Bots are powerful tools that give you the ability to automate any stock or options trading strategy in your portfolio. You can run multiple bots, with each bot trading different strategies for different securities. You are in complete control of your bots. You tell the bot how and when to enter, exit, and manage positions.
Bots run micro strategies inside your account. Bots behave like portfolio managers that you deploy inside your account, but they do not have to control all of your positions or use all of your account’s capital. You set position and capital allocation limits.
Why use bots?
- Bots automate repetitive actions, so you no longer have to spend valuable time manually entering orders for your stock and options strategies.
- Bots don’t get tired, distracted, frustrated, emotional, or any other biases that affect traders. Bots simply respond to a series of decision “recipes” that you create. This requires you to think through a trading plan thoroughly. Once your plan is in place, the bot will not deviate from the framework you created or be influenced by behavioral biases.
- Bots allow you to predefine your universe of tickers and create actionable strategies when certain criteria is met. One of the most difficult things for traders is tracking multiple tickers and positions. Bots continuously work for you to look for opportunities across as many strategies and tickers as you decide. Bots do not have to be used for your entire portfolio. You can use bots to trade part of your portfolio while still trading manually.
Bot use cases
Automated trading bots are a natural bridge between your trading strategy and execution. There are many different ways bots can automate your current trading strategy. If you can define your strategy, the bots can execute your plan. You become the manager and strategist of your collection of bots. Each bot can execute different strategies simultaneously across many different tickers.
There are so many use cases for bots. The three main use cases for bots can be broken down as core position bots, tactical bots, and hedging bots.
- Core position bots trade repetitive core strategies.
- Tactical bots can be deployed to implement specific trading strategies based on market conditions.
- Hedging bots provide protection for your account.
Here are a few examples:
- One of the most powerful ways to use bots is to create a consistent, systematic trading strategy that operates on predetermined inputs every single day, week, or month--whatever timeframe you define. For example, you could create a bot to sell a put credit spread every week, with detailed exit parameters based on the spread’s premium, days until expiration, or the underlying’s stock price.
- Trend following, mean reversion, and momentum strategies can be implemented with a bot and customized to fit your trading style. With automation scanners and monitors, you tell the bot when to enter or exit a position based on your inputs. The ability to delegate repetitive processes like tracking the price fluctuations of multiple ticker symbols is one of the bots’ key components.
- Technical indicators such as moving averages, RSI, and divergences are popular choices for traders. With automation, these can be programmed into the bot to enter or exit a trade when specific levels are breached. For example, you could sell a put credit spread anytime a ticker triggers an oversold reading.
- An unexpected market crash is a fear of many traders. Before bots, it may have been difficult to track sudden, unpredictable black swan events and even more difficult to react in a timely manner. Bots can now automate a hedging strategy so your account has a layer of protection should a flash crash scenario occur. For example, a bot automation may consist of buying puts in a major index and/or buying calls in VIX should the market decline by a predetermined amount.
- And many more...