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How to build your own automated trading system

The introduction and subsequent popularity of automated trading systems and Artificial Intelligence (AI) has given rise to a new way of doing things on the financial markets.

This is particularly true in the case of forex trading, where it has prompted even more people to explore the trading of the USD and other lucrative currencies.

The growing use of automated trading systems can be attributed to the convenience it provides, particularly for day traders, as it means that they can continue trading with minimal effort after defining certain parameters.

Upon setting the parameters, the system can then execute trades on one or more currency pairs on your behalf. There are many benefits of this, most notably being the fact that it takes the human and emotional element out of the trading process.

Similarly, there are drawbacks as well, such as the fact that the system is not able to immediately react to unexpected changes in market conditions or currency fluctuations, meaning that the trader bears the risk of potentially losing their investment due to a delayed reaction to the market changes.

Although buying an automated trading system seems to be the easier option, there is also the option to create your own. Many of the popular online trading platforms offer this option, as well as pre-built systems from a third party.

Building your own
As you can imagine, there are many benefits to building something to suit your needs. It allows you to customise and tailor it so that it is exactly what you want, moreover, you decide on its limitations and are well aware of its potential.

Naturally, this requires a certain level of knowledge and understanding of what can be coded, but there is the option to work with a developer at this stage. Your imagination and ideas are what will set the outline and develop a blueprint for the developer to follow.

There are essentially 5 key steps to building your own automated trading system, as listed below:

1. Create trading plan
The trading plan acts as a starting point because it helps you define your trading goals and how the system should help you achieve them. At this stage, you should consider things like which market you are targeting, operating times, the risk-reward ratio, as well as the strategy of choice.

2. Design your system
This part requires you to zoom in on the finer details and determine how your goals will be achieved, such as how the system will identify trading opportunities and how to perform when it finds one.

3. Deciding on risk management tools
This is important for limiting the risk that you face through incorporating tools such as the three types of stop; a basic stop, a guaranteed stop and a trailing stop. There is also the option to use a limit which, if triggered, will be at your predetermined price or better.

4. Build
If you have limited coding knowledge, it is advised to rope in a developer at this stage, who can then bring your plans and blueprint to life.

5. Test and refine
After building your system, you should then test it and refine it where necessary, so as to identify any malfunctions or areas of improvement before fully making use of it for trading.

Editor’s note: Our publications do not offer investment advice. R&AN’s goal in publishing articles like this is only to provide information for individuals who wish to pursue investments at their own risk in the future.

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