Bugs happen, have back-up systems
Even the best design, coding, testing and implementation can have issues. For example, the authors’ automated trading program experienced a bug in its trading process that affected its risk management exits after running successfully with no glitches for nearly a year of live trading. Fortunately only one account was impacted, but over a four-day period this account lost about $30,000, more than half of its equity. The bug in the program was corrected, and additional alerting was put in place to notify the trader should similar issues arise.
It is important to be creative and thorough when designing the software and particularly the alerting/monitoring process. While the specific bug was corrected, it is important to have additional safeguards. If your automated system limits risk to a specific percent per trade and has an overall exposure limit (as was the case here), a separate alert should be set to alert the trader immediately to a breach in any of these parameters.
Also, while automating your system frees up time, you still need to monitor your trading daily to make sure nothing unusual has happened.
Brad Kuhlin and Bob Clancy are principals of CTA Adantia LLC, which was featured in our October "Hot New CTA" story. They can be reached at www.adantia-llc.com.