Building Automated Trading Strategies October 2018 | Page 20

CHAPTER-3: AUTOMATED TRADING STRATEGIES
An automated trading strategy refers to a software code that includes a set of
rules and conditions capable of automatically creating and submitting trading
orders to an OTC market or an organized exchange. This means that the code
includes an analysis framework and a decision-making module that is able to
select trades and position sizes. A fully automated strategy works without any
human intervention. Almost every manual trading strategy can get partially or
fully automated.
The Two Approaches of Automated Strategy Building
There are many different approaches for building automated-trading
strategies. The two key approaches include:
a. Model-based strategies
b. Data-driven strategies
Data-driven strategies are complex and require significant resources.
Therefore, this eBook emphasizes model-based strategies, which are easier to
implement.
The Seven (7) Questions
Every efficient automated trading strategy should incorporate a decision-
making module capable of answering the following questions:
1. What assets/markets to trade?
2. What direction to trade (bulls/bears)?
3. When to trade (best price or time)?
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