Line Your Own Pockets

Michael: 00:00

Alright, guys. Welcome back to another episode of align your own pockets. If you hear a little frustration in Dave's voice where we were experiencing some technical problems, so I like just to bring you guys in on that. But I think we figured out we had to go to a whole new computer, but we don't wanna miss an episode for you guys. Now we talk a lot on this podcast about automating things, about systematizing things.

Michael: 00:22

It's kinda the whole point. It's kinda what we're doing a lot on. But in this episode, we're actually gonna take a big step back, and we're gonna talk about what not to automate. Like, at what point should you force yourself to to get in there and get your hands dirty and and dig the ditch yourself as opposed to getting the machine to do it for you? And and Dave's got some perfect examples to to get you started with, and I I think I'll be able to add a couple more when he's done there.

Dave: 00:48

Yeah. It's something that I've changed my mind about over the years. I mean, I know there's a lot of developers in the that that

Michael: 00:55

listen to

Dave: 00:56

this show. And the tendency among developers is if you can automate it, it should be automated. But I've found over the years that that's not always the best thing to do, certainly in a trading business. And so so here's an example of what I came across that made me change the way I think about it. So as you know, I started the first online trading journal many years ago.

Dave: 01:24

It was a product called StockTicker. When I created that, I knew it was what I needed to trade well, and I created an API with it to send my trades directly to my journal from the trading apps I was using.

Michael: 01:39

Mhmm.

Dave: 01:40

So it would capture a lot of basically, all the information I needed was captured automatically as I made the trades. So, you know, the tags that were being applied for the specific systems, the, you know, the entry price, the exit price, number of shares, the even stuff like the entry slippage and the exit slippage. I would send the signal price to the calculation based on that and the API. So all that stuff was done automatically, and I thought, oh, yeah. This is this is great.

Dave: 02:13

This is the way it should be. And it was nice. Right? You would you would never have to enter trades manually or even look at it. So, you know, time goes by, stock ticker got bought by trade ideas.

Dave: 02:29

We eventually spun down stock ticker, and I converted my journal over to Traderview, which has an API. But at the time when I did it, I was too busy doing other things. I didn't have time to automate this stuff that I had in place. So I did the first step towards that. Like, it so, you know, I don't enter trades manually, but I've got a script that I wrote that just copies everything to a clipboard, formats it in the right way, and then it's right there for me to paste in exactly the right format into Tradervue.

Dave: 03:05

So it's not quite automated, but there's a it's a there's some conveniences there. But I don't but I still have to actually go do that every day. So I had this what I thought was gonna be an interim step towards full automation, and it's been months and months that have gone by. And what I realized is this is actually a better way to do it even though I have to do some manual steps. Because the automation I had set up before was, you know, it didn't force me to look at it every day.

Dave: 03:42

I just knew it was happening automatically.

Michael: 03:45

Mhmm.

Dave: 03:45

But there's a lot of value in going back and doing that review, Having these, you know, very, you know, bite sized manual steps that you have to do, there's a lot of value in actually doing that and internalizing what's going on and really getting a a good review of what your trading actually did that day.

Michael: 04:06

So, yeah, the so the main benefit, kinda from that story isn't necessarily that doing the thing manually was the ticket. It was the fact that it it forced you to go back and look at the data. So, you know, the same result could have been achieved if you had an automated system, but you went back to do it. But you're just not gonna do that as much. It's gonna be easier in your brain to say, no.

Michael: 04:29

I'll skip a day. Everything's handled. I don't really need to worry too much about it. I I can kinda go from there. So what you're saying is that kinda pulling yourself and forcing yourself to do the work or else knowing that, you know, something is going to be missing, that really, really kind of made you learn some things about your system and and to keep up on it way, way better than, again, if you just said, hey.

Michael: 04:53

You know, I can skip a day, and the day turns into a week, and a week turns into a month, and and that kind of thing.

Dave: 04:59

Exactly. So, yeah, having that strict delineator of, okay. I gotta do this today or it's not gonna get done. So that that, you know, that's just by its nature a part of your trading day that you have to do. And as part of that, you get a lot of insights that you might not otherwise see.

