Is It Possible To Make Money Day Trading? Part 2: Automated trading

Last Updated on July 8, 2022

Please read the first part first:

• Is It Possible To Make Money Day Trading? My numbers July 2012 – July 2013

The market changed quite dramatically from 2011 and I have yet to cope with that.

I struggled in the first half of 2011, and in June 2011 it got worse when Echotrade planned to change exchange membership and unload foreign residents. I decided to leave Echo for Nevis Trading at that point. This put a hold on my trading for about two months, and I missed the great market conditions in August.

When switching broker/firm it takes a lot of time to get to know the software, routines, etc. I had issues with quotes for about 4 months and I felt handicapped. This is one reason for the less return. Also, I have moved to another country and have been very busy settling.

But the main reason is, I think, the widespread use of automated trading, also called “algo” trading.  As far as I can see, algo trading leads to the following:

• Less volume: medium volume and low volume stocks show a steady decline in share turnover. I will write about this later.
• Thin size on the bid and ask, which means it gets difficult to put on size without moving the market. To put on 1000 shares is really difficult in stocks with 300 000 to 600 000 in daily turnover. You simply move the market.
• Very rapid changes in prices. Some stocks move very much and fast in the first 30 minutes. Yes, that could be a good opportunity, but you need good and really fast execution software to take advantage.

You either have to compete with algos or try completely different strategies that theoretically have little impact on algos. Day traders I talk to on a regular basis mention the necessity to have software that can automate everything. As of now, I have decided to try the latter and look for strategies that have the least influence on algo trading.

However, that means I have to adapt to bigger drawdowns, which is psychologically hard. But the main problem with the new strategies is that they at some point go through long periods of grinding.

From 2002 until now I have had the luxury of practically no drawdown. I am having a tough time adapting to drawdowns. It is all about psychology. Earlier I more or less only traded in the first 60 minutes of the open, now I need to trade longer and hold much longer. To generate trades I will use my old and simple API program running with Excel. That has helped me a lot but is no tool for fast buying and selling.

For the last two months, I have done some testing of multiple strategies. One is implemented and has proved to be good so far. During the slow markets of June (June has to me always been the slowest month), I will put on 2-3 more.