Prop Trading Drills and Automated Trading

Automated trading and you

In closing we discuss how to move forward from the Prop Trading drills and automated trading. The exercises completed so far should help you grasp probabilities in trading and in determining the outcome of individual trades i.e. you don’t know which trades will be your winners and losers. You can also scale this understanding to help you trade within the money management guidelines in Exercise #6. You don’t know which ‘days’ will be your winners or losers. But if you are trading with discipline and following your money management rules, continually eliminating ‘rookie’ mistakes and not wiping out your week’s profits frequently with occasional large losses AND occasionally nailing a decent win, then chances are you will turn the corner in your trading and be a consistently profitable trader.

If you took the time to closely follow your core market and trade the exercises, even over just a few weeks you will have learned a lot more about markets than most do in a year of standard ‘market education’.  You should have developed some intuition about how your core market behaves and how it trades in the context of other assett classes.

Most importantly you will have observed in the DOM the auction process playing out with buyers and sellers competing in the auction, and how rookie mistakes lead you to losing in the auction. It is now up to you to figure out what you were good at, and what needs work.

If you are prone to trying to pick turns all the time, then the coin flipping should help change your mind. If you are placing too much emphasis on one aspect of the market (iceberg orders for example) the advanced exercise should help broaden your market context.

Moving forward, there is no recipe for exactly how to trade to be consistently profitable.  You will need to take what you have learned from the exercises and in as simple a plan as possible, define your trading edge and what sort of opportunities you are going to trade.  There are plenty of tools out there (see the resources section) to give you a unique perspective of markets and to help you compete with the professionals.  One final tip is to get with the times – now that you have ingrained the market fundamentals, there will be a time when you have to make use of automated trading to compete, and that is what the final section is about.

Automated Trading and You

The 2015 publication Automated Trading in Futures Markets [Richard Haynes, John S.Roberts] looks at automated trading vs manual trading volume. Here are the statistics for just the E-mini Futures Manual vs Automated Trades (which has one of the higher manual trading volume ratios) for Nov 2012 to Nov 2014:

  • % Volume where both sides of transaction were automated = 46%
    • % Volume Outright vs Outright 43.1%
  • % Volume where one side of transaction was automated = 42.6%
    • % Volume Outright vs Outright 40.6%
  • % Volume where both sides of transaction are manual = 13.8%
    • % Volume Outright vs Outright 9.5%

The most staggering thing here is that of all volume in the E-mini during the sample period, 88% of transactions had a machine (automated order) on at least one side of the trade (point 1 + 2). These statistics are impressive for 2014 and you can be sure that automated trading has only increased since then.  So what does this mean for those having a go at trading using conventional point and click tools?

  • Use technology.  There are a number of innovative tools out there you can use to provide a unique edge to the underlying forces in markets nowadays. Previously such concepts as ‘order flow’ were only used by trading systems capable of monitoring all the data. Now there are a number of cutting edge tools developed to deliver in-depth order flow insight on real-time data such as the Jigsaw Trading Tools and PriceSquawk.  You can take advantage of these insights and be well ahead of the curve since the vast majority of retail traders have their heads buried in charts and their mouse drawing lines (instead of working bids and offers).
  • If it is a case of man vs the machines – what do you have as an asset? Put some thought into what you can bring to the battle, and continue to explore trading ideas created from your own unique perspective.
  • Learn to program.  You are lucky to have learned to understand markets from a bottom up approach. Especially if you have completed some, or all of these exercises using the DOM. Ultimately you are going to benefit from implementing your trading ideas in software. This will level the playing field for your trade executions and will also remove the human error side of trading in continually advancing volatile markets.
  • Stack your edges. In the highly competitive world of markets it is nowadays much harder to have one good idea and turn that into being consistently profitable. Ultimately you will want to look into stacking your edges. Implement automated order execution (queue position, order latency), broader market contexts (correlated markets) and human adaptability (quasi-systematic trading).

The markets will be around for another hundred years and adaptation is your biggest edge when comes to being a human trader. Good luck!


  • No BS Day Trading – Never seen a DOM? New to Day Trading? Start here
  • A Guide to Spread Trading Futures – Simple yet comprehensive breakdown of spread trading
  • Jigsaw Trading – Award winning DOM and trading tools (voted by traders) plus
  • Free Order Flow Course – Peter Davies at Jigsaw Trading breaks down the markets for you.
  • Trading Technologies – Professional Trading Tools used predominately in Prop Firms. High quality SIM Trader available as a free trial through most brokers
  • AMP Futures – Cheap retail brokerage providing nearly all trading platforms as a trial so you can dive into the trading exercises on the SIM
  • Traderfeed – Steenbarger – Trading psychologist that works with prop firms. Trader and author of respected trading psychology books. Great for trading ideas. Worry about psychology once you have been trading for a year (and completed these exercises)
  • Bloomberg calendar – States market focus and key US economic releases.
  • Forex factory – Reliable economic release schedule
  • Automated Trading in Futures Markets [Richard Haynes &John S. Roberts] – This links to a document published by the CFTC. It is a report and breakdown on Automated transactions vs Manual transactions in different futures markets. A real eye opener based on objective analysis on market participants.
  • Mark Douglas Books – Mark Douglas recently passed away but his legacy lives on. Fascinating insights into human nature and trading in his classics books.


  1. Introduction

  2. Preparation

  3. Trading Exercise #1 – Trading Naked

  4. Trading Exercise #2 – Flip a Coin

  5. Trading Exercise #3 – Always in the Market

  6. Trading Exercise #4 – Averaging In

  7. Trading Exercise #5 – Lose

  8. Trading Exercise #6 – Trade Like A Machine

  9. Trading Exercise #7 – Legging

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