Dave: 05:21

So it's a really you know, I I do this, get systematic road map for traders, and that's a big thing of what I include in there is getting your daily trading review dialed in that puts you in the right position to notice the unusual things to create systems from. So it's a really important thing, and and there's a lot you know, that part can't be automated, and you don't want that automated.

Michael: 05:50

So just to to go deeper into the whole journal thing before we think of kinda other areas that we could probably do the same kind of benefit from, one of the things that I I think it'd be impossible to automate is journaling more about kind of the internal we'll get into about, you know, how you were thinking or feeling or if you intervened in a system and why and and all of these things that aren't aren't quantifiable. Right? So, you know, hey. I I broke my rules today, and this was why. Right?

Michael: 06:23

And and you could just as very easily upload something and put a tag on, you know, call a rogue trade or something and move on. But I think that kind of the whole writing aspect of doing a journal, I think, is something that shouldn't be looked at or shouldn't be, automated in some kind of way. Can you think of anything else from the journal side of things just alone before looking anywhere else that, you know, reasons that it would make sense or things that you should add to that kind of journaling exercise that a that a human should do, and you shouldn't let a computer get anywhere near.

Dave: 06:56

Yeah. So you you're totally right that the the the process of recognizing what happened and the nuances of what happened during the trading day, you're not gonna remember that even tomorrow, even tomorrow morning.

Michael: 07:09

Mhmm.

Dave: 07:10

Much less, you know, once a week. So it it really needs to be a daily process because at the end of the trading day, when you're reflecting back, that's the point where you're gonna have it's gonna be the freshest in your mind. You wanna capture everything about what happened that could be important that you that that you wanna keep track of and and be able to reflect back on, you know, months from now. So it's good to document it right then. Otherwise, it's just gonna be gone, and your those, those valuable nuances that you wanna keep track of are gonna be gone.

Dave: 07:44

Mhmm.

Michael: 07:45

And that's the yeah. I I I can't stress that enough, especially now, you know, we're talking a lot to systematic traders. But I remember, when I would purely discretionarily day trade for a living. By the time I got home, I couldn't tell you what happened. Right?

Michael: 07:59

It was like we you just felt like you got hit by a bus every day because you're just dealing with so much information as it as it's coming in. And then even for for the same for people who may be discretionary from the longer term side of things, the the, you know, swing to investing to even longer term, you know, having your thoughts of why it is that you like the stock or the sector or something can help. I find in a couple places. One is to make sure that you're trading correct. You know, you're you're you're trading based off the way, that you want to.

Michael: 08:31

But the other thing is to make sure that, you know, sometimes sticking with things in hard times, both systems and with with stocks that you like, it's important to kind of document your your thought process there. Right? So if you're like, okay. I have this system. It looks for pullbacks.

Michael: 08:47

And, you know, I'm buying things on the way down. I'm hoping for a little mean reversion on them. Just journaling that over and over again saying, hey. You know, the market was down a whole lot this week. So, of course, all my mean reverting stuff got hit.

Michael: 08:58

Just separating those things out, I I think, is is super important in a way that that couldn't be couldn't be fully systematized. So do you have any ideas other than journaling? You know, did that road of thinking of what not to automate, did that end up leading you down different paths?

Dave: 09:17

Well, there's another part. There's a couple more parts of this that I'd like to mention, and that's, and this is probably more for the developer the developers in our audience. Think about a big process that you have automated before. Oftentimes, there's a whole lot of steps involved. It can get complicated pretty quickly even if it is automated.

Dave: 09:45

And it becomes big enough at some point where you think, gosh. Don't touch it. It's working. Don't, you know, don't, don't touch it at all. We don't wanna break it.

Dave: 09:58

Mhmm. So that's really the point that you want to to avoid. You want to make things even when you when you automate stuff that's modular in a way that's easily understood and in bite sized chunks. And there's a tendency to, you know, just put a whole bunch of steps together in this mashup that really you're not gonna remember how it works six months from now. When you need to go back and change it, it's gonna feel really scary.

Dave: 10:25

And it's and it's the more ingrained into into your trading business it is and the more important it is, the more, you know, the scarier it's gonna be to try to change it. So I think there's there are, you wanna keep that in mind. And as you develop stuff and as you automate stuff to make sure that it's you've creating it in a modular way that you can change certain parts of it easily, you know, without being, you know, without the process being too monolithic.

