Automated Day Trading

Here we look at the best automated day trading software 2018 and explain how to use auto trading strategies successfully. Over 75% of stock shares traded on U.S exchanges originate from automated trading systems orders. Known by a variety of names, including mechanical trading systems, algorithmic trading, system trading and expert advisors (EAs), they all work by enabling day traders to input specific rules for trade entries and exits.

Once programmed, your automated day trading software will then automatically execute your trades. Sounds perfect right? You can sit back and wait while you watch that money roll in.

Brokers with Auto Trading Support

Forex.com boast a global reputation. Regulated in the UK, US and Australia they offer a huge range of markets, not just forex, and offer very tight spreads and a cutting edge platform.
Automation: Automated trade supported through trading platforms (MT4)
Zulutrade provide multiple automation and copy trading options across forex, indices, stocks, cryptocurrency and commodities markets
Automation: Zulutrade are market leaders in automated trading. From scripts, to auto execution, APIs or copy trading.

How Automated Day Trading Works

You decide on a strategy and rules. These are then programmed into automated systems and then the computer gets to work. The software you can get today is extremely sophisticated. Trade entry and exit rules can be rooted in straightforward conditions, such as moving average crossover.

However, they can also be built on complex strategies, that necessitate an in-depth understanding of the programme language specific to your platform.

Once the rules are programmed in, automated systems can monitor the markets, deciding whether to buy and sell based on the specific day trading strategy rules you’ve opted for. Although dependant on your specifications, once a trade is entered, orders for protective stop losses, trailing stops and profit targets will all be automatically generated by your day trading algorithms.

If you’re in a fast moving market, instantaneous order entry could be the difference between a tiny loss and an earth shattering one if the trade were to move against you. Some advanced automated day trading software will even monitor the news to help make your trades.

Your Three Options

1. Customise and create yourself – To build your own automated day trading software you will need a detailed knowledge of how the system works, how to program and whether your backtesting results are solid. Whilst doing it yourself minimises error caused by others, you do need in-depth knowledge, experience and programming skills.

2. Hire a programmer to code your strategy – Whilst there are plenty of skilled programmers out there that you can hire to programme your automated day trading strategies, they do come with drawbacks. Firstly, it will be expensive. Secondly, you’ll need a serious trial and error process to determine whether your strategy will yield consistent profit.

3. Buy automated day trading systems right off the shelf – There are plenty to choose from and a whole host of reviews that will reveal their past performance. The problem with this option is that whilst backtesting may reveal promising results, those results don’t always translate when you apply them to live markets. In addition, your work isn’t finished after the initial purchase, your system will need updating as the market changes.

Strengths & Weaknesses

Strengths

  • Reduces emotion – One of the biggest benefits of automated day trading algorithms is their ability to remove human emotion. Many day traders will buy and sell based on feelings, automated day trading systems will execute the trade as soon as the specified rules have been met.
  • Backtesting ability – Most automated systems will allow you to test your rules and strategy against historical data to test their likelihood of success. This enables you to hone the perfect strategy and iron out any creases before you put real money on the line. It also allows you to determine the system’s expectancy (the amount you can expect to win or lose).
  • Speed – Your automated software will give you enhanced order speed entry. Capable of automatically changing to market conditions and generating orders the moment the trade criteria are met. In the day trading game just a few seconds can make a significant difference to the potential win or loss. It will prevent you reaching the profit target or plummeting past a stop level before you’ve even managed to enter an order.
  • Consistency – This links back to the emotional element. If you’ve lost on the last four trades, you might get cold feet on the next one. But if that next trade is a huge winner, you’ve just shot yourself in the very expensive foot.
  • Cements a winning formula – If you’ve spent years perfecting a winning strategy, then automating it could make it even more efficient. Which could in turn you provide you with greater and more consistent profits.
  • Diversity – Automated day trading systems allow you to increase your hand by using multiple accounts and any number of strategies at the same time. This enables you to spread risk over different instruments whilst still hedging against losing positions.

Weaknesses

  • Over-optimisation – A focus on curve-fitting leads to automated day trading algorithms that should be fantastic in theory, but often fall short of the mark when it comes to live trading. For example; a lot of people fine tune a plan with almost 100% profitable trades that shouldn’t ever experience a drawdown. Apply it to a live market however and it can completely fail. This is why you should stick with low value trades until you’ve ironed out all the creases.
  • System gone haywire – Even the best automated day trading software can trigger false trends. As price reacts to unfolding developments a false trend can spiral out of control. This was demonstrated in August 2012 by Knight Capital group; who lost over $440 million in just half an hour when their trading software went rogue in response to market conditions.
  • Updates – Your automated day trading software will need updating along with changing market conditions. This means you need someone who knows precisely what they’re doing. This puts you at the unfortunate mercy of whoever it is that writes and updates your software.
  • Monitoring – People mistakenly think once they’ve formulated their automated day trading strategies, they can sit back and let the computer do all the heavy lifting. BAD IDEA. You need to watch out for computer crashes, connectivity issues, unforeseeable market anomalies. Not to mention anything else that may result in missing or duplicated orders.

