What is Autotrading?
Autotrading is a trading strategy where buy and sell orders are set automatically through an underlying system or program where trade conditions are fulfilled. With certain expertise, you can automate your trading approach instead of manually managing the trade.
How does Auto Trading work?
Autotrading is simple and systematic and works only on commands, instructions, and other parameters set by the trader. Following are the steps of how this process works:
- First, the trader will need to choose the best online trading platforms where the parameters of the trading strategy can be set.
- Then, based on trading experience, the trader will create entry/exit positions through an advised input.
- The set rules and conditions will be based on trade time, the quantity of trade, and the price at which the entry and exit positions will take place.
- The trade will be placed with algorithms on the behalf of the trader when the conditions are met.
- For example, automated stock trading systems can be mandated through algorithms to buy 200 Apple shares when its 100-day moving average goes above the 250-day average.
- The Auto Trading system will monitor the financial market prices, trades etc. and will execute the trade when the mandated instructions are met.
Benefits of automated trading
Backtesting
It authorises backtesting which is essential for a trading strategy with successful results. It allows you to know if the strategy is favourable to historical data or not. Results based on past data clarify if the strategy is validated for current data resulting in better yields.
Emotions
Human intervention especially, emotions, plays a big role while trading. Feelings such as fear, greed etc. drive your trading decisions whereas, in automated trading, emotions are disregarded and the system takes over trading according to the set preferences in the most practical manner.
Approach
A systematic approach is observed in automated trading due to the elimination of manual trading where volatility in markets can cause interruption leading to decisions based on faulty anticipations of the market in future. However, a trading plan can execute trades with backtesting and a proper trading strategy.
Time
Automated trading saves a lot of time for the trader by monitoring the market quickly, drawing the best opportunities, and saving time.
Criteria for Autotrading Strategy
Size of Position
10% of account equity or more could be the position size. It defines the differences between the entry price and reduces loss by setting the maximum risk, such as 1% of the account capital. Further, it defines the position size based on the 1% risk and the span between the stop loss and entry on the trade.
Parameters and triggers of a trade
For trade, a cross-over of prices, first on one side of the moving average and then the other. The data source must also be mentioned along with the last price, the bid price, and the asking price.
Trade Closure
This can be achieved by setting limit orders and stop-loss orders at the trade outset. Such orders will close the trade at the set prices.
Limitations on the system
This is when the programmer must begin or end trading. For example, the programmer does not want any trading activity until 10 minutes after the stock market opens, they must put a time limit in the programming code.
Need for safeguards
For instance, if more than 3% equity is lost, the program closes all trades. The programmer is also notified through an email to encourage checking further. This is the basic criteria that is considered when assembling an automated trading program. When the system is complex more criterias are considered and essential factors are taken into consideration.
Automated trading is a modern technique that allows you to trade practically and gradually discard traditional ways of trading. Additionally, this technique is faster, precise, and effortless as to manual trading. Begin your algo trading journey with the best online trading platform and learn new strategies without having to write a single code! Begin your trading business today!
