Hi everyone, automated trading has brought a revolution in online trading systems. But there are few facts that you should be aware of before engaging with automated day trading. So, today I’ll be discussing a few facts about it.
Therefore, without wasting any time, let’s get straight to the point.
How it Works Automated Day Trading
First, you have to decide the strategies and rules. This is then programmed into an automatic trading system and then the computer starts working. The software you get today is very sophisticated, simple and works perfectly.
Rules for entering and exiting trades can be rooted in direct conditions, such as moving average crossover.
However, they can also be built on complex strategies, which require a deep understanding of specific programming languages for your platform.
After the rules are programmed, the automated system can monitor the market, decide whether to buy and sell according to the rules of the trading strategy of the particular day you have chosen.
Although it depends on your specifications, after the trade is entered, orders for a protective stop loss, trailing stop and profit target will all be automatically generated by your day trading algorithm.
If you are on a fast-moving market, instant order entries can be the difference between a small loss and earth devastating if the trade wants to move against you. Some urbane automated day trading software will even monitor the news to help make your trade.
Your Three Choices
- Customize and create yourself – To build your automated daily trading software, you will need detailed knowledge about how the system works, how to program it, and whether the results of your retesting are solid.
While doing it yourself minimizes errors caused by others, you do need deep knowledge, experience, and programming skills.
- Hire a programmer to code your strategy – Even though there are many skilled programmers out there that you can rent to program your automatic daily trading strategy, they do have disadvantages.
First, the cost is expensive. Second, you will need a serious trial and error process to determine whether your strategy will produce consistent profits.
- Buy a day trading system automatically directly from the shelf – There are many to choose from and many reviews will reveal their past performance.
The problem with this option is that even though retesting can reveal promising results, these results are not always translated when you apply it to the market directly.
In addition, your work has not been completed after the initial purchase, your system will need to be updated due to market changes.
Strength and weakness
Reducing emotions – One of the biggest benefits of automated day trading algorithms is their ability to eliminate human emotions.
Many day traders will buy and sell on a feeling basis, the day trading system will automatically trade as soon as the specified rules have been fulfilled.
Retesting capabilities – Most automated systems will allow you to test your rules and strategies for historical data to test the possibility of success.
This allows you to hone perfect strategies and eliminate wrinkles before you use real money. This also allows you to determine system expectations (the amount you expect to win or lose).
Speed – Your automatic software will give you increased order speed entries. Able to automatically change to market conditions and generate orders when trading criteria are met.
In today’s trading, just a few seconds of play can make a significant difference to the possibility of winning or losing. This will prevent you from reaching your profit target or falling past the level stop before you even successfully enter the order.
Consistency – This connects back to the emotional element. If you lose in the last four trades, you might be cold in the next trade. But if the next trade is a big winner, you just shot yourself very expensive.
Winning formula cement – If you spend years perfecting a winning strategy, automating it can make it more efficient. Which in turn can give you greater and more consistent profits.
Diversity – The automated daily trading system allows you to increase power by using multiple accounts and a number of strategies at the same time. This allows you to spread risk to different instruments while still hedging against losing positions.
Over-optimization – Focusing on curve-fitting leads to automated day trading algorithms that must be fantastic in theory, but often insufficient when it comes to direct trading. As an example; many people refine the plan with almost 100% profitable trading that should never experience draw-down.
However, apply it to the market directly and it can fail miserably. This is why you have to stick with low-value trades until you finish all the wrinkles.
The system is damaged – even the best-automated trading software can trigger a wrong trend. When prices react to ongoing developments, the wrong trend can go out of control.
This was demonstrated in August 2012 by the Knight Capital group; who lost more than $ 440 million in just half an hour when their trading software became naughty in response to market conditions.
Updates – Your automatic daily trading software will need to be updated along with changes in market conditions. This means you need someone who knows exactly what they are doing.
This puts you at the poor mercy of anyone who writes and updates your software.
Monitoring – People mistakenly think once they have formulated their automated day trading strategy, they can sit down and let the computer do all the hard work. BAD IDEA.
You must be careful of computer damage, connectivity problems, unexpected market anomalies. Not to mention other things that can cause orders to be lost or duplicated.
You NEED To Know before go Automated.
Even with the best-automated software, there are a number of things to remember. First, keep it simple when you get experience, then shift your hands to a more complex daily automated trading strategy. Many systems are automatically adjusted to excel in certain markets and for certain trading styles.
So keep in mind you may not get the return you expect if you apply your automated day trading algorithm to several different markets.
Whatever your automated software is, make sure you make a purely mechanical strategy. Because the automated day trading system cannot make a strategy of its own, you’re the one who has to do that.
So, in the end, these important facts regarding automated day trading will help you and increase your knowledge. And if you have any topics in mind which you want me to cover for you then please let me know.