What is automated stock trading?

Automated stock trading is the use of an automated stock trading system. A trading system is a set of rules that a trader must follow.

An example of a simple trading system might be to go long whenever the 5 exponential moving average crosses the 8 exponential moving average to the upside.

This process can be automated so you don’t have to spend a lot of time on your computer observing the market.

Software such as tradestation and interactive brokers support automated trading.

How can I automate my stock trading strategy?

To do this, your strategy needs to be converted into code that can be understood by the trading software.

If you are a programmer you will probably be able to do this yourself. However, if you are like me and do not program then you will have to hire a programmer.

There are many programmers out there who will be able to help code your strategy if you need somebody. okor.com are a group of tradestation programmers that may be able to assist you.

You may also be able to put your job up on a freelancing site like elance.com and see how cheaply you can get it done.

Let’s look at some of the advantages of automated trading:

  • Can significantly reduce the amount of time needed to trade your strategy.
  • It can take the emotion out of trading which can often be a traders worst enemy.
  • No risk of placing the wrong order.

Now the disadvantages:

  • Automated strategies have no discretion or common sense.
  • Not every strategy can be easily coded.
  • In the event of a hardware outage, orders may not be executed leaving the potential for large losses.
  • There is always a risk of a programming error which could result in trading losses.

Are there any automated stock trading systems out there that I can buy?

Yes, you don’t have to spend hours designing your strategy and finding somebody to code it for you. There are many strategies for sale. However, as with all things online be sure to do your research because a lot of the products online are less than stellar, shall we say.

Is there a way I can test how my stock system would have performed historically?

Yes, this is known as back testing. Tradestation allows you to back test strategies and see how they would have performed. For many securities tradestation offers over a decades worth of historical data over many different time frames.

Conclusion

In conclusion, automated stock trading has many pluses, but it’s important to be realistic. Most automated trading systems fail miserably in the long term.

I think it is easy to fall in love with the idea of turning on your computer and leaving an automated system running and making us a fortune, but it is highly unlikely to happen. If such a system existed, think how much money it would be worth :)