Friday, November 09, 2007

The ATS as a Tool

-Anonymous asked:
"You mention that you want to train yourself to make trading decisions in a more mechanical manner... And that you're a programmer by trade, so what I'm wondering is- Why bother making realtime decisions yourself? Why not code up a fully mechanical system to react exactly as you want?"

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The answers to your questions - 1. Because I currently don't have the luxury of an ATS to trade for me, and until I do, I will have to make the trading decisions myself.
2. I've never really seriously considered coding my own ATS, probably because I know I lack enough willpower and motivation to see it to completion. Also, I cling to the belief that it will be easier to train myself to trade off my pattern catalog than it is for me to program an ATS. I realize that that may not be a true statement, but the motivation factor is real for me at this stage.

I know that there has been a debate of religious proportions going on in trading blogland over whether computerized trading systems will take over the world as we know it. I'm realizing now that I won't make it through this post without forming some sort of opinion about that issue.

My take.

No amount of artificial intelligence will know what the correct trading decision will be in the following situation:

The above chart describes an observable scenario - the Loonie topped out. But the topping action is unmeasurable (there are no parameters for the above top), unquantifiable (there is no pre-defined, rule-based characteristic of the above top), and unreproducible - every topping action is unique. So without these 3 qualities, a computerized system would be crippled and be at a huge disadvantage to the discretionary trader.

That said, however, an automated trading system guided with some human input (in terms of what to look for, and when to look for it), will be able to bank big coin in the above scenario.
I started this post with a bias that the discretionary trader will beat out an ATS in any given scenario. However, now, I am thinking more along the lines of using technology to my advantage. To me, it is not a question of whether the ATS is better than me or not, what I realize as more important now is that I should use an ATS, because I believe it can improve my trading.

So, even though I probably won't program my own ATS, it may be worthwhile to investigate some existing ATS products out there, or even the hacked quasi-ATS from Boogster. Thanks to Anonymous for providing some perspective on this.

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