Some Very Important Details When Constructing Your Own Fully Automated Trading Systems
The following article was taken from an exchange of emails with several clients. I felt this part of the dialog would be very helpful for our viewers. included below are some of the most important aspects to be aware of when constructing fully Automated Trading Systems.
There is no “Set it and forget it”
Trading System Platform Selection
Stock Options and/or Options on Futures
Does it mean the code you write is not expected to work for stock options?
Let’s take the TradeStation platform as our use-case.The automated trading system will run based on an open chart on the platform. Whatever ticker symbol is loaded onto the chart, that is the symbol the system will trade. So if we chart the symbol of AAPL, the system will buy and sell shares of AAPL. It will NOT be able to buy and sell options on AAPL. If you wanted the system to trade a single option contract, the OPRA code of that single option would need to be used as the ticker symbol for the chart. The chart would then display trading activity for that specific option contract. Any buy/sell signals generated on that chart would then be used to buy and sell that specific option contract. Therefore, an automated trading system on TradeStation will NOT be able to chart AAPL and then pick and choose from a list of options contracts and expirations to trade.
- Computer experiences loss of power and/or an interruption in its connection to the internet
- Computer crashes while the system is running
- The broker rejects an order
- The broker suspends or otherwise interrupts the data fee
- The exchange suspends trading in the selected financial instrument
User Intervention for Automated Trading Systems
- Shut down the automated trading system to prevent new orders being generated
- Cancel all open orders
- Flatten all existing positions
- Restart the trading system once you have a clear slate
Backtesting and Walk-Forward Analysis
Automated Trading Systems: Never a simple process
Automated Trading Systems can be a very useful tool for traders that are already profitable in their trading. It is dangerous to think that an automated trading system will make you profitable when you haven’t arrived at that point already. They can do far more damage than trading manually, so focus on being profitable first. Before getting started, you should carefully evaluate whether you can increase your current profitability through the use of an automated trading system. Remember that an automated trading system still requires that you be present, in front of the computer. Because at some point the excrement will hit the proverbial fan, this WILL eventually happen. So you must be there to pick up the pieces and reset everything to a clean slate before turning the system on again.
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