Many traders start out with algorithmic trading with the view that they have found the secret of success that will bring them wealth easily, this is very far from the truth, read this article which will help you save time and money. To start traders need to be aware that all the big banks and brokers have already tried any idea you may have come up with and they have the best brains in the industry that money can buy, you cannot compete with them especially with high-frequency trading (HFT), but you can compete with your fellow retail traders.
"Wall Street Algorithms that decide when to buy and sell are struggling to keep up with central banks and Donald Trump"
What Exactly is an Algorithm by Definition?
An algorithm is a procedure or formula for solving a problem, based on conducting a sequence of specified actions. A cTrader cBot can be viewed as an elaborate algorithm. In mathematics and computer science, an algorithm usually means a small procedure that solves a recurrent problem, in this industry, it is also known as an Automated Trading System (ATS)
Algorithms That Work For Traders
Probably the best use of an automated system for either trading or as a signal provider is when the trader has a system that they have been using manually with success and now want to automate their strategy so they can focus on other income channels while trading. Systems that are doomed to failure are the ones where the trader has no clear idea of the system they want automated will work, but they still throw money and or time at it.
Best Uses of an Automated System
Semi-Automated Trading Robot
The products we sell are semi-automated and although it is possible to configure them for accurate entry and exit points due to a combination of technical indicators, advanced risk management and fundamental risk management, the trader still needs to be experienced to identify when a position should be closed due to unforeseen market events.
Manual Trading System
Some of the best uses of an automated trading system are where the trader has been using a manual trading system for a while with success and they feel that a computer program could do the task for them so that they can focus on another manual trading strategies, this is almost like cloning the trader which increases profit. Converting the traders manual strategy into an automated trading system will require the trader to provide the company that will build the system a detailed project description so that the system that is finally delivered matches their manual trading system.
Manual Signal Provider
Another use of an automated system is to provide the trader with signals in the form of a pop-up window, email, SMS text message or another social media alert like a Telegram message when certain conditions are met on the chart which can show the trader an opportunity to either enter or exit a trade. We all know that if a trader stares at a chart for many hours waiting for an indicator or candlestick pattern to form is very time consuming and this task can easily be automated. Automation of signals frees the trader so that they can focus on other areas to generate an income.
Custom Built Trading System
The internet is full of trading strategies, some have been proven through time like candlestick patterns and some that are new and unproven, these trading strategies can usually be automated so that they trade 24/7, with these systems it is advisable that the trader babysit and watch the charts and verify the logic using a demo account for many months prior to using any live money. If the strategy is miss-understood and incorrect project description is provided to the development company than the idea has already failed, so it is a good idea to make sure that a fully detailed project description is provided and that ample research has been carried out.
Magic Money Machine
We have many traders ask for an automated trading system that will give a good annual return with low risk and with no human interaction, so you start the robot, sit back and watch it print money, on top of that they only want to pay £50.00 for the robot. If a system like this did actually exist the cost to purchase it would be priceless as all you would need to do is keep increasing the position size until you own all the money in the world.
There is a reason that so many traders lose money with automated trading systems and that is their expectations, the financial markets have so many unpredictable events including fundamental news and social media postings that no trading system will be able to manage the risk at all times.
Our Automated Trading Systems
All the automated trading systems will also require human interaction when the markets suddenly take an unexpected turn, we usually show a respectable capital risk % (drawdown) of around 5% and a realistic return of profits over the past year. These are backtested results only and do not guarantee future expectations, but the automated features that are included will give you as the trader an added advantage over manual trading as they will enter trades while you sleep with good accuracy.
Price Prediction Affected by Automated Robots
There are more than ever automated trading robots running 24/7 by both institutional and retail traders, these robots follow pre-defined patterns that have been set by the human traders, a typical example would be where a robot would open a long position when a stochastic RSI indicator is oversold, common trade patterns like this are built into an untold number of algorithms. These days the price reversals are directly influenced by these trading robots that are all running at the same time. There is no doubt the big brokers and banks have the upper hand and can move the market and confuse all the little robots so that they lose money. The average automated trading system uses technical indicators which works fine until there is a market event which can easily wipe the traders account if they have not implemented advanced risk management.
How Much Should You Pay?
The big question is how much should you pay for a fully automated trading system?
If you had a system that has confirmed historical trade results for the past 5-years and made on average £10K per year, how much would you pay for it? You certainly would not pay £50K as this would assume that you would make £50K in the next 5-years which is your return on investment (ROI), anything after this year is pure profit. Also, you would not pay £100 as this is just 1/100th of the actual results, a value of £1K to £3K would be reasonable, this is due to the fact you cannot guarantee the forecast of the next 5-years, but this is all subjective.
Realistic Example of ROI
If a trader purchased a trading robot for £50.00 and they managed to make £500.00 in 1-year that is a 1000% return of investment (ROI), we do not promise that it is possible to get rich with our automated trading robots, the potential to make money is there as well as lose money, it all depends on your settings and how much you want to gamble.
Remember that there is no such thing as an automated trading system that will simply print money for you, what might work this month may not work the next, the markets change in cycles and you have unpredictable events that happen out of the blue. As an algorithmic trader, you will need to try and counter these events with hard logic in your trading system. A simple example of countering a high-impact market event is to not trade during a news release which could cause your open positions to stop out, this would affect all technical trading systems, some traders have algorithms that will trade during news events quite successfully and will have different algorithms.
Our Algorithmic Development Service
We provide a custom development service to help you build your automated trading systems, signal providers or indicators.