Automated trading systems are tools that help computers execute and oversee trades. Such automation saps out the emotion attached to trading. The system ensures trades are placed automatically once specific criteria are met. Let’s understand this trading system in a bit more detail.

A Brief Introduction

Also called mechanical trading systems, automated trading, algorithmic trading or system trading, automated trading systems let traders set up certain rules and regulations for both trade exits and entries. To enable this, the system needs to be programmed once. The exit and entry rules could depend on basic conditions or complicated strategies that warrant a holistic comprehension of programming pertaining to the trading platform of the user or a qualified programmer’s expertise. Typically, these trading systems require software directly linked to a broker. Also, any particular rule should be written in the proprietary language of that platform.

Certain trading platforms come with strategy-building wizards, which let users choose from a technical indicators list. These selections help to erect a rule-set that could then be applied to automated trading. However, many traders opt to program indicators by themselves or work with a programmer who would help set up the system. Though this usually entails increased effort compared to employing the platform wizard, it offers an increased level of flexibility and better rewards.

Once the rules are in place, the computer could oversee the markets to locate sell or buy opportunities depending on the trading ploy. Based on the particular rules, right after a trade is made, orders for trailing stops, profit targets, and protective stop losses would be generated automatically. Such instantaneous entries, particularly in a fast-moving market, often ends up defining the thin line between a catastrophic loss and minor loss.

Advantages

An automated trading system has quite a few positives to offer.

• Eliminates Emotions

As aforementioned, the trading system negates or reduces trader emotions. When your emotions are under control, it becomes a lot easier to stick to the trading plan. As trade orders get executed automatically after the trade rules are adhered to, traders would be able to question the trade. Moreover, automated trading could curb people who have the habit of selling and buying at every opportunity that comes by.

• Backtesting

Backtesting attaches trading rules to historic market information so that they could ascertain an idea’s viability. When designing this system, all rules should be absolute, with zero scope for interpretation. Such backtesting significantly bring down the risk attached to trading.

Besides the aforementioned, some other benefits of the trading system are disciplined trading, consistency, enhanced order entry speed, and diversified trading.