Automated Trading Systems have made it possible for traders and investors to computerize/automate the trading process (execution and monitoring of trades) using defined exit and money management rules. The major reasons why traders and investors are leaning towards to use of strategic automated trading systems is the fact that it rids most of the emotion that goes with trading since the trades placed automatically once the set down criteria is met.
This article will provide an expression to automated trading systems, as well as discuss important advantages and disadvantages of strategy automation.
WHAT IS AN AUTOMATED TRADING SYSTEM?
Automated trading systems, likewise alluded to as mechanical trading, systems trading or algorithmically trading enables brokers to build up particular principles for both trade entry and exists, these principles are then programmed and automated to be executed by means of a PC/server.
The trade policies (entry and exit) can be founded on simple conditions like, moving average crossover, or complex strategies that require a far-reaching comprehension of a programming language that is distinct to the brokers trading/exchange system, most of the time, this requires the skills of an expert developer/programmer.
Automated trading systems necessitate the use of a program that is connected to a broker, also the policies must be disclosed in the program’s proprietary language.
The TradeStation platform utilizes the Easylanguage programming language while the NinjaTrader platform uses the NinjaScript programming language.
The image below illustrates an instance of an automated approach to trading.
There are some exchange platforms that have strategy building “wizards” that enable traders to make choices from a rundown of frequently accessible specialized pointers to construct a set of policies that can be traded automatically.
The trader could set up, for instance, in the event that the 50-day moving average crosses over the 200-day moving average on a 5-minute chart of a specific trading instrument, that a long-trade will be placed. Users can likewise enter the sort of order( market or limit, for example) and when the trade is activated( for instance, at the end of the bar or open of the following bar), or utilize the platforms default inputs.
Be that as it may, a lot of trades, program their very own custom markets and procedures or work closely with a software developer to build up the framework. This obviously requires more effort than when you make use of the platforms wizard, but the pros are that it permits a significantly more noteworthy level of adaptability as well as more profitable results.
(Unfortunately, there is nothing like an ideal investment method, that will always guarantee success).
She the guidelines have been set, the computer can then screen the business markets to locate buy or sell possibilities based on the trading method specialist. Contingent upon the particular standards, when a particular trade has been placed, any request for defensive stop losses, pursuing stops and profit margins will be generated automatically.
In fast-moving markets, this momentary order entry can define the discrimination between a little loss and a calamitous one, if it happens that the trade doesn’t go in favor of the trader.
Advantages of Automated Trading Systems:
There are countless reasons for advantages to having a computer watch the markets for trading chances and carry out the trades, they include
1. Minimizes emotions
Automated trading systems reduce emotions all through the trading process, by adequately regulating emotions, traders basically have an easier time obeying the plan. Because trade orders are carried out automatically as soon as the trade rules have been obeyed, traders won’t be able to feel reluctant or doubt the trade. In addition to assisting who are scared to “pull the trigger” automated trading can help manage those who are bound to overtrade- that is buying and selling at every given opportunity.
2. Ability to backtest
Backtesting involves applying trading ruled to historical market data to ascertain the importance of the idea. When creating a system that facilitates automated trading, the rules have to be absolute, with no space for interpretation ( the computer cannot guess)- it has to be instructed on what to carry out. Traders can take this accurate amount of rules and test run them on historical data before actually risking their funds in live trading. Careful backtesting permits trading idea and to ascertain the systems expectancy, that is the average amount that a trader can actually expect to gain or lose per unit risk. We give out some useful information on this process that can assist you in refining your present trading strategies in backtesting: analyzing the past.
3. Preserves discipline
Due to the fact that trading rules are established and trade executions are carried out automatically, discipline is intact even in markets that are volatile. Discipline is mostly lost as a result of emotional factors which includes fear of having to loss or the aim of getting out a little more profits from a trade. Automated trading assists in making sure that discipline is maintained because the trading plan was traced exactly. In addition, the pilot mistake is reduced. For example, in order to purchase 100 shares will never be wrongly entered as an order to sell out 1000 shares.
4. Achieves consistency
One of the biggest obstacles in trading is to carefully plan the trade and then trade the plan. Even if a trading plane exhibits the characteristics to be profitable, traders who shunned the rules are tampering with an expectancy the system would have gotten. There is nothing like a trading plan that succeeds 100% of the time losses associated with the game. But sometimes losses can be mentally traumatizing so a trader who has lost twice or thrice at a stretch might want to skip the next trade even though the next trade might be a profitable one, the trader has automatically destroyed any expectancy the system would have had. Automated trading systems permit traders to get consistency by trading alongside the plan. It’s inevitable to prevent disaster with our trading rules. For more, visit 10 steps to building a winning trading plan.
5. The improved order entering the speed
For the fact that the computer acts immediately to varying market stages, automated systems are able to bring out orders as soon as trade criteria are obeyed. Stepping in and out of a trade a few seconds earlier can make a large difference in the trade returns. Immediately positions are registered, all others are automatically displayed including that of protective stop losses and profit goals. The market can move swiftly and it is disheartening to have a trade get to the profit target or breeze past a stop loss level- even before the orders can be registered. An automated trading system hinders this event from occurring
6. Diversified trading
Automated trading systems allow the user to trade various accounts or different strategies at a time. This has the potential to disseminate risk over different instruments while building a hedge against loosing. What could be incredibly tasking for a human to get done with precision is carried out by a computer in milliseconds? This computer has the ability to scan for trading opportunities across different markets, induce orders and monitor trades.