto options built into it so that if you wanted to use it in that mode then it allows you to do so without having to build a whole new system altogether. The biggest asset we have as traders is our mindset, so It’s very important to find a system that fits your personal trading style until you are comfortable transitioning to a fully automated trading solution.

At EnigmaSignal, all of our trading is run by Algos so it’s interesting when we come across traders who don’t trust Algos totally and prefer to trade manually. What’s interesting to note is that these manual traders are very happy to have a semi automated solution take over a trade once they pull the trigger. I’m pretty convinced that in several months time these guys will want to fully automate their trades once they see it managing their trades efficiently.

What does a semi auto solution look like?

The screen shot below shows what a Semi Auto Algo looks like. It is taken from our main Enigma Algo platform that we run and we built this feature so traders could choose whether to take the trade manually or to auto trade it totally. The menu allows us to customise any settings for a trade such as stop loss placement, targeting and so on. It also allows us to click a button which says “Auto Disabled” to turn it into Semi Auto mode. All a trader needs to do in this mode is hit the “Enter Now” button to take a trade once it sets up. The stop loss and the trade management will then be implemented by the Algo automatically.

Semi automated algo trading system
In the above image, there is a green bar circled at the bottom right section of the chart. This was a valid long trade which would have been entered automatically or flagged up to be entered manually.

One other benefit…

One benefit of semi auto trading is that it allows you to apply discretion in your trade selection. Although discretion can be a bad thing normally as it means you are just reacting to the market without a plan of action, some traders want to be able to skip setups if they feel there is a valid enough reason to. This may not be a bad idea if your Algo is not sophisticated enough to identify changing market conditions and skip certain setups as a result.

You have to remember that it will take a long time and a great deal of sophistication to create a profitable Algo. It took us over 18,000 hours of development over several years to create the Enigma System that we now have, so it’s easy to understand that most people do not have this amount of time or a large reserve to fund such development.

Conclusion

We still maintain that although we have outlined the benefits of semi auto trading, having a sophisticated enough Algo is by far the better option. In the meanwhile, the semi auto option can be a stepping stone. On the other hand it is also fine to give people a choice rather than force them to adopt one approach or another. The main goal of trading is to make consistent profits, so whether you do this in a fully or a semi automated way, just get going with it. If you are looking for institutional level Algos to complement your trading then get in touch with us at info@enigmasignal.com or visit enigmasignal.com to find out more.

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