Automated Trading Strategies

What is an Automated Trading Strategy?

In trading, an Automated Trading Strategy (commonly referred to as a trading system) is a predefined set of rules which govern the decision making process. Typically, an automated trading strategy will include the ability to backtest a strategy using historical market data. Backtesting is the process of running a predefined set of rules on historical market data in order to obtain hypothetical performance results (what trades the strategy would have made during the historically tested period). The hypothetical performance results provide the trader with a confidence that the strategy will make money in the future. Additionally, an automated trading strategy provides the ability to automatically execute trades based on the predefined rules, eliminating the need for a trader to be at the computer.

Components of an Automated Trading Strategy

Automated trading strategies typically include the following components:

  • Entry Rules - A set of rules used to define when trades are entered.
    Example:
            - When price crosses above the 14 period simple moving 
            	average, enter a long trade.
    
  • Trade Management - A set of rules used to define when trades are exited.
    Example:   
            - Initial stop loss at 20 ticks.
            - Exit 1 share/contract at 10 ticks profit.
            - Exit remainder of position at 20 ticks profit.
    		- Move stop loss to break even after first 
            	profit target is hit (10 ticks).
    
  • Filters - A set of rules used to define when trades are allowed to occur.
    Example:
            - No trades will be allowed if the 20 period Average
            	True Range is below 5.
            - Trades will only be allowed between 9:30 am 
            	and 3:30 pm.
            - All trades will be exited at 3:30 pm.
    
  • Position Sizing - A formula used to calculate the number of shares/contracts to trade.
    Example:
            - Trade Size will be calculated as follows:
            
            	CAE = Current Account Equity
                SP = Strategy Profits
                CP = Current Stock Price
                
            	Trade Size = ((CAE + SP) * .25) / CP
    

Features of Automated Trading Strategies

  • Backtesting - Backtesting is the process of running a predefined set of rules on historical market data in order to obtain hypothetical performance results (what trades the strategy would have made during the historically tested period).
  • Optimization - Optimization is similar to backtesting, except optimization is the process of running multiple backtests with various parameter settings (for instance testing a profit target of 10 ticks versus a profit target of 20 ticks). The goal of optimization is to find the parameter settings that have been most profitable throughout history.
  • Simulated Trading - Simulated trading is simply the practice of mimicking trades without actually risking any capital. Simulated Trading is also commonly referred to as Paper Trading.
  • Automated Exuection - Automated Execution occurs when a trading strategy has been programmed to send actual orders to the broker. Hence, the orders are automatically executed, without the intervention of a trader.

Free Estimates

Contact us today and receive a free estimate for your custom Automated Trading Strategy. Simply fill out the form below and one of our programmers will contact you immediately!!!









Risk Disclosure:
Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure:
Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

Testimonial Disclosure:
Testimonials appearing on MooreTechLLC.com may not be representative of the experience of other clients or customers and is not a guarantee of future performance or success.