How To Build Your Automated Trading System?

What is an Automated Trading System?

Automated trading systems are robots or software that trades on your behalf, you simply have to set the instructions, such as entry & exit points, stop loss, etc. This approach is one of the most efficient ways of trading activities and making money. 

The system is intended to analyse chart patterns and execute trades automatically. It might be challenging for traders to manually track price changes due to the market’s volatility and constant price change. Automated trading strategies can simplify the trading process for anyone as it eliminates the emotional and psychological influence which is there when you trade manually. 

How does Automated Trading work?

Automated trading is also referred to as algorithmic trading or hands-free trading. A piece of software analyses chart patterns chooses whether to purchase or sell an asset, and then executes the trade. The market chart pattern is studied and examined in several time frames, and then a programme determines the signals. It operates using the preset or established parameters and configuration that the trader has installed. For example, if you set your entry at a specific time, the system will open your trades at the exact time and enter the market. 

How to Build Your Automated Trading System

  • Proper Planning– The very first step is to plan everything that needs to be done in order to build a robust trading plan. A sound trading plan allows you to act when the time is correct, such as when to enter or quit a trade. Also, it develops your trading discipline, which will greatly enhance the performance of your trading system.
  • Make an Outline– Consideration should be given to how your system will actually uncover trading opportunities for you. Make sure you determine everything from entry points to exit points, stop loss, etc. Your system should be efficient enough to notify you properly.
  • Choose the Right Set of Tools– In automated trading, traders focus more on technical analysis, so make sure you choose the right tools. You must include all the important indicators so they can help you identify trends precisely. Also, keep in mind that you must include all crucial risk management tools.
  • Bring the Plan into Work– The next stage is to translate your system design from paper to code. Because every platform has a different coding language, you must develop your system for the one you intend to utilise. In case you don’t know how to code, you can always take the help of a developer to do the work for you. 
  • Backtest Everything– The last phase involves analysing past data to backtest your trading system and fine-tuning it to meet your target criteria. This is a crucial phase since it will give you a good indication of how the system is likely to function.

Wrapping Up

I would advise using automated trading if you are still learning or don’t have a lot of time to dedicate but still want to make more money. The software will determine your plans for you, so you won’t need to invest a lot of time and effort in it. Although there are several advantages of automated trading, there are some shortcomings as well. Being one of the most volatile markets, forex can sometimes be quite unpredictable. In such cases, automated trading fails to work as they cannot make decisions on their own. Irrespective of the outcome, they will complete the task of placing trades based on the preset rules.