Thread by @Fxflow

Three simple reasons why you should always use a robot to Day Trade

I am bored - let me try this random entry
You are sitting around staring at the screen for a good hour or so and the market is doing absolutely nothing.

You’ve read the twitter feeds, caught up on the news from your CNBC/BBG stream, and are now basically twiddling your thumbs. You are bored and eager to start.

Suddenly the price action comes alive and whatever you are trading - EURUSD, Dow, Gold starts to rise in price.

The candle looks good - it’s breaking out! Ok, time to rumble, let get long baby!

Does this stupidity describe your everyday life? It sure describes mine.

This is basically the “have a hunch bet a bunch” technique that so many retail traders practice and it is little wonder that they quickly lose all their money. Why is this method so stupid? Because it’s utterly random.

You are being triggered by the immediate price action ( which is probably further distorted by the low volatility range that precedes it ) to place a trade that has never been tested against prior price action and is most likely a lie.

How else do you think the market makes money off you? Like a wily conman, it preys on your most immediate desire to chase which why most of the time you wind up buying the top or selling the bottom and the wonder what happened as your account shrinks in value.

A robot, on the other hand, can’t be conned can’t be tempted and won’t enter a trade unless it has passed all of your rigorously tested rules.

That doesn’t mean an algo can’t be fooled - markets specialize in fooling traders as they switch regimes, but a robot algorithm won’t get mad, won’t revenge trade, won’t size up, won’t lift stops.

In short, it won’t do a million stupid things that we fall prey to when we just decide to “day trade” for a few hours.

Hey!!!!!! It’s really setting up let’s get in now before it runs away!

On Wall Street being early is being wrong.

In fact, it’s worse than being wrong because “being early” means that you were right and still managed to lose money which is far more psychologically damaging.

But the temptation to jump into the fray before the price action actually confirms your set up is one of the easiest sins to fix with a robot entry.

I can’t tell you how many times I pulled the trigger on a set up that looked amazing only to see the candle crumble in the last 30 seconds of the close and effectively stick me into a stop out trade before I could even take a sip of coffee. Why? Because the market lies.

It lies all the time and it’s your job to avoid those lies as much as possible by creating very strict rules of entry that don’t fall for those lies. A robot is impervious to price action.

It will NEVER execute early because it’s programmed to enter at a specific time only if all the rules of the setup are met.

Oh no! I stepped away and the setup is in play. I gotta get in NOOOOOOOOWWWWW!

Is there an easier human emotion to exploit than the Fear of Missing Out?

The whole global capitalist system is based on the idea of FOMO. So is it any wonder that FOMO is probably the single biggest reason for blowing up an account. In trading, the truly cruel psychological trick of FOMO is that you have done the analysis, have identified the setup,…

…have seen that setup form on the charts and now face the choice of passing up on the trade even as it may run to profit or join the trade late and risk a possible much bigger than intended loss because your risk-reward ratios are all screwed up.

To avoid FOMO you need Herculean reservoirs of discipline to stand aside and let the setup pass. Furthermore, I guarantee you that even if you can avoid FOMO once, twice, three times - your reservoir of discipline is not infinite.

The market counts on that and all it takes is just one moment of weakness to trip you into the market in an off-balance position and trigger TILT - which is what professional poker players call the loss of discipline and the hellish spiral into revenge playing ( or trading).

A robot, of course, is never late. It doesn’t need to pee, to go get a cup of coffee, to talk to your spouse, to get caught in the Bayern Munich highlights on Youtube (oh - that’s just me). The robot will execute on time every time.

The trade may work or it may not, but the robot will never force you to make an ugly choice between staying in the trade with distorted risk-reward parameters or passing up on it altogether.

Some traders will argue that entries don’t really matter.

That the art and the skill of trading lie in exits. I actually agree with that thesis but only if you are trading on very short time frames like an HFT algo or on very long time frames like an investor or swing trader.

In other words, entries matter far less if you are trading a million times a day or just a few times a year. But if you are day trading, entries are the ONLY thing that matters. Day trading is timing.

It’s the art of picking put those few moments of truth out of an endless stream of lies that the market presents to you. And when it comes to day trading a well-programmed entry robot is your best friend and most important tool for success.