Advanced Features to Consider in an Automated Trading System

In both retail and professional spheres of the trading landscape, automated trading systems—often called algorithmic trading systems—have become essential tools for traders looking for a competitive edge, especially in the futures market. However, it’s crucial to recognize that not every automated trading software offers the same level of sophistication or potential for profitability. In this article, I’ll delve into some advanced features that may substantially enhance your trading performance.

1. Predefined Risk Management

Risk management is the cornerstone of successful trading. A robust automated trading system should allow you to set predefined profit and loss levels. R ratios shouldn’t only be considered when setting a profit target and stop, but it should be applied to overall daily gains and losses. When your preselected thresholds are reached, the system should automatically cease trading. This feature ensures that you don’t expose yourself to undue risk, especially during volatile market conditions.

Why It Matters 💡:

  • Protects your capital from extreme market fluctuations.
  • Allows you to set your risk tolerance levels, making your trading more aligned with your financial goals.

2. Advanced Trade Management

Trade management goes beyond merely executing trades. The system should enable you to specify the maximum number of trades to be executed within a set timeframe. Additionally, it should have the ability to reverse its trading direction based on pre-set criteria.

Why It Matters 💡:

  • Prevents overtrading, which is a common pitfall among traders. Plus you don’t want to be your broker’s favorite client:)
  • Offers flexibility to adapt to changing market conditions without manual intervention.

3. Dynamic Strategy Selection

The system should offer the ability to switch between different trading strategies based on historical data analysis or particular market conditions. This dynamic strategy selection can significantly improve your trading performance by aligning your trades with the most effective strategy for that specific day.

Why It Matters 💡:

  • Increases the likelihood of executing profitable trades.
  • Adds a layer of sophistication to your trading, moving beyond a one-size-fits-all approach.

4. Machine Learning Capabilities

Machine learning algorithms can analyze vast amounts of historical price and volume data to predict future price movements. This feature adds a layer of intelligence to your trading system, making it more adaptable and accurate. There are plenty of ML tools in the market that train data on daily OHLC and volume data, but breaking down that data on an hourly basis, should give you an added level of granularity. Of course unexpected news tends to supersede any type of data analytics, but unexpected news doesn’t occur on most trading days.

Why It Matters 💡:

  • Provides data-driven insights, reducing reliance on gut feeling or rudimentary analysis.
  • Continuously learns from new data, improving its predictive accuracy over time.

5. Time-Specific Data Analysis

The system should allow for analysis based on specific times of the day or specific days of the week, using historical data and backtesting to gauge likely directional movement.

Why It Matters 💡:

  • Enables more targeted trading during the most lucrative market hours.
  • Helps avoid trading during times of low volatility or erratic price movements.

6. Higher Timeframe Reference

Being able to reference higher timeframe charts allows the system to assess broader market conditions. This feature only makes sense if the automated trading system is able adjust entry points based on whether the market is bullish, sideways, or volatile.

Why It Matters 💡:

  • Provides a macro view of market conditions, enhancing trade decision-making.
  • Allows for more strategic entries and exits, improving the odds of a successful trade.

7. Predefined Market Range

Before entering a trade, the automated trading system should allow you to set a predefined market range that aligns with your profit targets and stop-loss levels. You don’t want your trading software to enter a trade where for example during the last two hours of trading, the market has hardly moved; traders tend to make most of their profits in non-sideways markets.

Why It Matters 💡:

  • Ensures that you only enter trades that have a high likelihood of reaching your profit targets.
  • Adds an additional layer of risk management to your trading strategy.

8. Customizability of Strategies Within the Trading System

A top-tier automated trading system should allow for high levels of customization. Whether it’s tweaking existing strategies or implementing new ones, the automated trading software should be flexible enough to accommodate your trading style. Most traders prefer purchasing pre-built automated trading systems as those tend to be relatively much less expensive than building a custom trading solution, but the pre-built trading software itself needs to be flexible enough for the software developer to customize according to your specs.

Why It Matters 💡:

  • Allows you to tailor the system to meet your specific trading needs and risk tolerance.
  • Provides the freedom to innovate and adapt strategies as market conditions change.

9. Exceptional Customer Support

Last but not least, customer support is crucial. Whether you’re facing technical issues or have questions about features, prompt and effective customer support can make or break your trading experience. Looks for firms that have less clients, not more. If the trading software providers has 19,000 clients, it’s unlikely that you’re going to get any type of personal attention from them.

Why It Matters 💡:

  • Provides quick resolutions to technical issues, minimizing trading downtime.
  • Offers educational resources to help you make the most of the system’s features.

Conclusion

Choosing an automated trading system with these advanced features can significantly enhance your trading strategy, risk management, and ultimately, your profitability. Each feature serves a specific purpose and adds a layer of complexity and effectiveness to your trading activities.

About The Author

This blog was authored by Raffi Sosikian. Raffi is a seasoned algorithmic trading software engineer, and enterprise architect. He has an MBA, holds a Series 3 license, and is the principal at Pinnacle Quant, LLC, CTA, a boutique commodity trading advisory firm that specializes in building both custom trading systems (including private label for small funds to brand as their own software), as well as in-house pre-built quant and price action based automated trading systems.

Happy trading!

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