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Fully Automated Futures Trading: Is It Really Possible?

The promise of fully automated futures trading has long captivated traders. The idea of developing a computerized system that can identify trading opportunities and execute trades without any human intervention, generating profits around the clock, is an enticing one. However, the reality of achieving true fully automated futures trading without any need for human oversight or adjustments proves to be much more challenging than it seems.

 

What Are Fully Automated Futures Trading Systems?

Fully Automated Futures Trading

Fully automated futures trading systems, also known as algorithmic trading systems or “algos”, are computer programs that can place trades automatically based on a predefined set of rules and signals. These systems monitor the market and execute trades when certain technical indicators or patterns are detected. Once programmed, the systems can run fully automated without human supervision or intervention.

The main goal of fully automated futures trading systems is to eliminate emotional biases and enable trading opportunities that are too fast for humans to capitalize on. By trading based on objective rules rather than emotions, the systems aim to produce consistent profits over time. Proponents argue that with enough backtesting and optimization, it’s possible to develop algos that are fully automated and profitable. However, others remain skeptical that true fully automated futures trading without any human oversight is really achievable.

 

The Challenges Of Developing Fully Automated Systems

While the concept of fully automated futures trading seems appealing, developing systems that can trade profitably without any human supervision is extremely difficult in practice for several reasons:

Fully Automated Futures Trading

Markets are complex adaptive systems and future price movements cannot be predicted with certainty. Even with extensive backtesting, systems may perform differently in live markets with changing conditions.

Technical indicators and patterns that worked in the past may not work in the future as the market evolves. Systems need constant monitoring and updating to changing environments.

Black swan events and unforeseen crises like the COVID-19 pandemic can cause systems to react in unprofitable or destabilizing ways without human oversight.

Systems may develop unintended patterns or behaviors over time without monitoring that negatively impact performance, like overfitting to past data.

Regulatory requirements like circuit breakers and trading halts require human judgment calls that algos cannot adequately address on their own.

Optimal trading parameters and rules identified from historical testing may not translate to live markets. Ongoing optimization and adaptation is needed.

While fully automated futures trading seems like an attractive proposition, developing systems that can trade autonomously for long periods without needing any adjustments or interventions is exceptionally difficult. Most experts argue that complete fully automated trading without human involvement is not realistically achievable.

 

The Role Of Humans in Automated Futures Trading

If true fully automated futures trading without human involvement is not possible, what then is the role of humans? Experts argue that while automation can handle many routine tasks, no system will ever replace the judgment of experienced traders. The role of humans is still critical in several ways:

Fully Automated Futures Trading

  • Designing and developing the initial trading algorithms based on years of market experience and understanding of patterns.
  • Constantly monitoring system performance, looking out for problems, and improving the rules based on changing market conditions.
  • Overseeing risk management and making decisions around position sizing, leverage usage, and order types based on the current market environment.
  • Intervening during periods of high volatility, news events, or system errors to prevent losses from spiraling out of control.
  • Staying on top of regulatory changes and ensuring the systems comply with all rules at all times.
  • Reprogramming or adjusting systems when required based on shifting market dynamics to maintain profitability over the long-run.

In other words, while automation can handle routine trades, humans are still needed for tasks requiring judgment, discretion, flexibility and dynamic decision making. A hybrid model combining automation with experienced human traders overseeting risk, compliance and performance is likely to be more successful than attempting truly fully automated futures trading.

 

Examples of Automated Futures Trading Systems

There are many commercial trading platforms that offer automated futures trading capabilities to investors. Here are a few popular examples:

Fully Automated Futures Trading

  1. TradeStation – One of the largest retail brokers offering algorithmic trading tools and strategy backtesting platforms for futures. Their AutoTrader tool can automate approved trading rules.
  2. NinjaTrader – Specializes in futures trading and provides an extensive platform for developing, testing and automating trading systems for futures markets.
  3. MultiCharts – Popular charting and algorithmic trading platform used by professional futures traders to develop and automate strategies.
  4. QuantConnect – Cloud-based platform that allows users to program trading strategies using C#/Python and automate them on live futures markets.
  5. 3Commas – Web-based trading bot platform focused on cryptocurrency markets but also supports futures. Offers tools for conditional orders and portfolio management.

While these platforms automate order execution, human traders are still ultimately responsible for overseeing risk controls, performance monitoring, and updating the systems based on market shifts. A fully automated hands-off approach is generally not recommended.

 

Is Fully Automated Futures Trading Possible in The Future?

With continued advancements in artificial intelligence and machine learning, some experts argue that fully automated futures trading without human supervision may become more feasible over the long run. As computers get more powerful and trading algorithms become more sophisticated through neural networks, it’s possible we may see systems that can:

Fully Automated Futures Trading

  • Learn dynamically from massive datasets and evolve strategies in real-time without reprogramming.
  • Make judgment calls and decisions and respond to black swan events through generalized models trained on historical data.
  • Develop a more intuitive understanding of the market environment through advanced pattern recognition.
  • Incorporate alternative data sources and harness insights from news, social media, macroeconomic reports.

However, we are still likely many years away from systems that can match the flexibility, creativity and common sense of experienced traders. For the foreseeable future, a prudent approach is to use automation as a tool to complement human traders rather than replace them. A hybrid model incorporating the strengths of both humans and machines is expected to remain the optimal approach for automated futures trading.

 

Final Thought

While the goal of fully automated futures trading without any human involvement seems appealing, developing systems that can trade profitably on their own over long periods remains an exceptionally challenging task. The complex and ever-changing nature of financial markets requires the flexibility, judgment and risk management that only human traders can provide for now. In the future, advances in AI may shift this balance, but a hybrid human-machine model is likely to dominate automated futures trading for the coming decades.

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