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How to avoid losing your shirt in the gold rush of automated trading

It happened purely by accident.  

On the morning of January 24th, 1848, James Marshall was checking out the stream below his sawmill and saw ‘shiny flecks’.  

They weren’t huge and could have easily been missed. They were bright and brittle, yet malleable. 

He knew it at once. He had snagged gold. Not just any gold. 96% pure gold.

The four or five pieces he gathered up had life-changing implications. And not just for James, but for an entire country and thousands of families.

By 1849 over 300,000 people would make their way to California with hopes of striking it rich. Thus the birth of the now famous ‘49ers’.

Most of them failed. Went home broke. Never to be heard from again.

Every day, millions of modern-day 49ers find their way into the market hoping to snag the same kind of quick gold… all with automated trading.

They find their robot. Pay thousands of dollars. Turn it on.  

And go broke in a matter of days.


There are robots that actually turn a profit.

Looking to strike consistent profits without having to enter a single trade? Make sure you have the RIGHT automated trading system.

In fact, there are thousands of traders around the world who are doing exactly that. And they only take a few minutes each day to monitor the trades.

And they’re making a killing doing it.

So why do automated trading systems fail?

Fool’s Gold:  Expensive Automated Trading Systems That Never Turn A Profit

You’ve heard it before. If it sounds too good to be true… it probably is.

Most automated trading systems are in fact just scams to take your hard-earned money. They aren’t back-tested. The technology is dated, faulty — or both.

Above all, these automated trading systems have a similar promise:  Big profits for a very low cost.

Amazingly enough, traders put tens of thousands of dollars into systems, usually with only one robot, with absolutely no idea of how they really work.  

Choosing an Automated Trading System that is both profitable and effective is within  reach... as long as you know what to look for!

Or if they’ve ever worked at all.

Before putting a dime of your own money into an automated trading system… ask yourself two basic questions:

  • Do I know HOW this automated system works?
  • Do I have PROOF that this automated trading system has EVER worked?

Before putting a dime of your own money into an automated trading system… ask yourself two basic questions:

  • Do I know HOW this automated system works?

  • Do I have PROOF that this automated trading system has EVER worked?

Thankfully you’re not alone. If you’re considering a system, here are a few basic steps you can take to evaluate any automated trading system.

  1. Review Risk-Adjusted Returns:  Winning trades are appealing... but with any system are basically meaningless if you can lose all your money on the next trade — or in the following days. Understand what the total LOSSES are first to understand whether you can afford to wait for a system to generate winning trades.

  1. Understand the Averages:  Win percentage, average win and loss size, and average trade time will tell you whether the automated trading strategy that’s being sold has any consistency.If the averages don’t match the strategy… then the likely results when you automate and go live won’t likely match either.One vital metric to watch for:  Implementation shortfall. This will tell you the difference between the price target and the actual price that the trade was executed on with the system.

  2. Peer Evaluations:  Always compare to other automated trading systems with similar strategies.So, if you're looking at a directional strategy make sure you're comparing it to the same directional strategies offered by other tools. For instance, if you evaluated a system that goes long on the ES by itself, the results may seem appealing, especially over the last 10 years.  Compared to its peer group however, the results may seem less stellar.

Planning For Profits:  What To Understand Before You Even Think About Automating

In 1849 it seemed so simple. Go to California. Buy some supplies… find a stream… start panning for gold and get rich.

Today, with automated trading… it seems even simpler.

Just flip the switch and let the automated trading system do it for you.

Not so.

It’s vital that you understand exactly how any automated trading system will function with your platform.

Understanding exactly how your automated trading system works can mean the difference between consistent performance... and account clearing losses.

Before you start, make sure you know how your chosen system:

  • Triggers Trades:  Specifically, what is the underlying logic that results in a trade? Black box systems that don’t have either documentation or support will likely end up costing you money and heartache.

  • Handles Latency:  If there is a delay of any kind during the data exchange that takes place between the system’s analysis and execution… you could be set up for failure before you even begin.  

  • Manages Intervention:  In a perfect world, you won’t have to touch a thing, right? The system will just print money. But what happens when you want to exit? Does the system allow you to intervene?

With the right preparation and the right automated trading system… the advantages can far outweigh the risks.

Unlike the 49er’s in California’s gold rush, make sure you go in with eyes wide open.

Note:  Be sure to keep an eye out for our upcoming series in automated trading, both here in our blog and in our YouTube channel! To learn more about NinjaTrader, automated trading, Ninjacators indicators and more, check out our FAQ page.


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