For a lot of traders, the idea of automation sounds like a hassle. Imagine coding, with countless charts and complicated formulas that look more like rocket science than trading. Now, with the introduction of modern algo trading platforms, automation is far easier than people may think. Instead of spending countless hours staring at the market, you can create a system that does it for you, without all the bias or hesitation.
Step 1: What’s Your Trading Objective?
Before you create your software, it’s important to ask yourself why you’re doing this, what’s your end goal, and what kind of strategy are you looking to create? Maybe you’re doing this to scalp small intraday gains, or your goal is to build a swing strategy over the next few weeks, or maybe you’re trying to diversify your assets. Whatever your objective may be, it will decide the rules you set for the system. For example, a day trader will probably automate entries based on quick moving average crossovers, while a long-term trader might rely on broad trend indicators like RSI (Relative Strength Index) or MACD (Moving Average Convergence Divergence)
Step 2: Transform your Ideas Into Rules
The real advantage of a good algo trading platform is its ability to transform your ideas into rules, basically training the system to think like you. For example,
- If the 20-day moving average goes above the 30-day moving average, then you buy.
- If the 20-day moving average goes below the 30-day moving average, then you sell.
Rules can be as straightforward and complex as you like, but the important part is clarity. If you don’t provide clarity to the system, then it’s doomed for failure. So the rules need to be precise and measurable.
Step 3: Testing and Trying
A big mistake most beginner traders make is they rush into making their rules without trying them out first. This is where backtesting comes in. A good platform lets you try out your system against historical data and against different types of market conditions to see how it will really perform. Although past performance cannot indicate the future, it is still better than running blind. If your system isn’t performing well against historical data, then you’ll know it needs some changing.
Step 4: Monitor
Once you’re done with testing, the next step is to deploy the system. But don’t rush into anything, instead deploy it in phases, maybe try it out on a demo account first and then once you’re comfortable, switch it to small capital in live markets and make sure to monitor it very closely over the next few weeks. Markets evolve, so a system built three years ago wouldn’t work now. It’s important to remember that this isn’t a set and forget type of system, it will need constant monitoring and adjustments. Platforms like Mastertrust provide high quality tools to help you measure your system, making the automating process much easier.
Automation may seem like a hassle, but with the right approach it can help bring in huge profits. You need to define your goals, transform your ideas into rules, test it out and then monitor rigorously. With a good algo trading platform, you’re building consistency. Which is the difference between a good and an average trader.
