If automated trading software are the tools, then automated trading strategies are the rules by which these tools operate. The rules dictate what form of order to place (whether buy or sell) and is put together on the basis of volume, price, and other influential data elements.
Automated trading systems work by carrying out real-time analysis of changing price and data points, which precede comparison of analyzed data to pre-set rules and filters (patter recognition inputs). Alternatively, analyzed data is ran through a separate mathematical trading algorithm.
The plus point of automated trading strategies is that they are able to generate trading signals, and dictate automatic execution of trades based on the trading signals generated, without human meddling.
This is an obvious benefit as it cuts on the flaws of human traders such as unreliability, hesitation, and oversight. Traders are able to gain unprecedented success from the consistency of automated trading strategies, which can only be adversely affected by system bugs/glitches.
Trading strategies with unrivalled success take time to be developed and are regularly fine-tuned to make consistent gains. Usually, proven strategies of this kind are then automated. The multi-planar conversion process may take months and includes defining, testing and refining. This comprehensive process aims to eliminate bugs, loops, and data leaks.
On completion, key performance statistics can be assessed using hypothetical results. These performance statistics include:
- Average Return
- Year-to-date return
- Average Winning Trade
- Average Losing Trade
- Average Drawdown
- Maximum Drawdown
Advantages of Automated Trading Strategies
- Enhanced discipline when trading in volatile markets and sessions
- Ability to make cognizant decisions consistently round-the-clock
- Unrivalled efficiency of the decision making process that is beyond human capacity.
Automated Trading Systems of Technical Traders Ltd
Automated Trading Strategies of AlgoTrades System.
Associated Costs of Automated Trading Strategies
- Automated System Subscriptions
These are fees paid for continued access to use an automated trading system. These fees are often paid quarterly, or annually via the system’s developer website.
- Automated Trading Commission Fees
These fees are received by your brokerage firm for account management, provision of resources, and for automatic execution of trade signals. These fees are computed on a per transaction basis.
Futures Trading Systems and Leverage
Equities and Future contracts usually share the same overall price volatility. However, the leverage provided in futures trading when compared with leverage present in equities inflates the volatility many times over.
This increased leverage can be a pitfall if extra care is not taken to enable use of an automated trading strategy that has been proven to be successful and has stringent position and money management rules in place.
Automated Trading Strategies Roundup
It is essential to follow the equity recommendations of automated trading strategies to be used on your brokerage account. This is because, developers have better knowledge of the intricacies of an automated trading strategy, and so know the best risk/reward parameters and minimum capital to be used.
Diversification is a smart way to spread your risk and ensure stability in your equity and trading positions.
The performance results of automated trading systems during the testing phase usually have inherent limitations. These results are designated as hypothetical. However, experienced system developers know these limitations and are able to manually review the historical performance results of automated trading strategies accounting for slippage and give a more accurate account of the results.