What is automated trading?

A wide range of powerful technology is available to take the legwork out of trading, helping you to identify new opportunities and manage your positions more effectively

The simplest form of automation comes from using stop and limit orders, which will act to open or close positions for you when a price hits a certain level. Here we’ll focus on some of the more sophisticated tools for automated trading.

Building dealing strategies

You can create specific trading strategies which can be implemented by a computer algorithm on your behalf. This is a way to build on the dealing discipline and structure you follow in your trading plan.

Essentially, you instruct the dealing platform to open and close positions for you based on parameters you define, such as:

  • Specific technical indicators
  • Risk management triggers
  • Market high, low, opening or closing levels
  • Current market prices

The platform software will take you through an assisted process to build each strategy. An example step from leading web-based charting package, ProRealTime, which is fully integrated with IG’s platform, is shown below. However, if you have the necessary skills you can even code your own algorithms. 

Alternatively, it’s very easy to find pre-built strategies online for the popular trading software packages. You can import these into your platform and use them yourself, or export your own strategies to share with others. For example, on the MT4 platform, you can import or export automated dealing programmes called expert advisers (EAs). 

Backtesting

Having created an automated trading strategy, you can then find out how well it’s likely to work in practise using a backtest.

This involves running a simulation of your intended strategy against a period of historical market data. Our platform holds an extensive archive of past data for you to test against. You run the simulation, the software reconstructs the positions that would have been opened and their outcomes, and you receive a report to show how your strategy would have performed.

You can then make tweaks and retest as necessary until you’re happy to set the strategy live.

Remember, however, that past performance of markets or strategies are not necessarily a guide to future performance, and there may also be differences in order execution between backtests and live strategies.

Find out more about automated trading at IG

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