Black Box or Robot Trading
Why Black Box or Robot Trading systems can be attractive.
These automatic trading systems can be connected to Americans and the type of people they are becoming as a whole.
When it comes to investing, the obvious, perfect choice would include little risk, almost no required effort and high returns. Unfortunately, this perfect system doesn’t exist in today’s market. If you come across something or someone promising this type of return, it’s likely to hurt all involved.
As the world’s technology advances, so does the market’s. Predictions and promises regarding artificial intelligence and its capabilities are a dime a dozen. This is perhaps why “Black Box” or “Robot Trading” is rapidly becoming the most popular form of trading.
The playing field is leveled, even for Black Box or Robot Trading systems.
In 2008, the S&P 500 hit record lows. Due to these lows, just about every automated system in existence became completely irrelevant.
This was obviously a difficult time for many. However, in the overall scheme of things, times couldn’t be more exciting. Why? Because the playing field had once again become level.
Trading floors, stock advisors and day traders alike were forced to reevaluate their trading systems. Those who were depending on automated systems quickly learned how difficult it was for these robots to adapt to new market conditions.
The worst part? It all should have been expected, as the markets were showing patterns no one had ever seen before. The industry had changed forever.
What else makes Black Box or Robot Trading systems unreliable?
Most creators of these systems include very little live testing in their development. Some even go out of their way to avoid it.
What does this mean? Unfortunately, it means these systems are created using old data and past results. While this makes them look more attractive to potential clients, it’s very detrimental in the long run.
It’s easy to make a system based on old data look profitable. A few tweaks can make a world of difference. However, the 2008 market change we just discussed forced computers to begin adapting at an exponential rate.
So how do Black Box or Robot Trading systems keep up?
Honestly, we’re yet to find one of these systems capable of adapting at the necessary rate.
While systems based on back tested results are easy to find, it’s rare to find ones based on long term running data. Because of this, one of two things usually happens:
Option A – The system stops running correctly. Profits cease and the system halts
Option B – The system loses so much money so quickly that it’s impossible to halt before zeroing out.
When you hear of a trading system attached to the terms Black Box or Robot Trading, think of it like you would a wolf in sheep’s clothing. For example, someone running a ponzi scheme could easily promote it as this type of automated trading system.
Why? We just went over it. Profitable systems based on back tested data are incredibly easy to falsify and recreate.
I recently heard of a man who claimed to run an automated, robotic trading system. However, he was actually trading the money himself. Why would he do this?
Because of what Americans are becoming as a people. Consumers seem to flock to these systems because they promise little risk and high reward. But true traders know their own system is more reliable.
Please understand that I’m not saying a legitimate Black Box or Robot Trading system can’t exist. But if it does, chances are it’s too expensive for any single trader to use.
In conclusion, beware of Black Box or Robot Trading systems!
When you come across these systems, see what the long term plan is. Make sure you’re not being used to test a faulty system before it’s sold to trading floors, institutions or wealthy private investors.
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This article is the final part in a series aimed at helping day traders understand what mistakes to avoid.
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