I would like to discuss a very interesting contradiction regarding traders, trading strategies and expert advisors.
Every trading article stresses the importance of DISCIPLINE for a trader. The discipline to rigorously follow the trading strategy.
Now, a trading strategy is a SET OF CONDITIONS (or rules) that determine entering, modifying and exiting trades. (conditions like moving average crossovers, stochastic overbought/oversold, support and resistance and many others)
So, let’s assume we have an expert advisor that executes trades using a certain strategy and a human trader who follows the same strategy.
Every article and every forum post encourages the human trader to follow the trading strategy to the letter and never deviate (unless the entire strategy changes), while, at the same time, expert advisors are doomed to fail because of their inability to adapt to continuous changing markets.
Again, a human starts trading knowing that if he deviates from his strategy he fails, and at the same time, a human programmer starts writing expert advisors knowing that if his robot doesn’t adapt to market conditions he fails.
“Adapting to market conditions” means modifying or adding or deleting a rule from the strategy, so it’s equally easy to make the same modification to the expert advisor.
So what is the difference whether I spot a moving average crossover or a program does?
What is the difference whether I search for another condition besides the moving average crossover or a program does?
What is the difference whether I trade a strategy following rules A, B and C or a program does?
I hope I made myself clear and you can see this huge contradiction. The human should never deviate, while an EA loses because it doesn’t adapt!
It seems widely accepted, although without any proof, that human traders beat robots. I can accept that, of course, the human mind is far more capable than a simple program. So, I ask again:
What is the difference? Where is the difference? What is that THING or RULE that ONLY a human eye can see? Can we give it a name and focus on it?
Is it a candle formation or a chart pattern? I don’t think so, because those can identified by a robot too, so there must be something else. Is it information, fundamental details? Could be, but there are said to be winning strategies that are 100% technical, so no, this isn’t the answer either.
What do you think is the answer? What do you think is that THING or RULE that gives humans their edge over robots when using 100% technical strategies?
And please remember, if we agree that such a “thing” doesn’t exist, then we must agree that one of this statements is true:
- robots are as good as human traders (or even better), or
- trading strategies must be flexible and must allow bending the rules.
Have a good night!