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.
