Algo Trading 101: How to Build and Deploy Your Own Trading Bot
A comprehensive guide to building your own trading bot
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Recently I received a lot of requests to explain how trading bots work, so in this article, I will try to cover everything one needs to develop and deploy her bot and start with her algorithmic trading journey.
If you are new to algorithmic trading I strongly suggest you check my Beginner’s Guide first, before finishing this one.
Bot trading, also known as algorithmic trading, is a popular and increasingly widespread method of trading financial assets using computer algorithms. These algorithms, which are often referred to as “bots,” are designed to execute trades automatically based on predefined rules and strategies.
The process of constructing and launching your own trading bot can be complicated and demanding, but it can also be a gratifying and profitable way to engage in the financial markets. This article will provide a thorough guide to building and deploying your own trading bot.
“While bot trading can be a useful tool for experienced traders, it’s important to approach it with caution and do your due diligence before diving in. It’s essential to thoroughly test your bot and have a solid understanding of the risks involved before deploying it in the live markets.” — Jack Huang, CEO of AlgoTrader
Starting off with the basics
In order to build and deploy a trading bot, you’ll need to have a solid understanding of the financial markets and how they work. This is crucial because a bot is nothing more than predefined conditions, which have to be true in order for it to enter a trade. This means you have to be familiar with different asset classes, such as stocks, bonds, and currencies as well as understand the market trends and patterns. Depending on which instrument you want to trade you can combine Financial, Alternative, and Price Action data. After that, through different mathematical and statistical techniques, you can analyze past market data and try to find patterns which then you can use to predict future market movements and use as trading signals.
If you are old-school and don’t want the computers to trade instead of you, I strongly suggest you take a look at my newsletter. Each article is a comprehensive research of an individual stock and has everything you need to understand the current state of a company. ⬇⬇The link is below ⬇⬇ Also do make sure you subscribe, so you don’t miss any new publications.
Once you have the necessary knowledge and skills, the next step is to choose a trading platform. There are a number of platforms available, each with its own unique features and capabilities. Some of the more popular options include TradingView, MetaTrader, and eToro.
TradingView can be a very convenient solution, as it provides Prices and Volumes data, and has an in-house programming language. You can use it to build your own strategy scripts based on your custom rules and conditions. Then you can use the signals and automate them via Webhook to third-party apps, like 3Commas, Pineconnector, Alertraton, and many more.
There are other more sophisticated platforms for bot-building but they use programming languages such as Python or Java, so if you are not proficient in one or more of these languages you will need a help of a professional developer.
When building your bot, you’ll need to decide on the specific rules and strategies that it will follow. This can include things like which assets to trade when to enter and exit trades, and how much to risk on each trade. There are many different approaches to building a trading bot, and the specific strategy you choose will depend on your goals and risk tolerance.
To get more sense of what a possible trading strategy can be.
Once done your next step is to backtest it.
This is an essential part of the process, as it gives you an estimate of the performance of the bot. It involves running your strategy on historical data, to see how your bot would have performed in the past. In the end, you get to see the returns, max drawdown, Sharpe ratio, and many more statistics. It also helps to ensure that your bot is working correctly and is making trades that align with your desired strategy.
Of course, backtesting comes with its flaws, but that’s a topic on its own and requires a whole article on its own.
Nevertheless, it is a vital part of the decision-making process, on whether to proceed and deploy the strategy to trade with real money.
Forward testing is another thing that I would strongly encourage as well. This means deploying the bot to trade live, but use a Paper Money account for it. That way you get to see how the bot is performing in real-time, but without risking any capital.
Deploying
After all, is said and done, and you’ve tested your bot and are confident in its performance, it’s time to deploy it. This typically involves setting up your bot to run on a computer or server, or using the above-mentioned third-party apps, and connecting it to the trading platform of your choice. Once it is up and running, it will begin executing trades automatically according to the rules and strategies you’ve defined.
And hopefully, it makes money!
Conclusion
Building and deploying your own trading bot can be a challenging but rewarding process. With the right knowledge, skills, and tools, you can create a powerful tool to help you participate in the financial markets and potentially earn returns on your investments.
Bonus: You can check my partner’s YouTube channel, where he develops and backtests different Algo Trading Strategies. In the below video, he is testing a strategy which is based on Twitter Sentiment.
I would love to hear your thoughts in the comment section below!
Have you used a trading bot?
How was your experience and what do you think of trading bots in general?
Some food for thought
Algorithmic trading is used across most capital markets. According to a 2020 report from the U.S. Securities and Exchange Commission, 78% of market trades were performed by “trading centers [that] depend on automated systems and algorithms.” Other commentators peg the volume of stock trades coming from bots at 60% to 70%.
*source: https://www.lcx.com/are-trading-bots-really-worth-it/
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*Note that this article does not provide personal investment advice and I am not a qualified licensed investment advisor. All information found here is for entertainment or educational purposes only and should not be construed as personal investment advice.
