Is your Trade-Idea robot taking bad trades?

Are you constantly getting triggered into a stock at the top of the intraday move to only have it reverse and hit your stop within minutes? Does the back-testing in the OddsMaker show that you should win 75% of your trades but in reality, its a lot worst? Bad trades in automation can happen, and there are ways to help improve your entries so that your risk to reward ratio is better. In this article, I will share with you some ways that I use to weed out the bad trades from my trading automation using Trade-Ideas. But before that…..

Past Performance does NOT Guarantee Future Results

If the stock market did the same thing everyday, everyone would be millionaires. Unfortunately that is not the case. It’s important to note that even if you optimize all the historical trades in the OddsMaker tool, you are only changing the filters of past trades. You can build a strategy with a great win ratio but the market conditions changes every day and that past performance in the OddsMaker isn’t going to prove that you can beat the market.

So if that is the case, why use OddsMaker at all? You can use back-testing to see what types of trading strategies have a higher probability of playing out successfully. Let me explain:

So if a strategy has a 75% win ratio over 200 trades in a 3-month span, then your chances of this strategy working in the future is probably better than one that only has a 50% win ratio. It doesn’t necessarily mean that for every 4 trades, you will lose only 1 trade, but it does mean that the odds are in your favour for the time being. What do I mean by the time being?

Over Time, Market Conditions Change

Markets are always changing. We can look at the SPY Chart as an example.

choppy markets

For the ending part of 2017 and January of 2018, the markets were slowly just moving up higher with “normal volume”. If you have a bullish strategy that just buys and holds for a few days, the probability of this trading working during this time was higher.

However, from February until around May, we saw elevated volatility and lots of choppiness in the markets. Chances are the buying and holding strategies did not do so well. 

How often does the Market change?

While we cannot predict when the next time the market is going to change, you can look at the charts to get an idea. We know the market works in waves, the ups and down. You can also look at your recent trading logs of some of your automated trades and it should give you a good indication if your strategies are simply not working anymore. 

When your automated strategy isn’t working like it use to, its time to revisit the strategy. Sometimes its a matter of changing a few parameters. Sometimes you need to simply rebuild the strategy from scratch.

Even after rebuilding it, it is possible that the strategy simply does not work anymore in the current market conditions. It’s time to turn off this strategy and explore new ones, or simply wait to when the market is more favourable to what you like to trade.

What if the Strategy is still good, I’m just unlucky these days?

Yep sometimes this can happen too. Sometimes you might get 6-7 losing days in a row, but when you review all the trades in those days, the signals, the entries, the targets, the stops, everything was good, it just didn’t play out well. 

I review all the trades my robot’s make every day. You can find them here: Automated Recap. If I see I get stopped out on a particular strategy more often then usual, I start looking at those trades. A neat little trick for finding all the trades that get stopped out in OddsMaker is to look at all the stock tickers from the bottom:

losing trades

This strategy is still good, however recently I’ve been getting stopped out more than usual.

So here’s my process:

The first thing I do is check to see which of my trades are getting stopped out. Then I review them on a chart. If I don’t like the chart, I ask why? Do I need to modify my filters for this?

If I make the changes, I keep a close eye over the next few days to see if I get stopped out more. If I do then I will consider rebuilding this strategy. If I rebuild the strategy, recheck all the trades on the charts, compare the old strategy with the new, then decide if I put it in production or not.

If it makes it into my live trading account, does it perform well after 2 weeks? If not, then clearly this strategy is no longer good in these market conditions and its time to retire this strategy for now.

Managing your Strategies

Ultimately, you need to stay on top of any or all of your strategies that you are running on Trade-Ideas. Trading Automation isn’t just set and forget.  Make sure you have a proper trading journal and document all the trades that your strategies are taking. As you make changes with OddsMaker, some of the trades that your strategies took in the past might no longer show up, however you still took that trade and you want this data somewhere.

The way I approach my trading automation has a made up name. I then review their work at the end of every trading day. Some of my strategies are good so I let them manage more risk than my newer strategies. Some of them have been taking bad trades recently which means they are due for a performance review. I sound like a manager and they are my employees right?

Have a Dashboard in your Trading Journal

Don’t relay on the back-testing tool to keep track of your performance. Your trading journal should have a log of all the trades you rook, but you should also have a separate tab where you have performance indicators. Spend some time building up useful reports for your automation in Excel or GoogleSheets.

How does each strategy compare to one another? What’s their win/loss ratio? How much money are they generating? What’s the average winner, loser? How many trades do you take each week/month? Which days of the weeks are your robot’s more profitable? Your trading journal should be able to answer all of these questions. 

Other ways to Improve Bad Trades in Automation

While there is no easy way to avoid all the bad trades possible, there are some other things you can do to improve the odds in your favour. 

  • Create daily special lists of only the tickers you want your strategies to trade.
  • When you are doing your premarket analyses, maybe the markets are overly bearish today and you expect some weird moves. In this case maybe its better to just not trade at all today
  • For those especially crazy days in the market, lower your risk. Cut the number of shares you would normally buy by half. 
  • Keep a detailed log of all the bad trades with automation. Write why the trade did bad so you can review it easier in the future
  • If a certain strategy works well in a certain market condition, only use it when the market is doing that.

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