Automated Trading

What is Automated Trading?

For the newbies out there, what exactly is automated trading?

Quite simply, automated trading (which is also referred to as algorithmic trading, or algo-trading) uses a computer to execute trades based on a set of pre-defined instructions (an algorithm).

The algorithm is often based on a simple system, such as the moving average crossover system. If you choose a more complicated condition, further knowledge and understanding of a programming language, specific to the user’s trading platform, is required.

Perhaps the best part is, you don’t have to actually sit in front of your computer to place any trades. The trade, in theory, can generate profits at a speed and frequency that is impossible for any human trader. That’s the beauty of automated trading. All you have to do is create a trading account, fund that account, and code or purchase a robot to place your trades.

I say “all you have to do,” but of course there’s more to automated trading than that—much, much more.

Like many things, it’s relatively easy to get started with automated trading, but more challenging to succeed.

Don’t get me wrong, when done the right way, automated trading can be pretty lucrative. But doing it right requires a lot of time and effort. Treat your automated trading like a business, and there’s no reason why you cannot succeed in forex trading and become part of the top 5%.

Pros and cons of Automated Trading

Pros

Reducing emotions from your trading

Automated trading minimises emotions whilst trading. As the trades are executed automatically, traders typically have an easier time sticking to their trading plan and consequently avoid having their trades influenced by their own emotions, which can negatively impact trading performance.

You can trade anytime you want without actually being at the screen

As you’re using you’re automated trading strategy based on a set of pre-determined rules, you’re system never sleeps. You can, therefore, make money on the markets that are not in your time-zone, or when you’re out doing other things than trading.

It allows you to execute trades more efficiently and at better prices

Computer programs used for trading are a great way to accelerate order entry speed, placing market orders as soon as trading criterias are met.

Getting in and out of trades a few seconds earlier can make a big difference in today’s fast-changing markets. As soon as a position is entered, all other orders are automatically generated, including take profit targets and protective stop losses.

Markets can move quickly, and it is disheartening to see your trade reach your profit target or blow past a stop-loss level before you can even place your order. An automated trading system can prevent this from happening.

Improve consistency

One of the biggest challenges traders face is sticking to their plan. No matter how disciplined you are, trading can play with your emotions and you may ignore your trading rules, altering any profitable expectancy your trading plan has.

Losses are part of trading. But, they can be psychologically traumatising, so a trader who has three or four losing trades in a row might doubt their system and decide to skip the next trade. If this next trade would have been a winner, the trader has already destroyed any expectancy the system had.

Automated trading systems allow traders to achieve consistency by trading the plan automatically, without any human involvement.

Diversify your trading plan

Automated trading systems allows you to trade multiple accounts and a number of strategies at one time. This has the potential to spread your risk over a number of different forex pairs, timeframes etc.

What would be incredibly challenging for a human to accomplish is efficiently executed by a computer in milliseconds. The computer is is able to scan for trading opportunities across a range of different markets and timeframes, executing orders and monitoring trades.

Cons

Automated Trading Questions & Answers

I’m so excited that you’re ready to get started in your trading journey!

I know that as you get started with automated trading, you may have some questions. This is where the below can help. Readers just like you ask questions, and I answer them.

Here are the top questions (and my answers!) on automated trading. If you don’t see your question here, feel free to contact me or tweet me!

How do you set up automated trading?

First, you have to decide which broker you want to go with. Some brokers don’t even offer automated trading. Look for those who use mt4, mt5 or cTrader.

Once you have chosen your broker, sign up for a demo account.

You want to have a little play around first. Find a trading strategy that you want to backtest and then once you have found a strategy with a positive profit expectancy, either get your strategy coded, code it yourself, or purchase a similar strategy and start trading it on your demo account.

Where can you find systems that you can automate?

There are plenty of resources online where you can find systems, here are a few of my recommendations:

How do you code your automated trading systems?

My strategies are pretty simple. Yes, that’s right, your strategy does not have to be complicated for it to work.

Therefore, I can code them myself easily. Alternatively, you can find someone on Fiverr or the internet to code them for you.

Please be careful. As with anything online, there are scammers everywhere.

Be sure to have some sort of interview process if you do pay for someone to code a strategy for you. Ask for samples of work and references that you can contact.

Before I learnt how to code my algo’s, I come across FxPro Quant.

FxPro Quant is a visual strategy builder that allows you to programme your own trading algos for MT4 and cTrader, making it perfect for those who want to create their own systems without the coding knowledge.

Does my computer have to be on all the time to place trades?

Yes and no.

In order for your trades to be placed and managed automatically your computer does need to be on all of the time. However, if you don’t like the sound of this, (especially if your mum pays the electric bill) you can trade using a VPS.

What is a forex trading VPS?

A VPS stands for Virtual Private Server. As the name implies it is your own private server which is hosted in the cloud. Like any server it is constantly online 24/7.

Think of your VPS as a personal computer that you rent on a monthly basis. This computer is located within a data centre that you can access through the internet and install your trading terminals (such as mt4, cTrader etc.) so they can run 24hrs per day.

Why use a VPS for forex trading?

Any trading algo requires the trading terminal to be running 24/7. If the trading platform is offline or shutdown the algo ceases to function.

No trades = No money.

What forex VPS companies do you recommend?

I have tried many forex VPS companies out there and my recommended ones are listed below:

Is there a VPS that can place my trades for free?

Yes. You can use Amazon AWS.

Check out my blog post on how you can set up a Free VPS using Amazon EC2.

Posts to help you succeed as an automated trader

Improving your Automated Forex Trading Strategy

Don’t get me wrong, not all automated trading systems you create will become instantly profitable…but if you put the time in, the rewards will be worth it. So in order for your automated trading system to start becoming profitable, you need to dedicate time and effort into getting it right. Several people have wondered how…

Continue reading

Backtesting like a PRO (the ultimate guide)

Backtesting is one of the most important and necessary processes you need to use when developing your own trading system. Despite this, most traders rarely backtest their strategies. Let’s face it, no one has fun backtesting. Ask any trader about their level of excitement when they start to backtest a trading strategy and most of…

Continue reading