Michael: 11:02

Yeah. And I I I think just going back to some of the analysis work I do on the market, I think there's a lot of advantage to be had there as well where when you're looking at things not to to sit and to to kinda hardcore systematize, You should look at also where the brain where you need to use a human brain in a systematic process. Right? So you you, for example, were talking about, you know, reviewing your trading strategy and making sure, you know, that everything was working as it as it is. That's a place that, you know, you need the human brain because if the system veers off, you need to be the one to pull it back.

Michael: 11:41

But, also, I find a lot of people, can get to the point where their sis or they're automating the idea creation side of things, and, you know, they're not doing that work as well. And I think that can be almost even a bigger problem. And I've seen that happen kinda more and more, especially with, you know, the rise of AI and the videos of people saying, hey. You know, I'm just gonna type build me a Bollinger Band strategy. So, you know, when we're talking about places not to add systems in, I think that's one that's very tempting because for me, anyway, it's it's probably the most time I take in the trading is is look trying to figure out new ideas, and I think that's gotta be a big one that you probably even shouldn't have systems anywhere near.

Dave: 12:29

Yeah. I think that's true. There's gonna be a lot of, nuance in doing that, and you're gonna have to there's a lot of human creativity that you're gonna have to bring to the table to create strategies. And, you know, the more unique they are, the better they're gonna be. So that's gonna take, you know, just kind of by definition, it can't be automated.

Dave: 12:52

You're gonna have to you you can use some, automation in that process, but, ultimately, it's gonna be you and your creativity and what makes you unique that, you know, results in a in a solid and, a strategy with legs that lasts a long time.

Michael: 13:14

Well and it's it's funny. One thing that you've said to me during this podcast and something that I've repeated to other people that I think we could flip on its head there when we're doing this kind of thought exercise. You always say, okay. Well, you know, at the end of the day, sit down and and think of what you you didn't need to be there for. Right?

Michael: 13:31

What didn't you you know, where did you add no value to the trade? Yeah. And then this is kinda the other way around where I think you should say, okay. What can, you know, what where am I adding value? The other side of that coin.

Michael: 13:45

What am what is it that I'm doing? And in those areas, sometimes you're gonna look to systematize. But I think in many cases, if you've already gotten to the point where your trading's done automatically, if you already got a point where, you know, a lot of the the mathematics and the calculation's done, then then I need you you need to look and you just say, okay. Where is it that you're you're adding value or where is it that something that you enjoy? Well, maybe you should be spending more time with the time that has been, you know, removed from systematizing certain things.

Michael: 14:17

That's where you kind of apply that that more time. So for me, I like going through, you know, all of my ETFs and and gathering a picture of what's happening in the market that day, that week, that month. And then I find by doing that, I'm kinda spotting patterns anyway that I I wanna test and giving me ideas to test. So I think you should, you know, take that the thing that Dave says and, again, flip it and say, okay. Well, where can I really focus and, you know, and in what kind of area, am I adding value to my system, and and how do I kinda lean into that?

Dave: 14:50

Yeah. It's like a I often say you're never gonna be the best order enter in the world. Right?

Michael: 14:57

Right.

Dave: 14:57

So that's an obvious thing that you should be, automating or or trying to systematize for sure. But, yeah, you're right. Like, step back, think about what you where you really provide value and what could be what could and should be automated. You know, there's another there's another way I think about this. And, you know, there's different levels of automation like we've said before.

Dave: 15:27

And, you know, an example I I mentioned before where everything's automatically going to your journal and how that can be good, but turned out maybe not so good. The very first thing when I get a new computer, the very first thing I install is this program called auto hot key. It's like a a text expander. Basically, a text expander is a whole, a whole industry of applications that does basically the same thing. But, you know, you can configure hot keys essentially or or or things that you type that actually go and do different things, and you can configure that and, you can sort of write simple code to do things when you type certain text sequences.

Dave: 16:20

So what I do for the I've got it's probably the most used application on my computer. Right? I use this thing for everything. Saved me so many keystrokes over the years. Highly recommend it.

