Using an automated day trader to generate income

Re:Using an automated day trader to generate income by mattmaroon on Tuesday December 09, 2008 @01:48AM (#391050)

It can. If someone has a large limit order and your small order hits their trigger price, whereas the next person might have done the opposite and moved away from it, you could have caused a huge change in the direction of the market. Or the same is true of a cascading series of smaller limit orders, etc.

And since making money is presumably based on volume, if you did small trades, you'd end up doing a lot of them to make it worth your while. But in almost all forms of betting, it's better to make fewer, better wagers.

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Re:Using an automated day trader to generate income by steveplace on Tuesday December 09, 2008 @07:47AM (#391237)

I don't know if you've traded /es futures, but that's nearly impossible to do. There's a couple different markets that put in bid/ask, and normally you'll just see the closest spread, but there's usually underlying bids as well. That's why it's so liquid. I'm looking at premarket futures right now and the qty of contracts offered at the bid/ask ranges from 10-100. That means to take the bid out you'd have to have a margin of around 100k.

And since making money is presumably based on volume, if you did small trades, you'd end up doing a lot of them to make it worth your while.

Not true with futures. They are risky, but you can get some pretty nice returns, especially in the volatility that we're having right now. On a single contract you can expect to pull 1k-2k, and that's on one trade per day. In terms of R, you're looking at 10R-20R per trade if you're experienced enough (>2 years).

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Re:Using an automated day trader to generate income by bayes on Tuesday December 09, 2008 @06:23AM (#391184)

The trouble with fewer better wagers is that wagers - even very good value ones - can lose. So if you're only making a few of them there's a significant probability of losing overall. Your expected value may be high, but your standard deviation is even higher.

I'd much rather have 10,000 independent bets each with a 0.5% edge than 10 independent bets each with a 20% edge.

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Re:Using an automated day trader to generate income by steveplace on Tuesday December 09, 2008 @07:50AM (#391239)

I'd much rather have 10,000 independent bets each with a 0.5% edge than 10 independent bets each with a 20% edge.

Not with trading, you want to cut losses quick and let winners run. The model behind Long Term Capital Management, as well as a ton of quant firms that went under this past Q, was the take-a-bunch-of-trades-for-small-profit... and it works until you get a six sigma event (see 2008).

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