Many traders aspire to become 澳洲幸运5官方开奖结果体彩网:algorithmic traders but struggle to code their trading robots properly. These traders will often find disorganized and misleading algorithmic coding information online, as well as false promises of overnight prosperity. However, one potential source of reliable information is from Lucas Liew, creator of the online algorithmic trading course AlgoTrading101. The course has garnered over 30,000 students since its launch in 2014.

Liew's program focuses on presenting the fundamentals of algorithmic trading in an organized way. He is adamant about the fact that algorithmic trading is “not a get-rich-quick scheme.” Outlined below are the basics of what it takes to design, build, and maintain your own algorithmic 澳洲幸运5官方开奖结果体彩网:trading robot (drawn from Liew and his course).

What Is a Trading Robot?

At the most basic level, an algorithmic trading robot is a computer code that has the ability to generate and execute buy and sell signals in financial markets. The main components of such a robot include 澳洲幸运5官方开奖结果体彩网:entry rules that signal when to buy or sell, exit rules indicating when to close the current position, and 澳洲幸运5官方开奖结果体彩网:position sizing rules defining the quantities to buy or sell.

Obviously, you’re going to need a computer and an internet connection to become an algorithmic trader. After that, a suitable operating system is needed to run MetaTrader 4 (MT4), which is an electronic 澳洲幸运5官方开奖结果体彩网:trading platform that uses the MetaQuotes Language 4 (MQL4) for coding trading strategies. Although MT4 is not the only software one could use to build a robot, it has a number of signific൲ant benefits.

One advantage is that, while MT4’s main asset class is 澳洲幸运5官方开奖结果体彩网:foreign exchange (FX), the platform can also be used to trade equities, equity indices, commodities, and Bitcoin using 澳洲幸运5官方开奖结果体彩网:contracts for difference (CFDs). Other benefits of using MT4 (as oppose🤡d to other platform﷽s) are that it is easy to learn, it has numerous available FX data sources, and it’s free.

Algorithmic Trading Strategies

One of the first steps in developing an algorithmic strategy is to reflect on some of the core traits that every algorithmic 澳洲幸运5官方开奖结果体彩网:trading strategy should have. The strategy should be market prudent in that it is fundamentally sound from a market and economic standpoint. Also, the mathematical model used in developing the strategy should be based on 澳洲幸运5官方开奖结果体彩网:sound statistical methods.

Next, determine what information your robot is aiming to capture. In order to have an automated strategy, your robot needs to be able to capture identifiable, persistent 澳洲幸运5官方开奖结果体彩网:market inefficiencies. Algorithmic trading strategies follow a rigid set of rules that take advantage of market behavior, and the occurrence of one-time market inefficiency is not enough to build a strategy around. Further, if the cause of the market inefficiency is unidentifiable, then there will be no way to know if the success or failure of the💦 strategy was due to chance or not.

With the above in mind, there are a number of strategy types to inform the design of your algorithmic trading robot. These include 🍬strategies that take advantage of the following (or any combination thꦺereof):

• Macroeconomic news (e.g., non-farm payroll or interest rate changes)
• 澳洲幸运5官方开奖结果体彩网:Fundamental analysis (e.g., using revenue data or earnings release notes)
• Statistical analysis (e.g., correlation or co-integration)
• 澳洲幸运5官方开奖结果体彩网:Technical analysis (e.g., moving averages)
• The market microstructure (e.g. arbitrage or trade infrastructure)

Preliminary research focuses on developing a strategy that suits your own personal characteristics. Factors such as 澳洲幸运5官方开奖结果体彩网:personal risk profile, time commitment, and 澳洲幸运5官方开奖结果体彩网:trading capital are all important to think about when developing a strategy. You can then begin to identify the persistent market inefficiencies mention💮ed above. Having identified a market inefficiency, you can begin to code a trading robot suited to your own personal characteristics.

Backtesting and Optimization

澳洲幸运5官方开奖结果体彩网:Backtesting focuses on validating your trading robot, which includes checking the code to make sure it is doing what you want and understanding how the strategy performs over different time frames, asset classes, or market conditions, especially in so-called "澳洲幸运5官方开奖结果体彩网:black swan" events such as the 2007-2008 financial crisis.

Now that you have coded a robot that works, you'll want to maximize its performance while minimizing the 澳洲幸运5官方开奖结果体彩网:overfitting bias. To maximize performance, you first need to select a good performance measure that captures risk and reward elements, as well as consistency (e.g., 澳洲幸运5官方开奖结果体彩网:Sharpe ratio).

Meanwhile, an overfitting bias occurs when your robot is too closely based on past data; such a robot will give off the illusion of high performance, but since the future never completely resembles the past, it may actually fail. Training with more data, removing irrelevant input featuresꦗ, and simplifying your model may help prevent overfitting.

Live Execution

You are now ready to begin using real money. However, aside from being prepared for the emotional ups and downs that you might experience, there are a few technical issues that need to be addressed. These issues include selecting an appropriate broker and implementing mechanisms to manage both 澳洲幸运5官方开奖结果体彩网:market risks and 澳洲幸运5官方开奖结果体彩网:operational risks, such as potential hackers and technology dow𓆉ntime.

It is also important at this step to verify that the robot’s performance is similar to that experienced in the testing stage. Finally, monitoring is ꧂needed to ensure that the market efficiency that the robot was designed for still exists. 

The Bottom Line

It is entirely plausible for inexperienced traders to be taught a strict set of guidelines and become successful. However, aspiring trader♏s should remember to hav🐲e modest expectations.

Liew stresses that the most important part of algorithmic trading is “understanding under which types of market conditions your robot will work and when it will break down” and “understanding when to intervene.” Algorithmic trading can be rewarding, but the key to success is understanding. Any course or teacher promising high rewards without sufficient un🐟derstanding should be a major warning sign to stay away.