Automated trading is a great way to boost your potential trade profits. Using tried-and-tested automated trading strategies when trading in the financial markets is another way to improve it further.
There are many automated trading strategies you can choose from. Deciding which strategy to use in your trades can be hard.
That’s why we’ve created this list of the best automated trading strategies to help narrow down your choices.
Check out our list below!
What Is an Automated Trading Strategy?
Simply put, an automated trading strategy refers to the approach your trading robot uses to execute trades on your behalf.
These strategies are coded into your automated trading system (ATS), which, in turn, is integrated into your broker’s platform.
Your trading robot will then use the predetermined rules and conditions set in your chosen automated trading strategy and carry out your trades according to these.
Advantages of Using Automated Trading Strategies
There are many benefits to using automated trading strategies. For instance, you can make substantially more trades in less time or respond to market changes almost instantaneously.
Below are some of the advantages you can gain by implementing automated trading strategies.
1. Minimizes Emotions
Keeping your trades automated means keeping emotional bias out of them. Emotional trading can be disastrous for traders of any level.
By automating your trades, you’re using a machine’s objectiveness and efficiency to your advantage. This lets you strictly keep to your established trading plan and maintain discipline in the face of adverse market conditions.
2. Superior Entry Speed
Automated trading programs are designed to kick into action as soon as market conditions meet their predefined criteria. This almost instant reaction to market changes allows you to enter positions more quickly and at better prices.
As trading robots let you access and control several accounts at once, you can have multiple favorable market entries simultaneously.
In this sense, having an automated trading strategy in place lets you take full advantage of favorable entry opportunities more effectively than if you were manual trading.
3. Automating Complex Trading Strategies
Some trading strategies are just too complex or time-consuming to execute manually. This is where automated trading strategies shine brightest.
With an automated trading strategy, you can skip most of the legwork that makes some strategies too cumbersome to use.
Trade robots can monitor markets 24/7 and analyze vast amounts of data without experiencing fatigue. Combined with their superior trade entry and exit speed, these traits make it possible to automate complicated trading strategies.
Best Automated Trading Strategies in 2024
These are the most effective automated trading strategies you can use.
Trends and Momentum-Following Strategy
The trends and momentum-following strategy is among the most common and effective approaches when it comes to intraday trading.
As implied by its name, you only have to follow the momentum and real-time trends of the financial market where you’re trading when using this strategy.
The trends and momentum-following strategy relies on technical indicators, such as simple moving averages (SMAs) and moving average convergence/divergence (MACD).
Arbitrage Trading Strategy
The arbitrage trading strategy is best for traders interested in dual-listed stocks, such as Unilever, Investec, and Brambles.
Using this automated trading strategy, your ATS will compare prices in the dual-listed stock in the relevant exchanges. It will then buy stocks at the exchange with the lowest price and sell them at a higher price on a different exchange.
Mean Reversion Strategy
The mean reversion strategy capitalizes on fluctuations that are an all-too-common occurrence in financial markets. It works on the principle that a security’s highs and lows are only temporary and will eventually revert to their means, hence the approach's name.With this strategy, your trading robot will determine and find a security’s average price range and carry out your trade once it breaks in and out of this range.
Weighted Average Price Strategy
There are two ways you can set up this automated trading strategy. You can base it on either sales volume or time.
The weighted average price strategy helps protect you from the brunt of a volatile market. It does this by executing trades as close as possible to the volume-weighted or time-weighted average price, depending on your setup.
This approach works by releasing small portions of large volume holding based on a set period or a security’s historical volume profiles.
Statistical Arbitrage Strategy
The statistical arbitrage strategy is a good choice for short-term traders. It takes advantage of price inefficiencies and periods when similar shares are misquoted.The principle behind this automated trading strategy works similarly to the mean reversion strategy. It banks on the assumption that the market will eventually correct itself.
Price inefficiencies and market anomalies seldom last long and can be difficult to track for manual traders. However, trading robots programmed to run this strategy specifically look for these instances and execute trades before corrections can occur.
Which Automated Trading Strategy Should You Use?
Objectively speaking, there is no “best” or “worst” automated trading strategy you can use. The effectiveness and viability of a particular strategy depend on many factors. These include the asset class you’re trading, the market conditions, goals, and risk tolerance.
Understanding the dynamics of these elements can help you determine which automated trading strategy can be the ideal choice for a given situation.
Tech-RMS offers a highly efficient and AI-powered trading robot, TradeBot, that can help give you a better automated trading experience.
