Risk and Automation
Automation is a tool for execution, not a shield against market uncertainty. Understanding the boundaries of software is critical for long-term survival.
01. Automation is Not Protection
All trading involves risk. Market volatility, liquidity changes, and technical failures cannot be programmed away. Automation ensures that predefined rules are executed consistently, but it does not evaluate if those rules are currently sensible for the market.
Notice: Risk is present at every step. If step 1 is a “False Signal,” automation will simply carry that error to step 3 with 100% efficiency.
02. Permanent Risk Categories
Some risks are inherent to the infrastructure of global finance and cannot be mitigated by execution software:
Market Risks
Extreme volatility, slippage during low liquidity, and flash crashes.
External Risks
Exchange outages, API rate limiting, and network latency.
Logical Risks
Curve-fitted strategies or incorrect user-defined parameters.
Systemic Risks
Stablecoin de-pegging or broader smart contract vulnerabilities.
03. Amplification of Mistakes
Automation does not evaluate whether a rule is sensible—it only evaluates whether conditions are met. Because it executes without hesitation, a configuration error (such as a decimal place mistake in position sizing) can be amplified into a catastrophic loss in seconds.
The Automation Paradox: The same speed that allows you to capture an edge is the same speed that can liquidate an account if the underlying strategy or configuration is flawed.
04. The User as the “Circuit Breaker”
Automation is “set and forget” only in terms of execution, not in terms of oversight. The user remains the ultimate decision-maker responsible for:
- Allocating capital and determining maximum exposure.
- Monitoring system health and API connectivity.
- Deactivating systems during black-swan events.