The principles of Automated Stock Market Trading

The performance of trading in the stock market is determined by the quality of trading signals and the timeliness of opening orders in accordance with the provisions of the strategy used. Trading is conducted from 13:30 GMT to 20:00 GMT from Monday to Friday, so the effective use of all opportunities to enter the market manually is impossible. 

In order to make the workflow continuous and efficient, experienced traders use trading robots. They are programs written mostly in the MQL programming language. They allow automatic execution of transaction and orders in accordance with the algorithms embedded in them.

Principles of using Automatic Advisors

Almost any strategy can be automated with the help of stock trading advisors. Only a number of conditions are required to make a high-quality result:

·   The system should be based on indicators and their value, technical analysis figures or candlestick patterns, as well as any other sources of signals for which price changes represent the data source.

·   There are interpretation mechanisms that do not allow double interpretation of the information received. In the most primitive version, this means that the indicator signal unambiguously indicates the direction of further price movement. The decision to enter the market is made only on the basis of these data.

A price chart is just a visual representation of price changes over time. Thus, it is not difficult to create detection mechanisms for candlestick patterns, reversal patterns, channels, support and resistance levels. All indicators built into the trading terminal also calculate indicator values, starting only from the prices of the instruments being traded. Therefore, the task of the coder is to create such an algorithm that will take into account significant changes in prices, and on their basis make a decision to open a position, change its key parameters and complete the transaction.

Risks Associated with Automated Trading

There are quite large risks of losing the invested funds when using robots. The size of the received profit is not always sufficient to compensate for the losses. Stock market trading robots are programs that work according to the established algorithms. If the analysis method used in them turns out to be not of sufficient quality, then the amount of funds on the trader’s balance sheet will steadily decrease.

Over time, even the best trading robots stop making a profit. This happens due to a number of reasons:

·   The market is constantly changing. The patterns found earlier lose their relevance, the algorithms used in advisors become obsolete. It does not make sense to work effectively with the settings recommended by the developers since the amount of profit decreases or becomes negative.

·   The terms of trade for the chosen stock may change. It may be the value of the spread, the allowable distance to stop orders, the time of the actual order execution.

·   A change in the currency pair being traded. It is an increase in intraday volatility, the emergence of a large number of gaps, a decrease or increase in the activity of the main players during the sessions.

The best way out of this situation would be to select the most optimal correlation of the expert adviser settings or search for its new, more relevant version, capable of showing stable results in the current market conditions.

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