Does anyone do any "automated trading"?

[Olav23]

I have certain stock trading decisions I would like to automate. Has anyone figured out a way to do this? I know there are some brokerages that allow you to automate bits and pieces, but what if you have for instance a full blown strategy that you'd like to implement?

I am not a market timer, but I am a big fan of Tax Loss Harvesting, particularly with ETFs. I obviously don't have the time to keep a regular watch on my positions, but I'd like to bank the short term losses whenever they hit a certain %. This is easy to automate with stop-loss-orders but not as easy to do a "stop-loss, repurchase another similar ETF in same asset class".

For instance, say my RZV (small cap value index) holding drops 5%. I'd love to bank this short term volatility and repurchase VBR (small cap value index) to avoid the wash-sale-rule. Then if VBR falls below a certain magic number, bank the loss and buy IWN (yet another SC Val index) and so forth.

Anyone have any thoughts? There is such a veritable cornucopea of options for each asset class, that you could really improve your tax situation by implementing a strategy like this. (especially if your commissions are free or very low, like at Wells or Zecco)

 

[Texas Proud]

None of the sites I know of will allow a what I will call and 'add on trade'.. this is - if you do this first trade, then do the next one I have here...

Just not that many people that would want to do this to program it up...

BTW, I tried to do it at Ameritrade and they would not even accept a buy and a sell on the same security at different prices... you had to pick what you wanted more, a sale at X price or a buy at Y price... IOW, if something got to high a price, I would want to sell my postion and then short the stock right away... can not do.

 

[LOL!]

I don't do automated trading, but if you watch your holdings I think it's easy to do tax-loss-harvesting.

TLH should probably be a rare event anyways because the market is mostly going up, your holdings are going up, and most of your holdings have been held quite a while so they have gains and not losses. So TLH will be limited to positions that you have recently purchased ... certainly in the last 12 months, but more likely since May 2007. And today with the market completely recovered you probably should not have any losses to harvest anymore anyways.

And folks with holdings in only 401k's and IRAs can't to tax-loss-harvesting anyways.

 

[twaddle]

Day traders do have tools to automate trading (including programmable interfaces), but there's no way I would use them for something like tax-loss harvesting. The market can move too quickly, programs can have bugs, etc.

I just treat it like most people treat "rebalancing." If I see a loss I can harvest, I'll generally take it, and then either decide to buy a similar issue or buy something else to match my allocation goals.

 

[HobbyDave]

Quick question. I understand tax loss harvesting of selling one security at a loss to offset the gain if you sell another stock. However, if you're just buying index funds and holding them, is there any reason to do this?

 

[LOL!]

I wanted to add, that another mechanical strategy I use is to buy on dips. A dip is where the market has a "worst day" defined either by the financial media saying it's a "worst day in months" or the DJIA or S&P500 going down by at least 1.5% or more.

On such days (if Mon-Thurs, but not Fri) within 15 minutes of the close, I will take some cash (amounting to 1% to 2% of my portfolio) and buy an ETF that has dropped substantially (more than the market, but probably at least 2%) in the hope that it will go up the next day by 1% or more. It's mechanical and unemotional.

 

[twaddle]

Index funds make it easy to do because you can avoid the wash sale rule by simply rebuying a similar index fund the same day.

You can offset up to $3000 of ordinary income even if you have no capital gains. And unused losses can be carried forward.

 

[twaddle]

I wanted to add, that another mechanical strategy I use is to buy on dips. A dip is where the market has a "worst day" defined either by the financial media saying it's a "worst day in months" or the DJIA or S&P500 going down by at least 1.5% or more.

On such days (if Mon-Thurs, but not Fri) within 15 minutes of the close, I will take some cash (amounting to 1% to 2% of my portfolio) and buy an ETF that has dropped substantially (more than the market, but probably at least 2%) in the hope that it will go up the next day by 1% or more. It's mechanical and unemotional.

You must have been doing a lot of buying from 2000-2003.

 

[LOL!]

Quick question. I understand tax loss harvesting of selling one security at a loss to offset the gain if you sell another stock. However, if you're just buying index funds and holding them, is there any reason to do this?

Yes. Here's an example: You are in the 33% tax bracket, you sell VTI for a $30,000 loss. You buy SPY, MDY and IWM with the proceeds and the intention to hold forever. You now have the same asset allocation you had before, but you can subtract $30,000 on your Schedule D which can save you $10,000 on taxes. Eventually, you sell SPY, MDY, IWM and pay long term capital gains taxes at the rate of 15%. Let's say SPY, MDY, IWM go up to the same value as where you purchased VTI to begin with, so you have $30,000 LTCG. You pay $4500 in tax. You have saved yourself $5,500 in taxes overall with no net outlay from your pocketbook.

 

[Olav23]

According to a seminal study by Rob Arnott (Arnott, Rob, Berkin, Andrew and Jia Le, Loss Harvesting: What It’s Worth To The Taxable Investor, First Quadrant, 2001, Volume 1), aggressive tax-loss harvesting is one of the most effective active portfolio management strategies available to most investors. Arnott’s study found that the typical “alpha” for a tax-loss harvesting strategy can be as large as 7% for money invested in the previous year. That figure quickly falls off as a portfolio accumulates gains over time, falling below 1% per year after five years. Nonetheless, that’s real money.

Financial Advisor Magazine

 

[LOL!]

You must have been doing a lot of buying from 2000-2003.

Yep, I bought all the way down, but I doubled my money from 2002 to the end of 2006. I was doing lots of tax-loss harvesting as well.

 

[FinanceGeek]

You might check out Fidelity's conditional trade concept...here's the URL: Fidelity Investments