Hybrid Trading - How the Human-Computer Symbiosis Enlarges Your Intellect While Enabling the Automation of Your Execution Responsibilities
It is the best of times, it is the worst of times.
With computer based algorithms generating the bulk of the trades in today's electronic markets, the human trading patterns that technical analysis uncovers, has withered away.
Markets are now more apt to meander endlessly and then, suddenly, tick consistently up, or down, the price ladder, without a pause.
The behavioral patterns of today's markets no longer represent the ebb and flow of human traders fighting it out in the pits.
The behavioral patterns of today's markets are generated by trading algorithms that ingest gobs of data and they respond to this data within a millisecond - or less.
The markets march up the price ladder are caused by algorithms responding to other algorithms, which in turn trigger other algorithms.
Goldman Sach’s algorithms do not pause, flinch, or take a break.
The algorithms see the market moving up, they assess the available inventory of futures contracts or equity shares to deduce the level of imbalance in the supply and demand curve, and execute, execute, execute ... accordingly.
We as traders, do not have access to the magnificent algorithms that Goldman Sachs or Citadel or Renaissance Technologies possess.
It is our belief that we, as traders, must adapt and change in order to thrive in today’s markets.
The approach that has evolved to manage our trading activities in today’s electronic markets, is an approach that blends both man and machine, trader and computer, cerebral pattern recognition skills with automated execution.
We have dubbed this method, Hybrid Trading.
We do not aim to go head to head with Goldman Sachs or any other HFT shop.
Instead, we lever the capabilities of the human brain to organize and deploy algorithmic trading bots of our own.
These bots can be tuned for any market condition and deployed with the click of mouse or a keystroke.
Walter Isaacson, in his book review of Clive Thompson’s book, ‘Smarter Than You Think’ does a tremendous job of articulating the potential of a hybrid trading approach:
If this approach works for chess, and healthcare, via IBM’s Watson, why shouldn’t we aggressively apply it to trading?
Overcoming the Achilles Heel of Automated Trading
For quite some time traders have been able to buy or lease fully automated trading strategies.
How wonderful to be able to just buy a strategy, turn it on, let it run, and then head to the golf course, while your trading account accumulates algorithmically derived profits.
Except that is not the reality of fully automated trading strategies.
The reality of fully automated trading strategies is that they work well under some market conditions and degrade when the preferred market conditions dissipate.
For instance, a fully automated mean reversion trading strategy may work well in a sideways market, but once the market takes off, the reversion strategy will suffer a significant drawdown as it fights the prevailing trend.
The flip side of this is a fully automated trend strategy. This strategy may print money while a market is zooming up, but it will likely give it all, or even more, back, when the market churns.
Hybrid Trading overcomes this issue of matching an automated strategy with current market conditions by allowing a trader to deploy one or more bots that are tuned for the current market conditions.
If the market is meandering in small range, a Hybrid Trader can elect to deploy a bot that not only seeks out the coordinates where there price is likely to revert to the mean, but the bot will also only trigger an entry at these coordinates if, and when, the order book gets flushed out with enough ferocity to kick-start the mean reversion process.
Hence, a trader can instruct a bot to pass on an entry at a mean reversion location unless a simultaneous order flow event also occurs.
This ability for bots to require any combination of price action, market structure, and order flow rules in order to trade is a not only powerful combination, it can be executed effortlessly by bots with a millisecond precision.
If these conditions are met, the bot will engage in a trade. If not, the bot will wait until it is instructed to stand-down.
Introducing SceetoBots - Automating Your Pattern Recognition & Strategy Skills
SceetoBots are re-configurable automated trading bots that follow whatever strategy that they are instructed the bots to execute.
SceetoBots ingest order flow, market structure, technical analysis, and price action, and will pounce at the appropriate millisecond to execute the Hybrid Trader's strategy.
There is no programming necessary with SceetoBots.
SceetoBots don't get fatigued, they don't take coffee breaks, nor do they get distracted by their smartphone.
Thus, the job of a Hybrid Trader is not to wait and click and wait and click...but rather to think and deploy.
SceetoBots can be configured for any trading style
- Support & Resistance Levels
- Buying & Selling Climaxes
- Trend Traders
- Mean Reversion
- Head & Shoulders Patterns
- Elliott Wave
- Candlestick Patterns
- Range Expansion