Can an Automated Trading System Increase your Trading Profits?

<p style&equals;"text-align&colon; justify&semi;">Who wouldn’t want to sit back and let their computer take over and execute their trades on their behalf&quest; However&comma; most people feel confused by an <a href&equals;"https&colon;&sol;&sol;quantterminal&period;com" target&equals;"&lowbar;blank" rel&equals;"noopener">automated trading system<&sol;a> as it is hard to grasp at the first instance&period;  Such confusion leaves them with the question in their minds&colon; does anyone make money with algorithmic trading&quest;<&sol;p>&NewLine;<p style&equals;"text-align&colon; justify&semi;">The simple answer is this – Yes&comma; they do&period; However&comma; the truth is that whether it is algorithmic or regular trading&comma; you need to spend time and effort to understand the system before you start making money&period;<&sol;p>&NewLine;<h2 style&equals;"text-align&colon; justify&semi;">Who is an Algorithmic Trader&quest;<&sol;h2>&NewLine;<hr &sol;>&NewLine;<p style&equals;"text-align&colon; justify&semi;">An algorithmic trader is a trader who relies on automated <a href&equals;"https&colon;&sol;&sol;newsforpublic&period;com&sol;must-read-tip-bitcoin-trading&sol;">trading<&sol;a> analysis for the execution of trades&period; They need to run the targeted script on their computers and allow the trade to get executed automatically&period; This leaves a trader with a lot of time on their hands to do other things as they don’t have to keep their eyes fixed on their screens as they do with conventional trading&period;<&sol;p>&NewLine;<p style&equals;"text-align&colon; justify&semi;">That doesn&&num;8217&semi;t mean that algorithmic trading is free of human intervention&period; There is a lot of work that should be done&comma; which is mostly research-oriented&period; Algo traders need not strain themselves too much analyzing markets and placing and executing orders&period; The research they do helps them find <a href&equals;"https&colon;&sol;&sol;www&period;researchgate&period;net&sol;publication&sol;8103060&lowbar;Finding&lowbar;Trading&lowbar;Patterns&lowbar;in&lowbar;Stock&lowbar;Market&lowbar;Data" target&equals;"&lowbar;blank" rel&equals;"noopener">trading edges<&sol;a> and take advantage in the markets and back testing their strategies to establish how robust they are before implementing&period; Even after all this&comma; the algorithmic trader needs to monitor the system to ensure no hitches&period;<&sol;p>&NewLine;<h2 style&equals;"text-align&colon; justify&semi;">Algorithmic trading has an Edge<&sol;h2>&NewLine;<hr &sol;>&NewLine;<p style&equals;"text-align&colon; justify&semi;">Once traders take to algorithmic trading&comma; they realize that it is far superior to all other forms of trading&period; One good example is the freedom they get to deploy multiple strategies simultaneously&period; Trading 100 strategies in various markets&comma; including day-trading or trading on long-term positions&comma; is rendered very easy&period; Traders don&&num;8217&semi;t have to be tied down with one style&period;<&sol;p>&NewLine;<h2 style&equals;"text-align&colon; justify&semi;">Researching the Trading Edges<&sol;h2>&NewLine;<hr &sol;>&NewLine;<p style&equals;"text-align&colon; justify&semi;">The trick lies in researching and identifying the trading edges and developing unique strategies based on such edges&period; Sharp traders learn the ropes quickly and become adept at coding in the trading platform’s language to execute trades&period; They get their trading ideas from the intense research they conduct as also from their peers&period; Armed with this information&comma; they do a bit of back testing to establish the merits within before executing trades&period; This is the benefit of using an automated trading system where losses are ruled out&period;<&sol;p>&NewLine;<h2>How do these Traders Make Money&quest;<&sol;h2>&NewLine;<hr &sol;>&NewLine;<p style&equals;"text-align&colon; justify&semi;">An algorithmic trading system helps a trader develop several trading strategies that are robust and fail-proof&period; The trader still has to decide when the system should execute a trade and write appropriate commands based on the research pointing to the edge in the market&period; These rules would have worked in the past&comma; and historical research findings are part of the strategy of an automated trading system that pulls up the historical data&period;<&sol;p>&NewLine;<p style&equals;"text-align&colon; justify&semi;">Algorithmic trading systems are based on a trading strategy developed from research on past performance that generated profits&period; The traders realize that whatever works or doesn’t work is not based on intuition or common sense but on extensive research that helped identify the edge&period; Most of the losses in trading have occurred due to unscientific trading strategies based on hunches&period;<&sol;p>&NewLine;<p style&equals;"text-align&colon; justify&semi;"><strong>In a nutshell&comma; algorithmic traders make money because of&colon;<&sol;strong><&sol;p>&NewLine;<ul style&equals;"text-align&colon; justify&semi;">&NewLine;<li>Intense research involves the study of several markets and identifying the edges&period; Instead of conducting a random search&comma; traders research trading ideas from financial journals that feature the theories published by knowledgeable academics&period;<&sol;li>&NewLine;<li>The traders develop their strategy based on the ideas they have researched and modify the ideas to build a winning strategy&period;<&sol;li>&NewLine;<li>Once they’ve settled on the scrip to trade&comma; they back test based on historical price data to check how those strategies would have worked out in the past&period; Most automated trading systems feature advanced strategy testers&comma; and back testing helps them decide the next step – whether to adopt the strategy&comma; modify it&comma; or abandon it&period;<&sol;li>&NewLine;<li>Forward testing is testing strategies that have performed excellently &lpar;according to available historical data&rpar; in the real-time market&period; Forward testing indicates whether this strategy will work in a live market&period;<&sol;li>&NewLine;<li>System implementation is based on proven strategies that will perform well to execute trades&period; However&comma; the strategies need monitoring to ensure they perform as expected&period;<&sol;li>&NewLine;<&sol;ul>&NewLine;<p style&equals;"text-align&colon; justify&semi;"><strong>Traders use several trading strategy categories&comma; including&colon;<&sol;strong><&sol;p>&NewLine;<ul style&equals;"text-align&colon; justify&semi;">&NewLine;<li>Mean Reversion<&sol;li>&NewLine;<li>Following Trends<&sol;li>&NewLine;<li>Biased Strategies<&sol;li>&NewLine;<&sol;ul>&NewLine;<p style&equals;"text-align&colon; justify&semi;">The mean reversion strategy relies on the theory that prices always swing above and below the long-term average&period; However&comma; the price tends to settle back to the original level after any significant fluctuation&period;  A short trade opportunity presents itself when the price moves above the average&comma; and a long trade opportunity is evident when the price moves below the average&period;<&sol;p>&NewLine;<p style&equals;"text-align&colon; justify&semi;">Biased strategies are more specific to individual markets and would largely depend on market behavior at that particular time&period;<&sol;p>&NewLine;<p style&equals;"text-align&colon; justify&semi;"><strong>Summing it Up<&sol;strong><&sol;p>&NewLine;<p style&equals;"text-align&colon; justify&semi;">The amount of profit that traders make from algorithmic trading varies according to the market conditions&period; It is mostly dependent on the strategies being adopted and the funds being allocated&period; Well-research strategies are bound to fetch higher profits&period;<&sol;p>&NewLine;