April 28, 2021

Automated Futures trading systems

Let’s talk about trading algorithms

Trading algorithms, automated trading systems, mechanical trading systems, system trading, or automated trading, whatever name you know it by, is a trading system that involves the use of software that is often linked directly to a broker. The idea behind this trading system is to help traders automate trading and maneuver the markets with ease and precision.

As the financial markets continue to expand and more players get involved in trading, it has become crucial for traders (both old-timers or newcomers) to explore ways of seeing through the noise and trade with high precision.

One way to do this is by using Automated Futures trading systems. An automated futures trading system is a computer program that is based on a set of rules and regulations which automatically initiates and closes trades. The main aim of an Automated Futures trading system is to take the emotions out of trading decisions and minimize the risks involved in trading.

Advantages of automated futures account vs automated stock trading account

There are a number of advantages of using Automated Futures trading systems over other types of trading systems.

– Trade multiple contracts in different markets

– You can trade after-hours

– Requires minimum deposit with fewer funds to start

– The PDT rule doesn’t apply to futures

How do Automated Futures trading systems work?

An Automated Futures trading system typically consists of two parts – the front-end software that is installed on the trader’s computer and the back-end software that is installed on the server. The front-end software is responsible for generating trading signals based on a set of predetermined rules. These rules are based on technical indicators and market conditions. Once a trade signal is generated, it is sent to the back-end software which then executes the trade on behalf of the trader.

What are the benefits of automated system trading?

There are many benefits of using Automated Futures trading systems. Some of the main benefits include:

– Help to take the emotion out of trading decisions.

– Minimize the risks involved in trading.

– Improve the accuracy of trade execution.

– Speed up the process of trade execution.

What are the disadvantages of Automated Futures trading systems?

There are also a few disadvantages of using Automated Futures trading systems. Some of the main disadvantages include:

– Expensive to set up and maintain.

– Complex to understand and use.

– May not be able to adapt to changing market conditions.

If you are thinking of using an Automated Futures trading system, it is important that you do your research and choose a system that is right for you. You should also test the system on a demo account before using it with real money.

Let’s dive a little deeper into these automated systems

Day traders will appreciate the importance of such systems more because they understand how much stress and workload it will take off their shoulders in terms of catching market moves in the nick of time.

To satisfy traders’ need for precision, automated trading systems were developed to allow traders to program their trading strategies and execute trades automatically with a computer. Interestingly, automated trading systems can deliver up to 80% or more precision in spotting profitable market entries and exits.

This is a huge improvement over human traders who, on average, are only able to achieve a success rate of around 50% to 60%. These systems can also help to eliminate the emotional aspects of trading which can often lead to bad decision-making.

Having equipped you with an overview of automated trading systems, let’s narrow our discussion down a bit.

Customizable trading systems

Some of the trading systems are built upon expert traders’ strategies, some other trading platforms leverage strategy-building wizards that allow traders to develop custom trading strategies based on their selection of technical indicators. That way, you get to determine the set of rules or criteria upon which your trades will be executed automatically.

For instance, a futures trader can set an automated system that will trigger trades when particular moving average crosses occur in a specific time frame. An example could be to go long when the 50-day moving average (MA) crosses the 200-day MA on the 15 minutes chart.

Similarly, traders can also determine what kind of market orders they want the system to execute. You can set a limit order when a position or trade will be executed, maybe at the open or closed of a candle or bar. It is not unusual for traders to customize indicators and build their trading strategies and develop an automated trading system with the aid of a programmer.

While this may seem like an arduous task, it offers a greater degree of flexibility and the outcome, more rewarding because it is designed to trade your strategy. Depending on your input settings, the computer will keep tabs on market movements and help you spot long or short opportunities that meet your set criteria. The computer will also generate protective stop losses or trailing stops and profit targets.

However, if all of these are beyond you, you can settle for the default settings provided on the automated futures trading platform.

Automated trading systems allow you to backtest

As the famous saying goes, you can’t keep repeating the same process and expect to get different results. Similarly, it is important to know when your trading strategy is working and when to fine-tune it in trading. And this can be done by backtesting.

Because computers don’t have a mind of their own, they only do as they are told. You have to constantly check the viability of your trading plan and ensure that the rules upon which your trading strategy is built are still valid.

Backtesting allows you to test and evaluate your ideas by running them through historical data before making any trading decisions. That way, you will be sure of what works and what doesn’t and fine-tune parameters in your plan to reflect current market trends. Backtesting also gives you an idea of what to expect from every trade — telling you what you stand to win or lose per unit risk.

Automated trading systems improve order entry speed

Automated systems help traders enhance and improve order entry speed. Getting in and out of a trade at the right time and almost in an instant can be the difference between running your trading account aground and raking in profits.

Automated trading systems will execute trades when they meet specific criteria and get you out when you hit profit targets or protective stop losses if the market goes against you. As such, you have both trading precision and speed on your side.

In highly volatile markets, automated trading systems will save you the pain of losing out on big moves or suffering massive losses because you didn’t get to the market on time.

Let’s touch base on human emotions once again

Minimizing emotions or keeping traders’ emotions in check throughout the trading process is arguably one of the most incredible benefits of automated trading systems.

One of the best traits of a day trader is his ability to control his emotions. Trading futures without emotions is crucial in helping traders stick to their trading plan.

Because trades are executed automatically when trading rules are met, there won’t be room for you to second-guess yourself, hesitate, or question trades. In addition to helping traders “pull the trigger,” automated futures trading systems also prevents traders from over-trading.

Over-trading is a common occurrence, especially among novice traders who tend to get too excited when they see the markets moving in their favor. Automated systems help keep traders in check by opening and closing trades as per the pre-determined rules set by the trader.

Automated trading imbibe discipline

Traders react differently when dealing with volatile markets. While some let emotions get the best of them and develop a phobia for taking a loss, others are propelled by their desire to make a little more profit from a trade.

All of these come to light because such traders lack trading discipline, which will most likely put them in a compromising situation that could cost them their accounts. Automated trading systems eliminate all of these issues and help ensure that traders stick to their plan.

Years of experience have taught many traders that no trading plan wins 100% of the time. Trading101 will teach you that losses are part of the game, and your focus should be on keeping them low.

Final Thought

In addition to all we have discussed so far, these systems also allow you to run multiple trading accounts or strategies at a time. To make the most of automated trading systems, it helps to invest in trading education to broaden and sharpen your knowledge of the market and how it works. As mentioned above, systems like these can be very helpful to traders but they do require common knowledge of the market and active monitoring because just like anything else, computers are not perfect and anything can happen. But most importantly, the market is not consistent, things change, news can move the market in many different directions in a matter of minutes and if you are not monitoring it, it can turn ugly really fast.

Although these are great tools, they are just that, tools that help. And should never be just the thing you use to make your trading decisions.

Automated trading systems can be a great addition to any trader’s arsenal, but they should not be the only thing you rely on when making trading decisions.

Happy trading!