VIRTUALLY SPEAKING
Gaining An Edge In The Market
The Automated Daytrader
by Lee Leibfarth
Here's how daytraders can use different levels of trade automation.Technology has played a vital role in allowing retail traders to compete in markets where, traditionally, only institutional and professional traders have been able to profit. Daytrading simply couldn't exist without high-speed Internet connection, reliable trading software, or direct-access trading. Many of the high-end trading platforms and features only available to institutions as of a few years ago have become both affordable and practical for daytraders. In addition, high-volume retail traders, or daytraders, have become the target market for much of the advanced trading technology available now. One of the most popular examples of this new wave of trading technology is trade automation.
Initially, many traders viewed trade automation as a mystical "black box" that arbitrarily generated trades. This early perception of automation may have led some traders to disregard the technology for fear of losing control over their trading. While you can buy preprogrammed automated strategies that do not disclose trading logic, there are varying levels of trade automation that savvy traders can customize to fit their needs.
The spectrum of trade automation varies from types of trade orders offered by brokers, all the way to software that allows traders to automate just a part of their trade (such as the exit conditions), to complete mechanical systems that can be programmed to automate every aspect of a trade from the entry criteria to the exit. I will examine the different levels of trade automation available to daytraders and how they can be used.
WHY AUTOMATE?
Most daytraders employ complex order, position sizing, and money management strategies that may be traded over a portfolio of instruments. As the complexity of daytrading strategies increases, so does the potential for error in placing, canceling, and managing multiple orders.
...Continued in the March issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the March 2006 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2006, Technical Analysis, Inc.
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