Becoming an Algorithmic Trader isn’t as difficult or complicated as you might think. By following the steps outlined in this post and video, I believe any trader can become or switch their trading to algorithmic.
Algorithmic Trading to me is simply having a fixed set of trading rules. These rules make up individual or collective trading strategies. You can trade these rules by manually monitoring the charts and placing trades when entry and exit conditions occur.
Better still, with a little bit of programming knowledge you can program the rules into your trading software. This enables you to run the strategy rules on historic price data to see how the strategy “would have” performed had you been trading it in the past. Many softwares allow you to the automate those rules meaning it trades for you as the signals to enter and exit come along.
Algo or Algorithmic Trading has a few different names depending on who you are talking to. It’s also sometimes called “automated trading” or using a “trading robot” or “bot”. Metatrader 4 (MT4) users sometimes call them “Expert Advisors”
The 3 Steps:
STEP 1: STRATEGY & CODE
Firstly you need a trading method or strategy. This is a set of hard rules comprising of at least when to enter and when to exit the trade. Once you have those rules figured out in plain English you can then transfer them into code for your software.
Here’s an example of a rule based trading strategy https://www.youtube.com/watch?v=bPxGP_yZYDw
Personally I use Multicharts as my software choice. But there are many good ones to chose from including Tradestation, Metatrader, Ninja Trader, Ami Broker just to name a few.
STEP 2: LET’S TRADE
You should now be at the stage where you have your strategy programmed and you’ve been able to back test it on some past data. For Forex strategies I like to go back at least 10 years. Once you are happy that the code is working correctly and the strategy performed how you want it, it’s time to turn on automated trading.
With Multicharts it is pretty much as simple as clicking one button to start automation. Make sure you have your position size inputted correctly too. With a connection to the price data and broker, Multicharts can now look for buy and sell conditions and send them to the broker once met.
STEP 3: MONITOR
With any type of trading whether it’s Algorithmic, Discretionary, Scalping or others, you always need to monitor performance.
Trading Algorithms can and do stop working for various reasons. They might work for 10 years or maybe just 10 weeks. It’s your job as the trader to monitor each strategy to make sure it’s still performing well.
Personally I like to monitor each and every individual strategy I have running on a monthly basis.
Watch the video to give you more insight and check the video links below the video for more ways to help your algorithmic trading career.
Learn how to program a trading strategy here: https://youtu.be/SLuz4ogO0p8
And learn how to create your own trading algorithm from scratch here: https://youtu.be/j_UkjbJ48-o