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Automated Trading

Here we take a look at the best automated trading software and explain how auto trading strategies can be used successfully. Over 75% of stocks traded on US exchanges come from orders from automated trading systems. They are known by a variety of names including mechanical trading systems, algorithmic trading, systems trading, and Expert Advisors (EAs), all of which work by allowing traders to enter specific rules for entering and exiting trades.

Once programmed, your automated trading software will then execute your trades automatically. Sounds perfect doesn’t it? You can sit back and wait while you watch the money pour in.

AUTOMATED TRADING EXPLAINS:

You decide on a strategy and rules. These are then programmed into automated systems, and then the computer goes to work. The software you can get today is extremely sophisticated. The rules for entering and exiting trades can be anchored in simple conditions, such as the moving average crossover.

But you can also build on complex strategies that require a deep understanding of the programming language specific to your platform. Once the rules are programmed in, automated systems can monitor the markets and decide whether to buy or sell based on the rules of the specific trading strategy you choose.

Although this depends on your specifications, once a trade is entered, orders for protective stop losses , trailing stops and profit targets are all automatically generated by your day trading algorithms.

When you find yourself in a fast-paced market, instant order entry could be the difference between a tiny loss and an earth-shattering loss if the trade were to move against you. Some advanced automated trading software even monitors the news to aid you in your trades.

Strengths and Weaknesses of Automated Trading

Strengthen:

  • Reduces Emotions – One of the greatest advantages of automated trading algorithms is their ability to remove human emotions. Many traders buy and sell on the basis of emotion, and automated trading systems execute the trade once the set rules are met.
  • Backtesting Ability – Most automated systems allow you to test your rules and strategy against historical data to verify their likelihood of success. This will allow you to refine the perfect strategy and iron out any wrinkles before putting any real money on the line. It also allows you to determine what the system is expecting (the amount that you can expect to gain or lose).
  • Speed – Your automated software enables you to enter orders faster. It is able to automatically adapt to market conditions and generate orders as soon as the trading criteria are met. In active trading, just a few seconds can make a significant difference to potential profit or loss. They prevent you from reaching the profit target or falling past a stop level before you have even entered an order.
  • Consistency – This leads back to the emotional element. If you’ve lost the last four trades, you may get cold feet the next. But if that next trade is a big winner, you’ve just shot yourself in the very expensive foot.
  • Solidifies a winning formula – If you’ve spent years perfecting a winning strategy, automation could make it even more efficient. This in turn could help you make bigger and more consistent profits.
  • Diversity – Automated trading systems allow you to grow your hand using multiple accounts and any number of strategies at the same time. This allows you to spread the risk across different instruments and still hedge against losing positions.

Weaknesses:

  • Over-optimization – Focusing on curve fitting results in automated trading algorithms that should be fantastic in theory, but often fall short in live trading. For example, many people fine-tune a plan with almost 100% profitable trades that should never experience a drawdown. However, if you apply it to a live market, it can fail completely. Because of this, you should stick to low value trades until you iron out all the wrinkles.
  • Crazy System – Even the best automated trading software can create false trends. When price reacts to evolving developments, a false trend can get out of control. This was demonstrated in August 2012 by Knight Capital Group, which lost over $ 440 million in just half an hour when their trading software went breakaway in response to market conditions.
  • Updates – Your automated trading software needs to be updated along with changing market conditions. That means you need someone who knows exactly what they’re doing. You are at the unfortunate mercy of whoever writes and updates your software.
  • Surveillance – People mistakenly believe that once they have formulated their automated trading strategies, they can sit back and let the computer do all the heavy lifting. Not to mention anything else that could result in missing or duplicate orders.

First steps

Even with the best of automated software, there are a few things to consider.

First, keep it simple as you gain experience, then move on to more complex automated trading strategies. Copy trading could be a solid introduction to automated trading for beginners.

Many automated systems are tuned to work great in certain markets and for certain trading styles.

So keep in mind that if you apply your automated trading algorithms to multiple different markets, you may not get the returns you are hoping for. Whatever your automated software, make sure you develop a purely mechanical strategy. Automated trading systems cannot make assumptions, so remove all discretion.

Brokers who support automated trading:

Not every broker supports automated trading. It is all the more important to find a suitable provider. For trading, I recommend the following providers GBE Brokers and BDSwiss. There you can use automated programs based on MetaTrader (expert advisor). Both providers support it and offer very favorable conditions.

SOCIAL TRADING: COPY OTHER TRADERS

At the most basic level, Social / Copy Trading is a very simple form of automated trading. Copy Trading allows you to copy another trader’s trades. This allows you to “follow” a trader (or rather a group of traders) by checking their past performance and specific trading details.

When opening and closing trades, you will also see the trades opened on your account. You can adjust how much you want to invest so someone with $ 100 can still keep track of someone who makes $ 1 million deals.

Copying trades means that you are not responsible for opening and closing trades. You still have to select the traders to copy, but all other trading decisions are taken out of your hands.

Find the best automated software

There is no one size fits all when it comes to automated trading systems.

It depends on your needs, the market you want to apply it to, and how much customization you want to make yourself. Skilled traders may even want to build their own trading software from scratch to achieve ultra-fast automated trading that is entirely tailored to their preferences (more on this later).

Below are some of the most popular pre-built automated systems out there:

  • AlgoTrader software
  • MetaTrader 4
  • MetaTrader 5
  • TradeStation automated trading
  • Etna automatic trading software
  • eSignal software for automated trading
  • Robot automated software option (binary trading only)
  • Robot advisor

Develop your own software

If you can’t find commercially available software that gives you the features you need, then another option is to develop your own proprietary software. This is easier than ever thanks to code editing tools like VIM and online marketplaces that make it easy to find freelancers with the skills you need.

Developing your own software has a number of advantages and risks:

The advantages:

  • Complete control over how the software works, looks and feels.
  • You can optimize the software so that it works faster than available commercial software because you can only integrate the functions that you need.
  • Allows you to develop software around complex algorithms.

Risks:

  • Can get expensive if you don’t know how to do it yourself. As with most construction projects, final costs tend to be higher than original estimates.
  • The software will be untested and almost certainly contains bugs. Commercial software has gone through thousands of hours of testing and is used by thousands of vendors, revealing many problems. Your software can work in unforeseen ways. Even large trading establishments have had problems with trading robots making surprising trades or triggered by the actions of other robots to make large sales.
  • Before deciding to develop your own software, research all the software available in the market.

There are two main ways to develop your own trading software. Do it yourself or hire someone else to design them for you.

Program the software yourself

Developing your own trading software requires a basic understanding of programming as well as knowledge of how to program a trading algorithm. Numerous software packages help make the process easier, but they all require basic programming skills.

No tool can help with a lack of programming knowledge, but for experienced programmers, one of the best editors for creating your automated trading robot is Vim. Vim is a universal text editor specially designed to make it easy for you to develop your own software. It was created in 1991 by Vim’s founder, Bram Moolenaar.