Five tips for automating your online trades like a pro

Automated trading can help you save time and effort when investing online, while also minimising risks and maximising profits, says AvaTrade

One of the advantages of automated trading is that it 'minimises the impact of emotions' when investing, says AvaTrade.
One of the advantages of automated trading is that it 'minimises the impact of emotions' when investing, says AvaTrade.
Image: 123RF/pitinan

Whether you're a complete beginner when it comes to online trading or more experienced, automated trading can help you save time and effort as you invest in stocks, futures, options, foreign currencies and more. 

Automated trading, also known as auto or algorithmic trading, uses software programmes and computer algorithms to execute online trades automatically based on predefined rules or strategies.

While the notion of automated trading may be new to some, the idea dates back to 1949, when Richard Donchian, an influential US commodities and futures trader, employed a set of criteria to purchase and sell securities.

The concept gained popularity in the 1980s when well-known traders such as US billionaire John Henry started using similar tactics.

How automated trading works

Auto trading uses computers to analyse market data and make online trading decisions for you without the need for manual intervention.

In automated trading, you define the rules or strategies the system should follow to make trades, and the system executes trades automatically based on those rules. This can include the specific securities to trade, the size of the transactions, and the price at which to enter or exit the market.

Automated trading can reduce the time and effort required to make trades  — you'll no longer have to sit and watch your screen all day long — and has the potential to improve the exchanges' accuracy and consistency.

However, it is essential to carefully design and test your automated trading strategy to ensure that it is effective and to minimise the risk of potential losses.

Five tips for automating your online trades like a pro:

1. Choose a trustworthy broker and trading platform

Choosing a brokerage firm with a good reputation and a track record of executing trades accurately and efficiently is crucial. 

When looking for a trading platform, look for one with a user-friendly interface, a range of features and tools, and good customer support.

2. Develop and backtest a trading strategy

Before you start automating your trades, it's vital to have a clear and well-defined trading strategy. This should include your entry and exit points and risk management rules.

Once you've developed your trading strategy, it's crucial to backtest it to see how it would have performed in the past. This will help you identify any weaknesses and make adjustments where necessary before trading with real money.

3. Monitor your trades

Even though you're using an automated system, monitoring your trades and making the necessary changes is still important. This can help you to minimise risk and maximise profits.

4. Stay up-to-date with market conditions

It's essential to stay informed about market conditions and any events that could affect your trades. This can help you to make better-informed decisions and adapt your strategy as needed.

5. Use risk management tools

Several risk management tools can help minimise risk and protect your investments. These can include stop-loss orders, take-profit orders, and trailing stops.

This article was paid for by AvaTrade.

AvaTrade, trading as Ava Capital Markets Pty Ltd in SA, is regulated by the South African Financial Sector Conduct Authority (FSCA No: 45984).