Passive income is something that we are constantly on the lookout for here and why wouldn’t we be, the idea that you can make money whilst you are out having fun is simply too good an offer to turn down. One of the most profitable ways which you can build a passive income for yourself is through automated trading, this method can have huge upsides and ensure that you have a constant flow of money coming, even while you sleep.
Day trading can be highly profitable if you know what you are doing and regardless of whether you pick FOREX, Russell 2000 or DAX futures as your trading home, you can automate your buying and selling system so that you can make trades at a faster rate and ultimately, in order to gain you more profit. Let’s take a look then at what automated trading is, and how you can use it to make some solid passive income.
What is Automated Trading?
Automated trading is a method of buying and selling which allows you to complete high frequency and high speed trades at a velocity which humans simply cannot match. These automated trading robots will make the trades based on a set of rules which you input, after you have set these algorithmic requirements, the software will make trades whenever there is a stock which falls within the price range that you have set and the market conditions are in line with what you have input into the automated software system.
It is estimated that around 75% of all trades which are made on the New York stock exchange and the NASDAQ are the result of requests made using automated systems. These systems can be given predefined rules to trade in various markets from stocks, futures, options and foreign exchange products.
How to Start
The first thing to do is find yourself some great software in order to get started with automated trading, there is a great deal of excellent software available online and you should check out lots of reviews before you invest in any. Once you have the software it is time to start thinking about your trading strategy, think about how you currently trade and how best to form this into an algorithm. Consider making checklist of your trading parameters, when doing this, strip emotion out of the equation, speculation or gut feeling cannot be converted into an algorithm. You should be factoring in when and how you buy stocks, how much you invest, trading timeframe, targets and stoploss. It is a good idea to test your plan against some stocks once you have it to check if it works to your liking, keep playing around with the plan until it is right.
Unless you are able to understand computer code then you will need to enlist the support of professionals to have our algorithm written. Many of the businesses who sell automated trading software will help you with this and whilst the code is simple, it is after all just some instructions which you are telling the computer or software to carry out, you do need technical knowledge to formulate your algorithm.
Once you have your algorithm in place, you can back test it to get a comprehensive understanding of how well it works. This process allows you to test out your automated trading software without risking any capital at all. What you need to do is to run your software based on past stock prices, arm yourself with the historical data and run a back test on one of the many sites online which offer an instant comparison between what your software would have done regarding trading and what actually happened to the prices. Here you will be able to see how much you would have earned or lost if you had used the software at the time. Keep testing until your algorithm is of a very high standard, there is no such thing as perfect but you of course should be aiming to compile an algorithm which is as highly profitable as you can make it.
Monte Carlo Analysis
One of the key parts of the testing of your algorithm will be the Monte Carlo simulation, what this process will do is repeatedly test the steps of your algorithm and input randomness into each of the parameters. After each iteration the results will be noted and this will give you a comprehensive forecast of how successful your algorithm is going to be. This test is a great measure of how well your automated trading will do as it best replicates the randomness of the market.
Hit The Button
Once you have compiled your algorithm and sufficiently tested it out, it is time to get going and put your automated trading software into practice. You will have to find a dealer terminal before you get started as exchanges do not allow fully automated platforms. Once you have paid this one-time fee for your authorization you are ready to go and make some money.
Naturally you will need far less input into your trades than if you were doing so manually but that doesn’t mean that you can simply sit back and count your profits. Firstly you should be observing closely in the first few days to ensure that the software is performing in the way that you want. Secondly you will need to remember that the markets are always changing and you should be constantly seeking ways to adapt the software and your strategy to ensure that it is always the most profitable that it can possibly be.
So there you have it, your guide to getting set up with automated trading software, I would advise that you have been manually trading for at least 6 months before you begin with automatic trading. This will ensure that you have all the knowledge that you need and a little bit of experience in order for you to automate your trading and go after that passive income that we all dream of.