Automated day trading can be a profitable endeavor, but only when executed properly. The right software can be a big help, so let’s look at some worthwhile options.
If you are going to make money day trading, you will need to have a detailed, strategic plan for how your trades will be executed. And, given the rate at which the market moves, executing all of those trades manually is probably not going to get the job done. Automated trading is a common approach in this high-tech digital age, and there are many benefits to using this method. In the content below, we’ll discuss why you may want to opt for automated day trading, what to watch out for, and a few of the software options to consider. Let’s get started!
There are several benefits associated with taking a computerized approach to your day trading activity. It will take some time and effort to dial in a system that works for you, but that work would be more than worth it in the end if it adds up to a winning system. Some of the key advantages of automated trading are discussed below.
One of the main benefits of this type of trading is the speed with which you can execute trades when the market conditions are just right. For example, if you have three criteria in mind that need to be met before you want to make a certain trade, monitoring those manually would be difficult – and then once they were hit, you’d have to enter the trade by hand and the conditions that once existed may no longer be in place. In other words, even if you have a good plan, it might not be possible to take advantage of it in a profitable way.
With automated day trading, the story is different. Once you have set up your software to execute trades based on given market conditions, it will do so automatically when the time is right – there will be nothing for you to do and no reason for a delay. That makes it much easier to take advantage of the opportunities that your system has spotted, and it also frees you up from having to monitor countless market conditions all day long.
Even an experienced, calculated trader can get caught up in their emotions from time to time. For instance, if you have a string of trades not go your way, you might get too aggressive trying to ‘chase’ those losses and turn things around. Of course, this is a recipe for disaster. Instead, what you should be doing is sticking to your formula and trusting it to work out when all is said and done. Letting emotions get involved is only going to make things harder.
Fortunately, pieces of computer software don’t have emotions. Instead of chasing losses and making things worse, all your software will do is exactly what it was programmed to do originally. Without the emotional element getting in the way, you are more likely to ride out the ups and downs that inevitably come along with day trading.
If you do your day trading manually, you might lose track of the tactics and formulas that are working well for you – even if you do your best to track them on paper, in spreadsheets, etc. It’s simply hard to keep up with everything on your own, when the markets move so quickly.
You’ll have a much easier time identifying what is working well for you when your trading process is automated. Without needing to do the work of actually executing your trades, you can focus on a higher-level view of what is working and what isn’t. And, of course, you can focus your efforts on the techniques that seem to be yielding results while pushing everything else to the side.
There is only so much you can manage by yourself when trading manually. You are only one person, after all, and you might not be able to test and implement all of the various ideas you have for day trading. This is a frustrating issue, as you might feel that your lack of time is to blame for not growing your profits.
By turning to automated day trading, you’ll be able to put one system into place and monitor it while you move on to the next. If you continue to develop winning systems, there is no practical limit to how many of them you can put in place. And, of course, as every investor knows, diversity is a great thing when it comes to managing risk.
It’s one thing to have a good idea about how you are going to set up your software to execute trades based on specific parameters. It’s another thing entirely, however, to actually put those plans into action with real money on the line. To test out your system and see how it may fare moving forward, you can use most automated systems to back test. This will let you make minor adjustments as needed to improve your chances of success before any actual dollars are invested.
There is a lot to like about automated trading, but nothing is perfect. It’s smart to be aware of the potential shortcomings of this type of trading, so you can be smart with your approach and hopefully sidestep these issues.
Even with careful testing, it’s possible that the market will do something that you didn’t see coming – and, in turn, your system might do something that you didn’t want to happen. For instance, if a false trend is identified and your software makes a large number of trades based on that event, you could wind up with a big loss and more exposure than you intended. This is why it is important to both test out your system in advance and to monitor it regularly. It might be called automated day trading, but that doesn’t mean you can completely ignore the software while the markets are open.
Implementing day trading software is not something that you do once and then sit back while it rakes in profits for years (although that would be nice). Rather, you need to update your system regularly to reflect your needs, market conditions, and more. If your software isn’t being updated, it’s possible that you will run into a big problem at some point down the line.
No one knows exactly what the market will do. So, if you think you have built a perfect, fail-proof system, you are almost certainly wrong. It is this kind of overconfidence that can lead to catastrophic losses. No matter how much you believe in the plan you have developed, get started with a relatively modest investment so you can see how things go before stepping up to a higher level.
The variety of automated trading software options available today reflects the diverse set of people who enter this arena. Some are expert coders themselves, while others are just getting started and aren’t confident in their ability to build something from scratch. Let’s walk through some of the options so you can identify what will be best for your needs.
Without a doubt, the easiest and fastest way to get started is to use an existing software platform that has already been developed. There are a number of these available on the market today, including AlgoTrader, MetaTrader, Tradestation, and others. Of course, the obvious benefit to using this approach is that the software has already been developed and it is ready for you to use right away. The startup time for your day trading activities is shortened considerably when you go this way.
On the downside, you are restricted by the options and features built into the design of that software. You don’t have total control because you didn’t build the software yourself – so you can only do what it does. If you do opt for pre-made software, it’s important that you carefully review the features included and make sure that those features are going to serve your needs. You don’t want to get deep into this process only to learn that the software you’ve chosen is going to limit you in some way.
If you have the skills and motivation, you may opt to simply build your own software from the ground up. This might seem like an overwhelming task, and it could be for someone with no experience, but it’s actually within reach for people with the right abilities. If you are good with software and are willing to invest time upfront in this process, you could come away with an impressive piece of software that can bring your day trading plans to life.
What you gain when you take this approach is the ability to have complete, 100% control over the development of the software. When you get started on your automated trading adventure, you will know your software can do exactly what you want it to do – and you’ll know how to use it from top to bottom. As far as the coding itself, you can go one of two ways –
Write the code personally. This is going to take a considerable level of skill and experience. You can lean on an editor like Vim to help you along the way, but a good editor alone isn’t going to turn you into a professional programmer. Only go this direction if you are sure that you have the ability to get the job done properly.
Hire a coder. For many people who want to build their own software, this will be the preferred approach. These days, it’s easy to find freelancers who can work on projects for you, and the cost might not be as significant as you expect at first. Of course, there is still a cost involved, and you will need enough software knowledge to properly direct your contractor toward the desired outcome.
Automated day trading can be optimized by working with your own software, but this project is not a simple one. To come out successful on the other side, you’ll want to go into it with a detailed plan and enough knowledge to manage the job with confidence.
Yet another way you can approach this process is to use Copy Trading. As the name would suggest, you are simply going to use software to copy the trades of others. In this case, the only active input you are providing to the process is the selection of which trader or traders to copy. From there, you are simply hoping that those traders are successful, since you are making the same moves they are making.
Perhaps the best way to think about automated trading is that while it might be automated, it is not automatic. That means you can’t just set the system and then head to the beach while your riches roll in. That’s a fantasy version of what happens here, and it’s not likely to be your experience. If you are going to make automated trading work over the long run, you’ll have to be actively involved in the system that you use. No matter what kind of software is implemented, or what techniques are used to decide when to make trades, your involvement is a key piece of the puzzle. Constant testing and revising of your plans will be necessary if any success is going to be enjoyed.