An algorithm is a series of finite steps that solves a mathematical problem. Based on the data input, the computer decides how to act at each step. Such systems seem very smart, but most actually aren't.
Most traders know the hustle of entering, exiting, and managing trades, but how does it work if you automate all that? Is this even possible?
First, yes this is possible. However, it requires you to translate your trading plan into very strict quantitative rules.
A trading algorithm operates according to a decision tree. A decision tree is like a traffic light. You see a red light, and you stop and stay. The light turns green, you continue your way. Both decisions are based on data input, the color of the traffic light.
Each step in the decision tree results in a yes or no answer. In trading, for example, a step in the decision tree could be whether the previous daily candle closed bullish. Whether it's the decision to stop or go at a traffic light or a parameter in the financial markets, robots are faced with multiple decisions for everything they encounter.
You will be amazed by the inner mechanics of some sophisticated trading systems. Most of them consist of a series of fairly simple decisions and parameters but can still make a lot of money.
The best thing about a trading algorithm or EA (Expert Advisor) is that they trade the markets without any emotional interference. A trading algorithm enters, manages, and exits positions by itself. It can do everything a human trader can as long as it's built into the system by the programmer.
Yet it is true that using an EA gives you the freedom to trade the markets while you are at work, asleep, or on vacation. An EA executes its programmed code without flaws - day in and day out without taking a break. Even 24/7 with crypto or 24/5 in the case of trading the FX markets. However, as we always say: nothing comes for free and everything is balanced. Building such a system requires a lot of blood, sweat, and tears!
To close off, in order to succeed in this industry you need to find a unique edge, a clear work process, and patience. Invest in yourself by gathering knowledge and experience, your hard work might pay off in the form of an amazing automated trading system.
Speak to you soon!