Dave: 16:34

It's free. One of the things I do with it is well, first of all, I keep basically, all my bookmarks are in there. So when I would need to go to my journal, I just type a a quick keyword sequence. Don't even have to touch my mouse, and my browser goes to my journal. Yeah.

Dave: 16:51

I've got, you know, dozens of those. One of the things I think is really nice about the way I use this and and what I've what I've started doing a few months ago. I have a keyword sequence that I type for the market open. And when I type that sequence, I have all the windows that I wanna see for the market open appear in exactly the right placement and exactly the right order on my screen that I wanna see. It's a very simple script to write to to make that happen.

Dave: 17:26

So I've got one for the open, and then I've got one for the close. So I have a different set of set of windows that appear in just the right order when I type the one that I use for the close. Now what that allows you to do is very modular design here. That's, you know, the it's not automated. It's something I do, and it's very easy for me to make changes to that over time.

Dave: 17:51

And what happens is when I do wanna remove a window or add a new window to my layout for the open or the close, all I need to do is modify the same script and my same key my same routine, my same sequence of events that I do that I actually do during the day, none of that changes. It just changes what appears on my screen by design. So that is, I I kind of think that's, like, almost automation, but it's it's I think it's kind of a good automation that's very easily modified, and, it's just a very convenient thing to be able to do.

Michael: 18:36

So that that might point back to some of these tech problems we're having before that just sounds as a as a Mac nerd that just wants everything to work. That sounds super complicated. But I I get what you're what you're doing there is you're basically saying that, you know, there's you're using automation, but not fully automation. Because you could make it that, you know, ten minutes before the market closes or something. Everything appears wherever you want.

Michael: 18:58

But, you know, the the ability to sit down and do that, there there's something that I think is hugely beneficial too when it comes to humans and and routine and, you know, making sure that you are doing the thing even though you don't necessarily have to do the thing kinda every day. Right? Exercise same time every day. Go to bed the same time every night. That kinda there's something that's soothing and and we know is good for us when it comes to routine.

Michael: 19:23

So in some cases, again, automate automate the the boring stuff, automate the, you know, the the stuff that you don't necessarily want to do or you don't want to be there for. But, you know, some of the stuff that you do maybe don't automate that. So, for example, one one thing for my personal trading as a as a swing trader is I use alerts for everything, and that's one thing. I'm not gonna watch my algorithms put out, like, 30 or 40 symbols at the end of every week. I'm not gonna watch through all of those, but I use alerts.

Michael: 19:55

And the reason I use alerts and not orders is, well, a couple things, buying power and stuff like that. But I actually like to look at the market and look at the stock and and kind of understand what's going on in the market before I hit a button that, again, is fully automated, and it puts out the stop loss and calculates position size and does do all that stuff. But, it's one thing that I think I add a little bit of value on and I enjoy. So it and it kinda goes to what you're talking about with the semi automation, right, where, you know, I'm not sitting there watching 30 stocks and waiting for the price to get hit and whatever. And with alerts, with trading view and all that, it just goes directly to my phone anyway, so I could be anywhere to do it.

Michael: 20:33

But, yeah, finding those little areas where you can get as close as you want to the full automation without and then where are the benefits. You know, for example, putting out that many orders would eat up my buying power. I wouldn't be able to trade every position I want as big as I want. Whereas, again, just pushing the button when the time occurs does. So, yeah, again, we're we're not coming on here saying, oh, you know, all the podcasts we did before, you know, forget that.

Michael: 20:58

Go fully discretionary. We're just saying, get as close to the line as you feel comfortable for or as you want. And then while you're standing there saying, is there anything that I've kind of left the human element behind of that I should bring back? Right? I I think that's a better like, your example in the beginning with the journal.

Michael: 21:17

I think it makes way more sense that you have done all this automation of the journal and then decide to take a step back than the other way around, if that makes any sense. Because at any point, you know, say you have to go away for a week or some something happens, you can just allow the automation and everything to run. You could, you know, set the trades to run. You could walk away. You could do all that, and you could catch up when you get back.

