#032: AROUND THE WORLD WITH AUTOMATED TRADING

Trading is one of the few professions that gives you the freedom to set your own hours, make unlimited income, and live on a diet of rice and beans. But if you play your cards right, you may be able to replace the rice and beans with something more lavish. I am talking more than food.

During the last 6 years, I have been fortunate enough to travel to more than 60 countries, fully financed from my automated trading earnings. I have learned how to manage my trading business from anywhere in the world and what steps I need to take to keep making money in automated trading. I´ve also learned what it takes to develop really good, viable strategies. In this article, I will explain five of the most important and the most challenging hurdles, and how I learned to overcome them.

1. Finding a Good Trading Strategy

This is about as difficult as nailing jelly to your whiteboard.

Over the years, I have learned that creativity and experimentation are the keys to finding if I want a viable strategy. I don't look for “popular” systems anymore. I find that widely available strategies seem to fail quickly because they become public knowledge. I always look for new ideas through heavy experimentation and by staying in my "high-creativity" mode.

I love experimenting with any crazy idea that I can come up with, and sometimes am surprised by the interesting strategies such crazy experimentation can bring.

In my case, I realized that traveling usually brings me into a highly creative state (as well as meditation that I practice daily). I get most of my great ideas during my travels, when I am forced to act out of my daily routine. That's when a lot of “out-of-the-box” ideas come to my mind.

My general advice is this: Don't be afraid to experiment. Try anything you can come up with - sooner or later it will pay off. Don't be afraid to combine indicators, use different time frames, or see what happens when you use an indicator in a way other than how it's supposed to be used.

For example, I like to use two time frames (a higher time frame helps to filter out noise) and my best experiences have been with breakout strategies. I like dividing a breakout strategy concept into several components and then think about how I can bring some new idea into each component. You can always give a component an interesting “twist” that could lead to a great strategy. This makes strategy development an exciting process.

2. Do Away With the Crud

Using someone else's trading strategy may not work so well for you. That's the reason I develop a thorough methodology for testing robustness to find out what could be a viable strategy in the future. I advise any trader to spend at least as much time testing for robustness as with strategy development, if not more.

I prefer spending time on walk-forward testing, regular optimization, and validation of strategy in other markets within the same market group. I also always develop a strategy on only a small part of the available historical data.

My methodology generally looks like this:

I have an idea.
I test it on a small part of my data history.
If it's promising, I perform extensive walk-forward testing on 80% of all my data.
If all looks okay, I validate the strategy on the remaining data (20%).
If it still looks okay, I verify whether the strategy shows some reasonable results in another similar market or other time frames.
I paper-trade the strategy for several months before I start live trading