When you are in stock trading, one ofthe vital tools you need is trading system software wherein theprogram automatically determines entries and exits from a positionbased on rules set by the trader. It is an important tool that takesaway much work and unnecessary emotions (e.g., favorite stock) duringtrades, affording him time to focus on improving strategies and moneymanagement policies.

In simple terms, automated tradingsoftware simply keeps tracks of daily trades and implements thetrading rules set by the trader on when to buy, sell, stop orders orlimit orders. The trading rules, which are normally part of atrader's strategy for his portfolio, are already pre-determined andautomated trading requires setting these rules into the software tobe used as criteria for trading. Some fully automated programs allowplacing of trades directly with the broker (upon prior arrangement)while others require manual placement of orders whenever the softwarefind trades that fit the given rules.


For example you can program yoursoftware the four core rules as follows:


Buy - When the 30-day moving average(MA) crosses above the 120-day MA
Sell - When the 30-day MA crosses belowthe 120-day MA
Stop - Maximum loss of 10%
Target - Target of 10 points


Thus, the program buys shares if the MAfor 30-day of a particular stock moves up and went beyond the MA for120-day; sells shares held by the trader if the MA moves down belowthe 120-day MA; sells shares when the price of a stock drops 10% ofits purchase price; and sells stocks when the price of s stockincreases by 10 points.


Some applications require someprogramming expertise but many available applications have friendlierinterface that allows even non-programmers to set the trading rulesin easy steps. Each rule inputted in the program requires parameters,such as the indicator that the software will track and the settingsfor that indicator. In the example above, the first two rules makeuse of the moving average while the last two use share prices asparameters


After setting the rules and parameters,you should test the program before actually using it in trades.Technical and logical testing are necessary if you actually coded andcompiled the program, as errors in coding and logic are detected inthese tests. If no hardcore programming was done, a logical toolcalled backtesting is commonly used. Backtesting uses past data andapplies your trading rules to the data, showing you whether yourrules are profitable or not, what conditions returns the mostprofits, and if the rules and parameters are correct. If errors aredetected, you would have to troubleshoot the program, locate wherethe errors were and fix these. You need to do the backtesting testagain (and again) to make sure that the errors are indeed fixedbefore you use the software in actual trading.


After you've done the rule-setting,your automated trading software is now ready for the real game. To beon the side of caution, you must carefully monitor the behavior ofthe program for several days, or weeks, to be sure that no hiddenbugs will wreak havoc on your trades. When everything's clear, youcan now sit back and relax some while the program does thenitty-gritty work for you.