Michael: 21:39

But I think it's it's just better to have as much automated as you can. And then, like we talked about, do the thought experiment of, right, what what did I miss? Like, what what am I missing? Either I'm no longer doing this thing that I enjoyed about the trading process, or, is it something that I've just kind of, you know, abandoned that I should then go back to and and find some value in in taking a step back?

Dave: 22:06

Yeah. I think it's, I think it's important to always take a step back and and think about things. You know, the other kind of downside of automating stuff is it's resource intensive. It's expensive to create that automation. And I know there's a tendency from some traders to, I would say automate stuff that the cost is just, too high compared to the benefit.

Dave: 22:38

So one example that comes to my mind is, you know, your this is sort of a low level example, but, you know, let's say you have a a strategy that you've written in Python, and the the the strategy you know, time is of the essence. So you notice some examples where if you were a little bit faster, you could get some of the fills that you wanna get that, you know so so the the tendency is for some developers to say, okay. Well, if I ported this to c plus plus, c plus plus is super fast. That extra benefit, I would get some of these fills. I could probably make more money.

Dave: 23:26

But, you know, I would look long and hard before you make that step. I mean, just think about, Michael, you're not a developer, but there's a big difference between a scripting language like Python and c plus plus. Because the difference is with c plus plus, you have to compile the code. So and then deploy that code. With Python, it's all just it's a scripting language, so it's they're just text files that get executed.

Dave: 23:57

The compiling sorta happens automatically as you run it. That slows it down, so it's not gonna be as fast as c plus plus. But there's just it's just so much easier to write code in Python than c plus plus. There's a whole lot of complication that comes with it. And there's a tendency of people to assume that it's gonna be worth it to port it to c plus plus, but that it's not cheap to do that, and you're probably not gonna get the benefit that you think you are.

Dave: 24:29

There's a good chance you want. So you really in situations like that, it's really good to to really make a serious business case for yourself to do that work. And it might be that, like, there are strategies where that is the case. You you will it will be worth it. But a lot of times, it's not.

Dave: 24:51

So you really before you go through that effort of automating it or making it significantly, quote, unquote, significantly faster, it's good to think that through and do a cost benefit analysis to make sure it's worth it.

Michael: 25:05

Well, I I like how you you frame that as a business because I think at the end of the day, it's one thing that we should always look at all aspects of our life in a little bit of a business is is, as you mentioned, you know, do I spend however much to get a developer and to port it over and and to spend the time and the energy focus on that? And then, yeah, I get an extra couple bucks kinda here or there, when I'm correct. And that's how I think you should look at in again, from the the saying that I repeat that you gave me so much is that, you know, you're looking at areas to take yourself out of, but same time, you wanna look at areas to kinda put yourself into and see where that where that automation benefit is. If if you're someone like, okay. I'm gonna take myself completely out of this thing that I do and and the benefits very, very small in doing it, well, there might be some benefit that you're not really thinking of to to kinda keep you involved and to keep you you in there.

Michael: 26:03

You know, one last example I have personally is I was spending a lot of time so into kind of the backtesting weeds that I had lost, I guess, my craft of analysis, right, and and technical analysis and going through all these charts and looking at, the synergies of different markets. And I found I was too much in the forest, and I wasn't sitting back and looking at the at the trees anymore. Right? I'd spend so much time in a in a back test or a simulated world. I forgot to, you know, study how market moves and and things like that.

Michael: 26:34

So that's another area where you could go, okay. Yes. Is there benefit of me systematizing all my trading? Yeah. But I gotta leave some area there that that forces me to say, okay.

Michael: 26:47

You still want to go through all these charts and and and do all this analysis because there is going to be a benefit there at some point. You know, it might not be quantifiable right now, because there just might not be any trades or anything to see. The but, yeah, just having that and and kinda keeping that routine, I think, is something that was huge that for a little bit when I was going into the the back test side of things, I I lost.

Dave: 27:15

Yeah. It's it's a very common thing for people to get stuck. I call it stuck in back test world where Mhmm. You're only looking at aggregate data. You're not looking at charts.

Dave: 27:25

You're you kinda get stuck there, and it's good to it's good to get out of that. It's good to recognize it and get out of it. Yeah. Looking at charts, like you mentioned, is very valuable to be able to do. And you can't look you know, when you're looking at a big backtest, yeah, you can't look at every single chart probably.