The NEED To Knows Before You Go Automated

Even with the best automated software there are several things to keep in mind. Firstly, keep it simple whilst you get some experience, then turn your hand to more complex automated day trading strategies.

Many automated systems are adjusted to excel in certain markets and for specific trading styles. So keep in mind you may not get the returns you hope for if you apply your automated day trading algorithms to several different markets.

Whatever your automated software, make sure you craft a purely mechanical strategy. Automated day trading systems cannot make guesses, so remove all discretion.

What’s The Best Automated Day Trading Software?

There is no one size fits all when it comes to automated day trading systems. It will depend on your needs, the market you wish to apply it to, and how much customisation you want to do yourself. Skilled traders might even want to develop their own trading software from the ground up, to achieve ultra-fast automated trading that’s entirely customised to their preferences (more on that later).

Below are some of the most popular ready-made automated systems out there:Automated day trading software

  • Tradestation Automated Software
  • Etna Automatic Trading Software
  • eSignal Automated Trading Software
  • Option Robot Automated Software
  • AutomatedBinary

Developing Your Own Software

If you are unable to find a commercially available software that provides you with the functions you need, then the best option is to develop your own proprietary software. Doing so is easier than ever before thanks to code editing tools such as VIM and online marketplaces that make it easy to find freelancers with the needed skills.

Developing your own software brings with it a number of benefits and risks:

Benefits:

  • Complete control over how the software works, looks and feels.
  • You can optimise the software to work faster than available commercial software since you can include only the features you need.
  • Allows you to build software around complex algorithms.

Risks:

  • Can be expensive if you do not know how to do it yourself. Like most construction projects the final cost usually ends up being higher than initial estimates.
  • The software will be untested and is almost certain to contain bugs. Commercial softwares have gone through thousands of hours of testing and are used by thousands of traders, which exposes many problems. Your software might perform in unforeseen ways. Even big commercial operations have had issues with trading robots that carry out surprising trades or are triggered by other robots’ actions to commit large sell-offs.

Research all software available on the market before you decide to develop your own software.

There are two main ways to build your own trading software. Doing it yourself or hiring someone else to design it for you.

Programming the Software Yourself

Designing your own trading software requires a basic understanding of programming as well as knowledge about how to code a trading algorithm. Numerous softwares help make the process easier, but all of them require you to have basic programming knowledge. No tool can help with lack of programming skills, but for knowledgeable coders one of the best editors for building your automated trading bot is Vim.

Vim is a universal text editor specifically designed to make it easy to develop your own software. It was created by Vim’s founder, Bram Moolenaar, in 1991. Vim is based on Bill Joy’s vi text editor. Vim is “charityware” – all its proceeds are used to help children in Uganda. Vim makes it very easy to create and edit software.

Vim Software Editor

Vim is a command-based editor – you use text commands, not menus, to activate different functions. The command-based interface allows the software to have a very lightweight clean interface while still offering an extensive selection of features. Vim is suitable for novice and experienced developers alike.

Vim is very popular among software developers due to how easy the tool makes it to overview your code and find bugs before they cause any problems. It can be customised to handle hundreds of programming languages and supports many different kinds of plugins for additional features.

If you chose to develop the software yourself then you are free to create it almost any way you want. Your freedom will, however, be restricted by the API (Application Programming Interface) provided by your trading platform. The API is what allows your trading software to communicate with the trading platform to place orders. Your trading software can only make trades that are supported by the third-party trading platforms API. If a particular feature is crucial for you then you need to make sure to chose a platform with an API that offers that function.

Your bot will also have to import market data in some way, possibly in “real time” (with extremely low delay), if your trading algorithm in any way must react to what’s happening right now in the markets. If trading decisions are based more on fundamental factors and are just waiting for the “right price”, getting market data with millisecond delay might not be essential.

Hiring Someone to Build the Software

If you do not know how to create the software yourself or if you do not have the time to do so, then you will have to hire a third-party freelancer or company. You can either chose a local developer or a freelancer online. It is easier to communicate with, and reach the desired result, using a local developer that you can see in person. However, using a freelancer online can be cheaper. It can also allow you to chose a developer that is more experienced in trading software, as this is a fairly unusual skill.

Make sure to hire a skilled developer that can develop a well-functioning stable software. Do not try to get it done as cheaply as possible. Good trading software is worth its weight in gold. A poorly designed robot can cost you a lot of money and end up being very expensive.

It is essential that you provide the developer with a detailed description of exactly what you expect from the trading software. Include all desired functions in the task description. Do not assume that anything at all is a given. The developer can not read your mind and might not know or presume the same things you do.

Final Verdict

Automated day trading is becoming increasingly popular. However, if you’re going down that route, you must frequently back and forward test your strategy. Let’s be clear though, nothing substitutes carefully executed manual trading.

If you do put your trust in automation, do not get complacent.This was highlighted in the ‘Market Wizards’ book series by Jack Schwager, when he interviewed successful automated day traders. All stressed they were highly involved with their automated strategies, so don’t take a back seat to your trading.

Further Reading

  • Quantopian.com – a web site for researching historic stock price data and writing trading algorithms that can be backtested on that data.

Research

Books