Trade Automation, can anyone do it?

Are you currently a day trader and want to explore getting into automation? Trade Automation is a colossal topic. In this guide, I will help you to better understand the different types of automation and the work involved. Can anyone become an auto trader? If you are already a successful day trader then I believe you can!

Getting Started

If you are completely new to the subject of trading automation, then you came to the right place. I will break down some of the basics of trading robots, automation, or also known as algos. In this guide, I will explain what trading automation is, the different types of automation, and finally how you can get started trading with your very own robots. The best part about what I’m going to show you? You need to write any lines of code!

If you are already familiar with trading automation and want to see how I use Trade-Ideas to automate my trading, I recommend starting here.

What is Trade Automation or Algos?

Algos are computer programs that you have designed to take the trades in your place. You setup all the rules and basically tell the computer that if the stock does this, that, gets to this price, at this time, then buy or sell. Ultimately you have taken your trading plan and given the task of following your plan to the computer. You set the rules and it does the work. While it might sound a little scary letting a computer manage your money, recent studies have shown that over 60% of all the European and US stock markets trades are all done algorithmically. Hedge Funds and Big banks have spent a crazy amount of money trying to squeeze out as much out of the market as possible. 

Can Trade Automation be Profitable?

Absolutely! It all depends on you. The robots that you program will be based on your trading plan. If your trading plan is profitable then your robots can too. But it’s not just as easy as that. There are some benefits and downsides to automation. Let’s look at the bad first.

What are some of the downsides of trading automation?

  1. Market conditions change. Just like your trading plan, it won’t work all the time. Sometimes the markets are more bearish than bullish. Sometimes the range is wider than usual and your trades are getting stopped out more frequently. You will always need to adapt and make small little changes to your robots as the market conditions change. If you think you can just program your automation once and never touch it again, WRONG! Sure it might work for a month or two, but eventually, if you don’t take care of it, you’ll start seeing your profits slip away. Managing your algos takes work, and you’ll want to keep on top of them so they are performing at their best at all the time.
  2. Sometimes, programming errors can happen. Perhaps you made a mistake in your programming/settings, or there is a bug in the software. It’s always important to test any changes you make in a paper account, however, keep in mind that the risks are there.
  3. They can see all stocks and ETF’s. Depending on how you program your algos, they can scan every single stock and ETF at once. Even if you have 8 monitors and 32 charts opened up on your computer, your eyes will never see as much as robots.
    1. This can actually be a good and a bad thing.
    2. The bad thing is that if some strange ETF that trades forensic accounting meets your robots requirements to trigger a trade, you might end up in that trade.
    3. The good thing about this is that you will be able to get into many more trades than your eyes can see, but they might not all be high-quality trades. So it’s best to try to be a little pickier when programming your robots on what to trade and stay away from some of the types of stocks you might not want to trade. Don’t worry I will show you how you can accomplish this later on.

Okay, you scared me about the bad stuff, what about the good things about automation?

  1. Once you’ve setup it gets easier. Setting up your robots will take a lot of work in the beginning. But once things are up and running and they are trading for you, you start to take on a more supervisory role and just make sure everything runs smoother. You monitor and hopefully document all your trades and make modifications to further increase your returns. You’ll spend less time pouring over charts and looking for setups to trade.
  2. No more trading with emotions. This one is my favourite. When I was manually trading I’d get that feeling. “Did I buy too soon? Should I get out now? Wow instantly in profit, I’m amazing!” Then there are those days when you lose over and over and over and over and over… We’ve all been there. With trading automation, a lot of the emotions go away. As a matter of fact, after I’ve setup my robots in the morning, I walk away and come back in the evening. After the market is closed, I log my trades, review them and see if I need to improve on any of them.
  3. They can see more than you! I know I already mentioned this but there is more to it. If you do this correctly and I can show you how this can be very powerful. When you are manually trading based off your trading plan, you sometimes might take a less than ideal setup because you haven’t traded in 3 days and feel that itch for a trade or just you might really like the stock. You can program your robots to only take the PERFECT setups. Combine that with the fact that they can see more stocks than you at once, you might get triggered into many more high-quality trades then if you were manually trading as long as you programmed your robots correctly. 

How do I start Trading Automation?

The most important thing before even starting trading automation is to have your trading plan written down somewhere. The next important step is that you’ve been actively trading your plan. If you haven’t written your plan down, nor have you traded a plan, then automation will be extremely difficult for you. How can you teach a robot to trade for you if you don’t know how to trade it yourself? Think about trading automation like a business. You’re the “fund manager”, and you are hiring “traders” to trade for you. You need to teach them how you’ve beaten the market in the past so that you can concentrate on your future.

So you have a trading plan. You’ve been trading it. What are the different types of automation you can explore? I’ve got you covered. In this next article, I explain The Different types of Automation.