Automated trading, also called algorithmic trading or black-box trading, is the process of running smart applications that automatically create, buy and sell orders on markets and exchanges based on a predefined set of instructions. Automated trading has a lot of advantages over traditional trading which involves human intervention. Some of these include the complete elimination of human emotions and impulses that can lead to trade losses and the speed and frequency of executing orders nowhere near the capability of human beings.
Automated trading is slowly gaining popularity nowadays, especially in cryptocurrency exchanges where individuals can trade freely without the participation of brokers. The operating hours of cryptocurrency exchanges which run twenty-four hours a day even on weekends and holidays increase the demand for automated trading programs even more.
If you are new to automated trading and you’re still hesitant to use this technology to get more profits, then read you better read further on this article. Check out these five tips for understanding automated trading and experience the power of earning passive money first-hand.
- Automated trading programs are based on traditional trading strategies.
Although the algorithmic trading application will perform the orders for you automatically, the set of rules that will be used to trade are based on the conventional trading strategies. These include trends such as moving averages, patterns, channel breakouts, and other related technical indicators. Mathematical model based strategies, as well as other non-mainstream techniques, are used in programming trading ‘bots’ too.
- These programs are capable of creating arbitrage trading orders.
With the diversity of the exchanges and the assets listed on them, the opportunity to profit from arbitrage trading is also one thing that you should never miss out. Automated trading programs are capable of executing arbitrage trading, which involves buying of a stock at a low price from one exchange and then selling it to another exchange at a higher price in a timely manner.
- There are technical requirements when setting up an automated trading program.
Aside from access to market data feeds and stable network connectivity, knowledge on trading and computer programming are also required for you to set your strategies and eventually translate them into codes. While hiring a software developer is an option, creating the program and backtesting it can take a while and may cost you a lot of money in the long run. That is why it is recommended for you to get the best trading programs that can yield the most profits for you at minimal risks. Ethereum Code and the QProfit System are two of the best programs that are specifically designed for cryptocurrency trading. Try them out and see the results for yourself.
- Backtesting is a must for automated trading programs.
If you are writing your own codes or if you are asking someone to do it for you, you should never run the program in market exchanges without completing a backtest. You can check the accuracy of your customized automated trading program by running it on a backtesting infrastructure and using the available historical data to predict the price.
- Automated trading programs are not flawless.
Just like any other computer programs, automated trading applications are also prone to errors. These can range from software glitches to problems in trading arguments within the codes. That is why it is important to backtest the program repeatedly before using it for real trading. Hardware failure, electrical outages, and unstable internet connection are also some of the other challenges of automated trading.