Ivo Luhse is a forex trader who describes himself as an asset manager with a number of employees. And not a single one of those employees is human.
A passionate advocate of using automated robots to trade his own manual trading strategies, Luhse saw his profits soar once he realised that he could automate his systems by building a trading algorithm that did the hard work for him.
In this interview with Two Blokes Trading Episode 55, Luhse opens up about his journey to that point and what he has learned building multiple, proven, and profitable trading algorithms over the last few years.
According to Ivo, if you want your algorithm to work consistently you have to be able to clearly define your trading rules – which is easier the simpler they are.
Ivo provides insight on how to get hold of your first system and how to hire and manage a coder to build it for you. He also outlines the pitfalls involved...
There was nothing wrong with my system, it was just my emotions.
On getting into trading...
I started trading in 2006, and it was my father who introduced me.. He used to run his own investment firm back in the 1990's. But back then I was too young to care about or be interested in the markets, I was way too busy chasing girls around. After I finished my engineering degree and I showed a bit of maturity, he started showing me some of his trading systems, and I remember I was instantly hooked with the price charts and flashy indicators; they seemed like magic to me. And I have been trading ever since. But of course I made all the silly mistakes like everyone does in the beginning. It was a hard five years, but I was trading more like a hobby and not concentrating full time on it.
On going full time...
It all really changed for me around 2011, when the recession had hit Ireland. I had to close down my construction business. So at that point, I basically made the choice to go full time trading. I was not yet consistently profitable. I'd do well for a month but then lose it all the next, the typical cycle. I was convinced in myself, if I could spend 12 hours a day to learn to trade and commit and work on my discipline, and really approach my trading more like a business instead of a hobby.
So I gradually became better, because there was no more hiding, I had to make it work. I had to go all in because that's what I wanted to do. I only had my emotions and discipline, as I later found out, there was nothing wrong with my systems once I automated my system. Discipline was the hardest part to conquer. I started to show consistency for about two to three years and I looked into how I could automate my trading to make life a bit easier for me and make my trading more systematic.
On moving into automation...
The reason I went into algorithms was to do my back testing, I love doing lots of back testing. Before that I had tons and tons of spreadsheets, doing the back testing for my manual systems. But my first idea of an algo was to help me with my back testing, so that's how I started going into algo trading. But I think it’s a natural progression for any trader or in life, if you look around the whole world is going towards automation, because I think robots are just better at doing these mechanical and systematical processes.
On robots vs humans...
I believe robots are much better traders than humans because they're not affected by emotions. They can do the same thing over and over again with tremendous precision. As you know, the best traders are ones who can do one thing very well and they do it over and over again with strict discipline. So for me, to automate my manual trading system is the best thing I've done.
I did not build a robot straight away to replace me, I had only done it for back testing. So the first thing it gave me was this huge confidence, as I could see that my trading strategies worked and I could trade manually more confidently. Once I had the robots placing the trades for me I had a lot more extra time, which I spent developing new strategies and learning about new systems.
So at this point in time I have four trading strategies traded by my robots, so I have quadrupled my potential income. Something I would never have been able to do trading manually.
On choosing automated strategies...
Always start with a solid, well-proven manual trading strategy that first of all makes sense and other traders have had success using it. There is no point re-inventing the wheel here. Go out and find a well proven trading strategy that you know works already. There are plenty of traders out there who give away their strategies, even for free, but I would encourage you to go out and spend money and buy trading strategies, so you have access to that trader who uses it.
The types of strategies you want to look for are mechanical, systematic rule-based trading strategies, and avoid strategies that require a lot of discretion because obviously that will be very hard to code that. If you can write down the rules of the strategy and have a flow chart of how you can trade it, then you can code it and automate it.
On previous negativity surrounding robots...
I think the majority of the guys who went off and sold these robots a few years ago were out for a quick profit, they weren't really interested to make money for everyone. It was a new thing, they were putting them out there for a couple hundred dollars to make money for themselves. It was a new thing so people were like "I need to get it."
You have to remember (when buying robots) to try and understand the robot and what it trades as much as possible. One thing is to buy a robot, putting it on and then it is very hard for you when it’s in a losing period. What I do is be very open and explain my trading strategies with my clients, because they need to understand what the robot is doing, otherwise it is going to be very hard for you to keep it running.
Every robot will have a losing period, so I spend a lot of time educating traders at the same time, not just giving them the robot, but showing them the long term consistency. Don't just think; it's a robot, so it’s going to make you money every month. You're going to have down periods.
On managing robots...
I'm quite involved, I probably check the robots twice a day. Don't think once you have this robot you can just leave it on and retire. I actually do quite a bit of updating. I would constantly do some back testing; as I go along I learn new things about it, new things will happen in the market, so I have new ideas and I try and add them in as well. But pretty much I set and forget for trading purpose, but I do monitor it and update it as I have new ideas along the way.
Want to listen to Ivo’s full interview with Two Blokes Trading? Listen here to Episode 55: How To Trade Your First Trading Algorithm