Michael: 27:47

Mhmm.

Dave: 27:48

So start with, you know, the best trades from the backtest, the worst trades from the backtest. Look at those charts. You know, look at the outliers. But, yeah, there's you definitely see traders get stuck in backtest world. And, you know, for serious data nerds, you could get stuck and stay there forever.

Dave: 28:10

So Yeah. You're totally right. You you have to get out of that world and and make some real trades and watch what it watch what happens in real time. And that's where you're gonna get your insights. And then you can take that that back with a specific goal in mind back to back test world.

Dave: 28:26

Right?

Michael: 28:26

Mhmm. Yeah. And it was again, as someone who's, right, wearing multiple hats, and one of them is an analyst for for long term stuff, it was really bad to get kind of that out of touch. And the other thing that, you know, you could lose there is getting out of touch just with day to day changes in the markets and getting out of touch with, you know, new events that occurred. You know, for example, we've got this twenty four hour market that everyone seems to be getting involved in that's going.

Michael: 28:53

And just if you weren't if you were just shutting your little world, just running your systems, running your back tests, and didn't have any exercise of, you know, going out and doing things that, may not seem may not seem useful because it's, you know, hey. I'm I should be spending time doing this. Then, yeah, you could miss big events, changes in market conditions, changes in environments, that type of thing, that, you know, it makes sense to kind of put yourself in in and make sure that you're at least so I guess what the main thing that we're looking the main thing that we're talking about here is just to say, try to automate as much as you can, but you gotta remember that, you know, you're the human driving the ship. So if you get completely you know, you're you're off doing something else while the ship is driving and and you've automated everything to the point where you're not paying any attention, then, you know, you're probably gonna hit a rock at some point. Right?

Dave: 29:48

Yeah. And and when you do automate stuff, make sure you document it well. And, you know, every step you should like, yeah, have a have, like, an architecture diagram where you're, you know, all the steps are documented. So when you do go back in six months when you've completely forgotten about it and it's gonna look like a completely different developer wrote the code

Michael: 30:12

Mhmm.

Dave: 30:13

You're gonna be able to piece it back together in a much quicker way. I I I can't tell you the number of times where I've looked back at code that I wrote six months ago or more, and I'm like, who in the heck wrote this? And I actually I think that's actually a good thing. You should be looking back at your old code and thinking, wow. Who what idiot wrote this?

Dave: 30:37

Because that means you're getting better. You're getting better over time. And that so that's what you want. But it is kinda hard to, it it's hard to look at that code and not be disgusted sometimes. But I think that, you know, if you write if you if you think about that situation ahead of time when you write the code, think about you're writing this that you you know, you're you're, yourself six months from now is gonna be the one that has to maintain this, and that's you're gonna feel like a different person at that point.

Dave: 31:10

That's who you should be writing the code for. And think about that as you write it and document the steps that that that does make a big difference.

Michael: 31:18

Speaking about, you know, going back and seeming like it's a different person, just wait till we've been doing this for a couple years and go watch episode one again because I got suggested some of my old YouTube videos from probably seven, eight years ago, and I watched one of them for five seconds. And I just wanted to I wanted to go find a hole somewhere to crawl into. But, yeah, it's it's the same as that. You you see, you know, yourself a long time ago, and and you kinda hope that if if you were if you were the same person then as you are now, then probably something went wrong. Right?

Michael: 31:54

And same with your your trading journey and same with your development is that you should look back and say, yeah. That that was stupid the way I did that, and and, you know, I can do this. And it's because now you know that unless you were lazy then, but now you know that you can do something, something that's way better. So, again, keep yourself keep yourself in the game. Keep yourself kinda moving.

Michael: 32:16

Don't automate too much. I really, really like this one. I'm glad that we are back recording. Again, for the audience, it will just look like nothing happened. But for me and Dave, we've been we've been fighting this this tech battle for a while, so I'm glad that we've conquered it.

Michael: 32:32

And I'm I'm excited to talk to you in the next one because I am Michael Nas.

Dave: 32:37

I'm Dave Babe, and we'll see you next week on Line Your Own Pockets.