Use Automated Strategies With Your Price Action Trading

In this post we are going to discuss how we set up our trades to manage themselves automatically with the use of automated strategies and why you should use automated strategies with your price action trading as well.  There are several benefits to using an automated strategy, and we will try and discuss what we think are the two most important reasons for using them when day trading.  While automated strategies or not a must when price action trading, they do give you advantages that make them worth the effort to set up and use properly when day trading fast moving markets such as the stock indexes.  Our market of choice is the ES or mini S&P, but our price action trading strategies work in any market, so this information is interchangeable for day trading most markets.

Let’s start by explaining what an automated strategy really is in case there are those that are not quite familiar with them.  An automated strategy is simply a software option that allows your trade to manage itself once your entry order is executed.  As an example, let’s assume we enter the ES long using two contracts.  Our plan is to take profits on one contract at 1 point, and then tighten our stop to breakeven on the second contract, while also setting our target to 3 points for that second contract.  There are programs or automated strategies that will manage the trade from start to finish following these exact steps that we can use with many charting software programs.  We prefer and trade with NinjaTrader, but there are other charting software programs that will work much the same.  For the purposes of this post, we are going to discuss the automated strategies in NinjaTrader only, because that’s what we trade with and we know the software.

When it comes to the benefits of using automated strategies, there are two main benefits that we think we gain by using them.  The first is that by setting up our trade and allowing it to manage itself, we don’t have to get so involved and that helps keep us from making mental mistakes in our trading, which is so easy to do.  All of our thinking is done before we enter the trade, and while we may change our target slightly for our second half of our trade, other than that, the trade manages itself per our trading plan.  Since we create our plan prior to entering the trade, all we must do is place our entry order and if it is executed, we can then let the trade manage itself.  We may want to adjust our target on the second half of our trade, but other than that, the trade is then on it’s own.  We either hit our first target or we get stopped out, but either way, the entry order was our only decision with the trade.

Once our entry order is executed, two things can happen.  Either prices will work in our favor and take out out first target order for the first half of our trade and then immediately move our stop on the rest of the trade to our designated price location, which is usually break even.  The trade will then continue to manage itself for the second half or our remaining contracts as well.  Price will continue to move in our favor until they hit our second and final target order, or they will back up and take out our break even safety stop.  We hope the trade does what we planned for and goes to our second profit target, but if not, we know we will still make money on the trade, because our stop on part two of the trade is break even.  By removing our thinking process, we will make fewer mental mistakes.  Using the automated strategy removes our ability to get confused, shaken or make mistakes, so that is our number one reason for using an automated trading strategy like this.

The second benefit is the fact that when our entry order is executed, our exit orders go in instantly, and much faster than we can do it manually.  You might think that this is not a big benefit, but what we have found is that we often get our limit target orders filled without prices having to tick through that price level, which is normally not the case with limit orders.  You normally need for prices to trade or tick through a limit order for it to get filled.  Electronic trades are filled on a first in, first out basis, and because our trades go in instantly, we get into the order que quickly and early in the line, so it allows us to get filled early many times.  This may not seem like a big deal to some traders, but when it comes to trading the ES, a single tick can often mean the difference between success and failure when day trading with small stops, which is part of our trading rules.

In recapping what we just discussed, the two benefits that we think are the most important for using an automated trading strategy is the fact that orders are filled quickly and your trade is automated, thus removing a lot of the emotional decisions that often cause us to make mistakes in our trading.  These are two very fundamental and important pieces to becoming a profitable day trader, so do not take either one lightly.  We like trading directly from our price charts, and we have found that NinjaTrader software is our software of choice for this reason, and we also like the fact that NinjaTrader’s auto strategies are programmable, so you can set your strategy up to meet your trading needs and trading style for maximum benefits.  This is not to say that there are not other reliable trading software options.  We are simply saying that we use NinjaTrader and it is a stable, well built and excellent chart trading software.  It’s becoming an industry standard as well, so that means you can change brokers without changing trading software, so that is another great reason to consider NinjaTrader software for your day trading needs.

Hopefully you now have a great understanding of why you should use automated strategies with your price action trading program.  We have included a video below explaining to you how we set up our automated trading strategies with our price action trading strategy, so please be sure to view that video if you want more details on how to set up an automated trading strategy.

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