Auto Trading. Should You Give it Try?

Auto Trading. Should You Give it Try?

Easy money. Sounds good? Always. Many people are always looking for ways to make easy money. A random Google search on easy money will produce millions of results. Unfortunately, many people fall into traps in their quest to make money the easy way. Remember the Nigerian email? This is an email message that millions of people have received from a rich Nigerian kid whose parents died. The sender now needs someone to help him transfer the millions of dollars. While many people ignore the message, there are quite a number of people who send the money to the fraudster. In trading too, there are hundreds of so called professionals who showcase their ‘Lamborghinis’ and promise their audiences an easy way of trading. All one needs to do is enrol in the program by paying thousands of dollars. Then they will receive world class education that will make them always open profitable trades. A few weeks ago, a guy from one of these companies came to my city. I didn’t attend the forum but a friend of mine did. The guy was a master marketer. At the end of the day, he didn’t teach them how to trade.

Auto trading

Automatic trading is one of the main ways through which many traders are using to trade. Using this strategy, a trader will ‘direct’ his trading software to open or close trades when a combination of triggers are reached. This is done through algorithmic trading strategies. In short, a trader will create a software using two or more technical indicators. Then, when the pattern is formed, the trade will be initiated. Several companies now offer these drag and drop platforms to create these algorithms. For instance, FXPro, one of the largest online brokers offers its proprietary platform known as super trader that gives its customers an opportunity to program their trading.

For instance, an algorithm can be created by combining two or more technical indicators. For instance, a buy signal will be triggered when the Relative Strength Index (RSI) reaches 30, Stochastic is at 30, and when the ADX is at 25. Then, a sell signal will be triggered when the RSI is at 70, stochastic is at 70, and ADX is at 70 going down.

Another strategy that is becoming very common is on copying of trades. This is a strategy where a broker aggregates its best traders and then makes them public. Then, through certain algorithms, a trader who doesn’t have the trading experience will copy the trades of the experienced traders. The experienced trader will then receive a commission from all traders they trade for.

Back testing

It is possible to make money through automatic trading. A friend of mine has enrolled in an automatic trading which makes him quite a reasonable return. So, would I advise you to get into algotrading or automatic trading? Yes I would. However, there are a number of things you need to know before you take this step.

One, you need to know that auto trading is not perfect. Even the best created algorithm will fail you at times. Therefore, you need to allocate your capital well. This should be in terms of your risk appetite. If you are comfortable with a 1 lot-size, then you should just put it.

Second, you need to understand the value of backtesting. Back testing is a strategy where you go back in time using your algorithm. By going back in time, you will test it and see if it has performed what it should.

Third, you need to know that automatic trading is by far reliant on the technical indicators. For instance, when there is an economic data coming out, chances are that the algorithm will fail. Therefore, you should control the algorithm in terms of when to enter or exit a trade.