Black box trading is essentially a computer program designed to trigger buy and sell signals on investment instruments. There are strong arguments that black box trading is here to stay – and they are likely correct in that assumption – but the trouble is, they don’t work. Or, should I suggest, they do not work as effective tools to grow your account.

These computer models employ a unique logarithm or formula that gives an indication when certain parameters are met. Upon getting the indication, you would enter or exit a position. It is expected that the computer model would somehow know when those setups occur and the trader takes advantage of the situation.

The problem is. those formulas are static and the market is dynamic. The fluidity of the market will eventually cause the constant formula to give an erroneous reading. Of course, no one calls the developer to say the market has changed and better update the formula. In fact, you do not know when this occurs until it is too late; the trader lost his/her investment. Too bad, so sad. The other thing is that often traders simply don’t know when to exit the position.You may take a set profit of say, 6%, or you may wish to ride it up. Should greed kick in, you may find yourself riding it back down again. A clear plan needs to be in place.

The trader often does well with these systems, developing an ever growing confidence and thereby entering with larger positions. When the inevitable happens, often times huge money is lost.

We have a black box ourselves in the Launch Pad Software. This program is designed to trigger a ‘once a day’ buy indication on SPY. It is very easy to use and with a standard 6% profit target, it most often is accurate, delivering your expected profits. However, the Launch Pad too, can miss the mark if the market behavior changes outside the parameters of the formula.

That said, to assist you with this inevitable situation, we encourage you also study our e-book ‘Repairing Trades Gone Bad’ when you subscribe to the Launch Pad, or any black box program, for that matter.

Just like you would never jump out of an airplane without a parachute, you should never trade without a solid technique to manage losers. If any guru ever tells you he never loses, know that he/she is lying to you. All traders experience loss.

Stay abreast of the market and your positions to experience long term financial gains.

 

Head Trader Hugh

April, 2017

 

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