To Make a Trading Robot, You Need a Trading System

Trading on financial markets involves many risks including the most critical one - the risk of making

How to make a trading robot in no time

Every newcomer wants to get or create a clear and strict trading system that can be presented in the form of an algorithm and really get the best routine operation. Is it possible?

A trading system is a necessary condition for entering the market and that system should be profitable, of course. When newcomers come to the market, they are usually overwhelmed by the great mass of information difficult to grasp. Books and trader forums can provide some help in that case.

Unfortunately, not all authors are successful traders and not all successful traders write books. Many special web resources are created only to earn profit for their owners, as it is much more difficult to trade your own money than to issue forecasts and teach trading systems.

Each trader should independently pass all stages of a trading system creation. There is a popular saying that it does not matter what system you use for trading, the main thing is that you should really trade according to that system. Otherwise, trading on the market turns into a gamble with a predictable result.

Trading Robots and Forex

Forex market is believed to have a great liquidity. Also, it allows trading 24 hours a day, unlike many other markets. Therefore, many traders try to make trading robots specially for Forex market, as it offers a large number of trading instruments.

However, skeptics claim that all currency pairs are strongly correlated with each other providing very low volatility in the market. But their opponents respond that each currency pair has its own features and low volatility is compensated by a big leverage.

In any case, Forex instruments are attractive for making trading robots and most supporters of the automated trading hone their skills on currency pairs.

MetaTrader 4 and MetaTrader 5 trading terminals are specially designed to easily develop automated trading systems but at the same time their interface is also convenient for manual trading.

How to Start Making a Trading Robot?

There are many approaches to building an automated trading system. We will describe only a few major ones.

The first approach rests on math. A developer tries to create a sort of an equation that can consider many factors. This approach is based on the firm belief that price movements are managed by a model that can be found using available historical data.

In most cases, the followers of such an approach know too much math but know nothing about/are not interested in the market. The market is a pure abstraction, a type of an intellectual game for them. This approach usually leads to many years of study and development, while a definite result in the form of a working automated trading system is not so important.

The second approach is based on studying the market laws. No attempts are made to understand why the price goes up or down when various technical analysis figures appear on a chart. The advantage of this approach is that it requires no special knowledge of mathematics and makes no assumptions about the market driving force.

It is most clear and convenient when studying trading. It is most popular among traders who received universal recognition. The disadvantage of the approach is the necessity to constantly track all necessary symbols.

Sooner or later, a trader starts considering automation of trading processes and the most considerable issue appears at that stage – complexity of formalizing trading rules when trying to express them in the form of algorithms. In some cases traders who try to order a trading robot cannot describe trading rules and find common ground with programmers.

The third approach is based on the attempt to create a «black box» based on neural networks with the use of the ready-made tools widely available in special software and math packages. Creation of an automated trading system with the elements of the artificial intelligence is an exciting and challenging task even for newcomers, as it requires neither deep mathematical background, nor programming experience - everything is done using visual aids.

A trader should know the basics of technical indicators, possess an ability to prepare necessary price data and experience in some definite package for working with neural networks. The main drawback of this approach is that a trading robot obtained using such specialized tools for working with neural networks is actually a "black box". Traders do not know its working principles and, generally, it is impossible to predict what market phase will be the most problematic for the robot. A wrong trading decision. The dream of every trader is to find a trading robot, which is always in good shape and not subject to human weaknesses - fear, greed and impatience.

Programmers often choose the fourth approach – they start making a trding robot from the very beginning without spending time for manual trading.

Why trade manually?

You can make a robot spending a few months and reap the benefits of your efforts then. In most cases, programmers start creating all necessary infrastructure using a familiar programming language rather than just making a trading robot – getting and processing price data, visual representation of charts and indicators, custom means of testing strategies on historical data and so on.They gain much experience in the process.

But in most cases, that experience does not bring them closer to the final goal – creation of an automated trading system. And even if a trading robot is created, there is no guarantee that it will be profitable. And what if a programmer wants to write another trading system? New programming errors are inevitable.

There is also the fifth approach – buying a ready-made trading system in the form of a trading robot. In this case, a trader acts as an operator or a tuner. This approach saves much time (no need to learn many new things) and allows traders to quickly enter the world of the automated trading.The main drawback of this approach stems from its advantages – you don't know the operation principles of your trading robot and its structure.

And even if a seller has provided you with a detailed description of the implemented trading system, you will never be completely sure in it.However, neither of the mentioned approaches can give you absolute guarantee except a bank deposit. But that is not a very suitable solution for people interested in market trading and ways to increase their private assets.

What is the Best Approach to the Automated Trading for a Trader? Each of the five described approaches has its advantages and corresponds to some definite type of trader. It is unlikely that you will choose the first approach (market analytical description) without good mathematical background.

It is equally unlikely that you will start from making trading robots based on neural networks. However, both of these approaches are very exciting and provide good intellectual exercise.Below we will discuss only the second approach, which is already considered to be the classical one. That is the approach usually chosen by new followers of the automated trading, as the technical analysis remains the key knowledge area when learning trading basics.

Another advantage of the second approach is that after you spend some time for manual trading and obtain the sense of the market, you will already have a good understanding of technical analysis tools. Besides, you will be able to program trading strategies or create neural networks on a higher level.
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