Automated trading systems are the holy grail of forex trading. They can potentially achieve profits without any involvement from the owner, other than initially developing the system and starting it trading with a live account. The dream is having your very own automatic cash machine in your trading room. The reality has not lived up to the promise, with most trading systems showing poor trading performance.

Why is this, and how can you build a usable and profitable automated trading system? Read on to find out more.

The first issue is the availability of stable trading platforms. These need to be able to directly interface with a range of brokers. Obviously, reliability is paramount when your capital is on the line. Now there are a range of stable and useful platforms that allow you to define your own trading models. I have provided an overview of these in my article on automated trading platforms. After reviewing these, my preferred tools are MetaTrader, Thinking Stuff and Ninja Trader.

The next, and biggest issue is the quality of trading systems. Essentially tools such as MetaTrader can help you build and backtest a trading system (MetaTrader calls an automated trading system like this an ExpertAdvisor) that you can build from standard indicators such as moving averages, various types of oscillators and others. On the surface, it would seem that developing a winning system would not be that hard, but the fact is that most systems will perform poorly.

Why is this? I believe that using lagging indicators such as moving averages makes it difficult trade profitably. Build a simple MACD system, backtest it, and you will see what I mean. Adding complexity does not improve the situation – in fact if anything, it makes it perform more poorly.

If you want some more advanced trading indicators to build your winning system, you will need to program them yourself, and this is where the extensibility of the platform becomes important. Of the three platforms mentioned above, MetaTrader has its own programming language, and Ninja Trader uses C#. Thinking Stuff seems to be excellent in other respects, but not as extensible.

To me, MetaTrader has a slight edge, mainly because it is free and has a built in data feed, while Ninja Trader is free for model development, backtesting and evaluation, and because development with Ninja Trader seems slightly more difficult (however it is probably also more powerful).

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Tags: Automated Trading

This entry was posted on Thursday, January 1st, 2009 at 7:29 pm and is filed under Automated Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.