Achieve Consistent Gains with Automated Trading Strategies: Tips for Success

Setting Realistic Expectations for Automated Trading

Automated trading can be an extremely powerful tool that can allow investors to passively operate within public financial markets, but up to this point, individual investors have had little access to automated trading software. Most people have at least heard the term, but many aren’t exactly sure how it works, how they can access it, and what to expect if they’re interested in automated trading.

In this article, we’ll address some of the common misconceptions & questions that we’ve heard the most since beginning to develop our automated investing platform for individuals.

The Myth of the ‘Holy Grail’ Trading Bot

One of, if not the largest misconception that people have when starting out with automated trading is that there’s a concept of a ‘holy grail’ algorithm that alone can turn mere pennies into hundred dollar bills. A bot so perfect, James Simons himself would commend you for your creation and reward you with riches beyond your wildest dreams for.

It really is a beautiful dream — one that every person who’s ever created a trading bot has had at least cross their mind once (whether they’d admit it or not is probably another thing, depending on who you’re talking to.)
But unfortunately, that’s all the ‘holy grail’ bot will ever be — a dream. That’s simply not in line with realistic expectations. There are many who have tried to create such a system, and many who have failed (often-times blowing at least one account up in the process, usually through some sort of martingale or basketing strategy.)

So if I can’t get rich from trading overnight, what’s the point?

One of our favorite quotes is from a 1994 Peter Lynch lecture where he says that the surest way to double your money is by taking it out of your pocket, folding it in half, and stick it back in.

Other than that, have some logic. Any decision or strategy that could double your account overnight can also send it to zero (or worse, end up as one of those wildly negative margin accounts that float around Reddit weekly.)
Any good trading/investing system, even if leaning more towards the aggressive side, should be controlled, consistent, and reserved in aggression enough to where a streak of losing trades wouldn’t destroy your portfolio, therefore you should generally expect smaller-sized wins at a consistent rate. Also, strategies have a range of different time intervals that they consider when looking for opportunities; just because a strategy trades more or less often than you do yourself doesn’t mean that it’s necessarily a positive or a negative.
Ultimately, the best way to gauge any form of expectation for a particular strategy is to look into its track record up to this point. Through this, you’ll find how profitable it’s been, how it’s performed live, where/when it placed trades, how often it places trades, and much more. Only then will you have a better understanding of what to expect, but even then — nothing is sure.

So once I start the bot, I never have to check my investment portfolio again?

Another misconception that people new to the space have is that once you build a bot, it’ll work perfectly forever and it’s just a matter of time before they’re able to just sit around playing bridge all day while they’re making tons of passive income in the markets like Warren Buffett.
Unfortunately, this is another myth about automated investing; while there are certainly ways to build more flexible bots that can withstand a longer test of time in the markets (especially with ML where it’s basically always trying to improve itself), the fact of the matter is that the majority of any algorithmic trading system will need to be reoptimized at least occasionally and overseen to determine when it might be a good time to make some revisions to your bot.
We’ll get into how to detect when it’s time to reoptimize a strategy in a future article, but in the meantime, here’s some content that can expand on the subject.

How often do I need to deposit money into the bot?

If it’s a good strategy, you won’t ‘need’ to deposit more than you initially put into the bot, however you can always add more funds to a winning bot as you go. As long as a bot has a consistent supply of buying power for it to fill orders, this shouldn’t be much of a concern and more of a personal opinion.

What’s more profitable, short-term or long-term automated trading strategies?

This question pops up quite a bit and really doesn’t make much sense if you think about it, considering the profitability of any strategy comes down to what it was created to do.
Basically apples to oranges, however speaking in general terms, the returns associated with long-term investing significantly outweigh those of other trading styles (however, if executed properly, one of the strongest ways to construct a portfolio is to have two compounding pillars — one being long-term investments, the other being shorter term trades.)
Warren Buffett didn’t day trade get to the point where he can sit around playing bridge as he makes billions of dollars in annual dividend income alone.

Test any hypotheses that you think might work within the markets, but it’s probably wise to lean more towards the less-aggressive, long-term investing strategies in ETFs (and/or established cryptos if you’re into that sort of thing, but obviously much higher risk than ETFs/index funds.)

Conclusion: Ensuring Success with Automated Trading

Any reliable automated trading system is one that you can run without constantly feeling anxious about whether or not it might blow your account up. While the YOLO-type strategies certainly do exist, they generally don’t have strong track records and ultimately lose money when deployed into the markets.
And remember — even if a strategy does seem impressive, it’s always best to test it in a paper account first to determine whether it’s actually profitable or not!

Browse Surmount’s quant marketplace where any individual can easily access automated trading strategies for free that can integrate into your existing portfolio in under 1 minute across equity, crypto, and forex markets.

We are currently developing automated options trading, and aim to be the best automated trading platform.


The information presented is for educational purposes only and not an offer or solicitation for any specific investments. Investments involve risk and are not guaranteed. Consult with a financial adviser before making any investment decisions. Past performance does not guarantee future results.