What is Auto-Trading

Auto-Trading is a short form for Automated Trading System. A computer program monitors the market 24 hours a day and executes trades according to the algorithms programmed in the computer. Auto-trading becomes highly acceptable due to its emotionless execution ability which covers the shortfall of human emotion. Also, the transparency of its past performance allows us to choose a suitable system according to our risk appetite. There are three major components including in the Automated Trading System ¨C execution, risk management and money management.

Execution

Algorithm, also called strategy, is programmed and installed in a computer to generate buy and sell signals according to the criteria which put together by a set of technical indicators and the relevant technical trading ideas. Buy and sell signals are generated and simultaneously send to execution when the set of criteria is met.

Risk Management

As we all know, market is uncertain. As long as we are in the market, we expose our capitals in risk; therefore, risk management is the key issue in trading and should be applied to each auto-trading system. Risk management should consider factors such as stop-loss, risk /reward ratio, profit factors and drawdown etc. Proper risk management enhances the profitability while limits the losses.

Money Management

Money management serves two purposes:

1. There is no holy grail in trading. All the strategies will face a reasonable drawdown when the market conditions became not suitable for the strategy. Proper management allows us to reserve sufficient capital for the ongoing trading and recover the losses.

2. When the account has sufficient accumulated profit, the money management system will increase the position size accordingly to compound the profitability in dollar amount.

The advantage of auto-trading

Most traders admit that overcoming emotions is the most critical to trading success. Mastering the emotion is the hardest thing in trading; and it takes a long process and will power to achieve. It is easy to be profitable in a short period of time or in a few trades; but it is very difficult to profit consistently in the market. The reason behind is our emotion. As a human nature, our emotion subconsciously controls our behaviors when we expose in uncertainty.

Computer executes the trades according to the programmed algorithm without hesitation, and with no emotion involved. It compensates the shortfalls of our human emotion. As long as the strategy is tested and proven to be profitable, computer can strictly follow the trading rules and strategy mechanically and makes profit in a long term basis.

MT4 Expert Advisor

MT4 trading platform, development of Meta Quote, is one of the most popular Forex trading platforms. It is also one of the few trading platforms which support Automated Trading Systems. Expert Advisor is the Automated Trading feature of MT4 platform. By using the Expert Advisor¡¯s programming function, traders can turn their trading ideas and strategies into expert advisor. However, mechanical EA systems base on conventional indicators rarely have consistent profitability. Sophisticate EA system development requires advance programming skills plus years of trading experience.