Here we take a look at the best automated day trading tools and explain how to effectively use auto trading strategies. More than 75% of the securities exchanged on U.S. markets come from orders from automated trading systems. Known by a range of names, including mechanical trading systems, algorithmic trading, system trading, and expert advisors (EAs), they all operate by allowing day traders to insert complex trade entry and exit rules.
When programmed, your automated day trading software will then execute your trades automatically. Sounds fine right? You can sit back and wait, watching the money roll in.
Automated Day Trading Explained
You opt for a plan and the rules. Then, these are programmed into automated systems, and the machine gets to work. It’s incredibly sophisticated software that you can get today.
Trade entry and exit rules, such as moving average crossover, can be embedded in straightforward conditions.
They can also be based on complex techniques, however, which involve an in-depth understanding of the platform-specific program language.
When the rules are programmed in, automated systems can track the markets and determine whether to buy and sell based on the rules of the specific day trading strategy you have selected.
While dependent of your preferences, your day trading algorithms will all automatically generate orders for protective stop losses, trailing stops, and profit goals once a trade is entered.
If you’re in a fast-moving marketplace, instant order entry may be the difference between a tiny loss and a big one in case the trade moves against you.
Some specialized tools for automated day trading will also track the news to help make your trades.
Strengths & Weaknesses
Strengths
- Reduces emotion – Their capacity to suppress human emotion is one of the greatest advantages of automated day trading algorithms. Many day traders will buy and sell based on emotions, and as soon as the stated rules are met, automated day trading systems will conduct the trade.
- Backtesting skills – Most automated systems require you to check your rules and plan against historical data to test their chances of success. This helps you to refine the perfect plan and smooth out any creases before putting real cash on the table. It also lets you decide the goals of the system (the sum that you would expect to win or lose).
- Speed – You can get enhanced order speed entry from your automated software which is able to respond automatically to market conditions and generate orders as soon as the trade requirements are met. Just a few seconds in the day trading game will make a big difference to the future wins or loses. This will keep you from meeting the income goal or plummeting below a stop point before even making an order.
- Consistency – This links back to the dimension of emotion. If you have lost on the last four trades, the next one could give you cold feet. But if the next trade is a big winner, you have just played yourself.
- Cements a winning formula – If you’ve been perfecting a winning strategy for years, then automating it could make it even more successful. Which in effect could earn you bigger and more stable profits.
- Diversity – Automated day trading systems allow you to increase your profit by simultaneously using multiple accounts and a number of strategies. This helps you to spread the risk through multiple instruments while still hedging against losing positions.
Weaknesses
- Over-optimisation – An emphasis on curve-fitting leads to automated day-trading algorithms that are supposed to be amazing in theory but still fall short when it comes to live trading. For example; lots of people fine-tune a strategy of nearly 100 percent profitable trades that shouldn’t have a drawdown. But apply it to a live market and it can fail altogether. Which is why you should stick with low value trades before all the creases have been ironed out.
- Program gone haywire – False patterns can trigger even the best automated day trading tools. As price reacts to developments, unfolding of a false trend can occur. This was illustrated by the Knight Capital group in August 2012; they lost more than $440 million in a mere half hour when their trading software went rogue in response to market conditions.
- Updates – You’ll need to upgrade your automatic day trading program, along with changing market conditions. This means you need someone who knows exactly what they do. This places you at the cruel mercy of whoever writes the program and upgrades it.
- Monitoring – Once people have developed their automated day trading strategies, they wrongly believe they can sit back and let the machine do all the heavy lifting. You need to look out for computer crashes, communication problems, unforeseeable market fluctuations. Not to mention something else which could lead to missed or duplicated orders.
Getting Started
There are many things to keep in mind even with the best automated apps. First, keep it easy as you gain some experience, then turn your hand to more complicated, automated day trading strategies.
Copy Trading may provide a solid introduction to automated trading for beginners.
Many automated systems are tailored for success in some markets and different modes of trade.
So bear in mind that if you apply your automated day trading algorithms to several different markets you can not get the returns you hope for.
Whatever your automated software, ensure a strictly mechanical strategy is created. Automated day trading systems are not capable of making guesses so eliminate all discretion.
Copy Trading
Copy-trading is a very simple type of automated trading at the most basic level.
Copy Trading helps you to mirror other trader’s trades. And you can ‘track’ a trader (or better yet, a group of traders) by looking at their past results and detailed trade information.
You’ll see those trades opened on your account because when those traders open and close trades. You can change how much you want to spend and someone with $100 will still be able to watch someone doing $1 m trades.
Copy trading means you don’t take the risk to open and close trades. You still have to pick the traders to copy, but all other commercial decisions are taken from your hands.
