51. What to Do When in Doubt of Trading Algorithm

Published at 1666928807.757665

The market appears to plummet, but your algorithm is about to likely open long positions. Would you decide to interfere with the system and place orders manually?

You may be tempted to override an algorithm and trade manually when the market seems to go against it. This is a common mistake for inexperienced algorithmic traders. You implemented the algorithm, and you may think you know better than the algorithm does. In reality, however, interfering with an operating algorithm may do more harm than good.

Four Consequences From Interfering With the Algorithm

  • Drive emotional trading. Algorithmic traders leverage computers and tested algorithms to make rational decisions. If you abandon this advantage for a gut feeling, you are going against the essence of algorithmic trading. Every time you interfere with the automated system, you move further away from becoming a true algorithmic trader. You should always be careful not to cross the line between intervention and non-intervention. In the long run, fully trusting the algorithm can help you build a successful career. It will also motivate you to be confident and thorough in every algorithmic aspect. This mindset will benefit you greatly in the future.

  • Increase your stress and reduce your self-confidence. There are two possible scenarios when you stop the algorithm and open a position in the opposite direction. If you make a profit, you will lose confidence in the algorithm. This is frustrating since you will have to decide every time your feeling differs from what the algorithm does. Should you let the algorithm run or manually intervene as you used to? If you make a loss, you will waste your efforts and feel regretful. The short-term results may vary, but the long-term results are the same: you become stressed and lack confidence.

  • Reduce your free time. The biggest reward that algorithmic traders get is free time. If you give up automated trading for manual trading, you will have to spend all your time monitoring the algorithm to intervene at the right moment. Whether you make a profit or not, you are giving up the best benefit of algorithmic trading.

  • Invalidate your statistics. What do the statistics of your algorithm mean after interventions? Nobody knows because the data is no longer reliable. This will make it very hard to evaluate and improve your algorithm.

What to Do When You Doubt Your Algorithm

The answer is to try to exploit new ideas without interfering with the running algorithm. Below’s a model to explain this concept.


If your doubt is purely emotional and not quantifiable, you should consider doing nothing. Sometimes, the doubt may persist. One trick to help relieve emotional pressure is to make small trades on another account. This way, you can satisfy your emotion and keep the integrity of your algorithmic data, while also having manual data for analysis.

If your doubt is quantifiable, you should save the idea and consider it as a potentially new algorithm, or a new feature for future development.

This approach preserves valuable information from your doubt if it exists while keeping the running algorithm untouched. In the long run, this will be very helpful for harnessing both your creativity and your trust in your algorithms.