Perhaps copy trading is the least “hands on” of any automated exchange.
Finding The Best Automated Software
When it comes to automated day trading software, there’s no one size fits all.
The choice will come down to your needs, the market on which you want to apply them and to how much customization you want to give yourself.
Professional traders may also want to build their own trading software from the ground up, in order to achieve ultra-fast automated trading that is fully customized to their needs (more about that later).
Below are some of the most common automated ready-made systems out there:
- AlgoTrader Software
- MetaTrader (MT4 and MT5)
- Tradestation Automated Software
- Etna Automatic Trading Software
- eSignal Automated Trading Software
- Option Robot Automated Software (Binary trades only)
- Roboadvisors
Developing Your Own Software
If you are unable to find a commercially available program that provides you with the functions you need, then building your own proprietary software is another choice.
Doing so is easier than ever thanks to code editing tools like VIM and online marketplaces that make it easier to find freelancers with the skills required.
Developing your own software offers a range of benefits and risks:
Benefits:
- Total control over how the program works, looks, and sounds.
- You can customize the program to function faster than commercial software that is available, because you can include just the features you need.
- Enables you to build applications around complex algorithms.
Risks:
- Can be expensive unless you know how to do it yourself. As for most building projects, the actual cost is usually higher than the initial estimates.
- The app is going to be untested and will almost certainly contain bugs. Commercial software has gone through thousands of hours of research, and thousands of traders use it, which exposes many concerns over time. Your program may be working in unexpected ways. Even large commercial operations have had problems with trading robots which conduct surprising trades or are triggered by the acts of other robots to engage in large sell-offs.
Study available software on the market until you decide to build your own.
There are two key ways to developing your own apps for commercialization. Build it yourself or get someone else employed to design it for you.
Programming the Software Yourself
Designing your own trading software requires simple programming knowledge, as well as information about how to code a trading algorithm.
Numerous software packages help make the process simpler, but they all demand that you have basic programming skills.
No tool can help with a lack of programming skills but one of the best editors to create your automated trading bot is Vim for experienced coders.
Vim is an universal text editor designed specifically for creating your own software. It was created in 1991, by the founder of Vim, Bram Moolenaar.
Vim is based on a text editor by Bill Joy. Vim is “charityware” – all of its proceeds are used in Uganda to support kids. Vim makes creating and editing software very easy.
Vim is a command-based editor – to trigger various features, you use text commands, not menus.
The command-based interface makes a very lightweight clean interface for the software while still providing a comprehensive range of features.
Vim is ideal for novices, as well as professional developers.
The simple tool allows you to review your code and find bugs before they cause any problems. The platform is very common with software developers due to this.
Hundreds of programming languages can be adapted to be handled by it, and Vim also supports several different kinds of plugins for additional functionality.
API
If you want to build a software on your own then you can create it almost any way you want.
Nonetheless, the API (Application Programming Interface) that your trading platform offers will limit your independence.
The API is what allows the trading applications to interact in order to place orders with the trading platform.
Your trading software can only do trades that are sponsored by the API of third-party trading platforms.
If a specific feature is important to you, you need to make sure that you select a platform with an API that offers that function.
Your bot will also have to import market data in some way, probably in “real-time” (with extremely low delay) if your trading algorithm has to respond in some way to what is happening in the markets right now.
If trade decisions are more focused on fundamental factors and are just waiting for the “correct price”, it may not be necessary to get market data with a millisecond delay.
Hiring A Software Builder
If you don’t know how to build the app yourself, or if you don’t have the resources to do so, then you’ll need to hire a freelancer or a company.
You can select either a local developer or an online freelancer. Communicating with them and producing the desired outcome is simpler, when using a local developer that you can see in person.
It can also be easier to use a freelancer online. It can encourage you to choose a developer who is more experienced in software trading, as this is a very unique ability.
Be sure to employ a professional developer who can build a stable program that works perfectly. Don’t try to make it as cheap as possible.
A quality trading software is invaluable. A robot that is badly built will cost you a lot of money, and end up being very expensive.
It is important that you give a clear view of exactly what you expect from the trading program and tell it to the developer. Include the overview of all necessary functions you need.
Do not assume anything is a given. The developer is unable to read your mind, and does not know or believe the same things as you.
Final Verdict
Automated day trading is becoming ever more popular. But, once you go down that path you still have to test your plan back and forth. But let’s be clear, nothing is a substitute for carefully done manual trade.
Do not become complacent if you put your faith in automation.
This was illustrated in Jack Schwager’s ‘Market Wizards’ book series, where he interviewed successful automated day traders.
All stressed that they were heavily active in their digital strategies, so don’t leave your tradings alone.
