Automated Trading Systems: Pros and Cons

All the top facts about automated trading

Automated Trading Systems: Pros and Cons

How lovely would it be if a robot traded on your behalf, and you made good profits? In the contemporary world, human beings, including you and I, are looking for ways to make life simpler.

Finding a fully functional computerized trading system is no longer a dream. It guarantees a trader profits without the hassle of making the trades in person. However, before you use the automated trading option, you must learn quite a bit about it.

Today, automated trading forex is rather common. For most people, numerous questions remain unanswered. Is it a profitable venture? How does it work? How can I do it? What are its pros and cons? Is it safe? All these questions are valid, but it is time to stop scratching your head. I have complied a great article below that answers all your questions and teaches you a lot more about automated trading strategies.

What is an automated trading system?

This is a program that lets forex traders set their own rules for joining and exiting a trade. All these rules are programmed, meaning that the computer system gains the ability to execute trades electronically on your behalf.

An automated trading system is also known as algorithmic trading. This option works relatively well for novice traders whose knowledge in this field is limited. The rules for entry and exit can be simple, for instance, Moving Average (MA) crossover.

Some traders may set more detailed rules and strategies that require vast knowledge in the programming language used in a particular trading platform. Generally, automated trading is widely used because most traders are not very knowledgeable about the trading process. It is also simple to use because all you need is a computer and a stable internet connection.

Do scammers run automated trading systems? Most of us have been told time and again to think twice whenever the deal is too good. Running a program that does what you should ideally do as a trader sounds like a dream come true. The truth is that some federal governments have listed these programs as scams, but not all of them are.

Sometimes, the scam claims are just robot merchants claiming that the robots being sold by their competitors are scams to make more sales. If you really want to use automated systems, it is your responsibility to conduct thorough research before investing in one. There are some expert designers and developers who do their best to ensure that the user gets the best possible products and services.

Can I create an automated system?

If you have been asking about how to build automated trading system, you should know that it is a task that is both time and labor-intensive. How do you set up automated trading? Any trader can create their system, either using their skills or by outsourcing help from experts.

You can program the system using the strategies you developed earlier if you have the necessary skills. Alternatively, you can give your strategy to a professional programmer to do it for you, usually at a cost.

In the typical scenario, most of the self-coded systems generate signals that use both risk management and entry criteria. The systems are usually connected to a direct access broker.

This comes after the requirements for entering a trade have already been programmed in the platform. Platforms have software that allows the trader to generate ideas, test them for feasibility, and implement them directly via a broker.

In larger organizations with better financial muscles, a group that strictly does the programming automated trading systems is hired. These employees design all the components of a trading environment without getting any software from an outside source.

While this is expensive, their proprietary systems usually are more advanced. Most organizations use automated trading python, C, or C++ as their coding language.

On the other hand, you can use vendors who provide trading strategies at a fee. Usually, they sell you a graphical user interface that allows you to create your rules or strategy in simple steps, even if you barely have any programming language.

Most even offer trading wizards who guide the trader to develop a model that uses technical indicators to come up with a set of rules. They allow back-testing for you to test your strategy before you risk your hard-earned money.

How does automated trading work?

Both experienced and inexperienced traders can use automated trading systems. These work by having computer programs installed in your device to analyze market activity and the price charts in real-time.

The software then identifies critical signals, including any discrepancies in the spread, news that impact on transactions, price instability, and currency fluctuations. It conducts trades while making sure that there is minimal risk of making losses.

The systems also identify the more profitable currency pairs before placing any trade. Some of the systems have inbuilt wizards that guide traders entering a trade using technical indicators.

A user can also have the option of imputing the type of order and set when the transaction will be triggered. Many of them, however, prefer to program their own trading strategies and indicators. This requires one to hire a programmer, and it provides a higher degree of flexibility.

Classification of automated forex trading systems

There are only two categories of automated forex trading systems;

  1. Expert Advisors (EAs)

Highly skilled and experienced professionals create EAs. They write algorithms to analyze market trends and to conduct trades. Usually, they are chosen depending on their knowledge and accomplishments to avoid causing panic to their clients.

How can you get a reliable EA? Most people are on the lookout for an EA that would do precisely what a human being would but in an automated manner.

The trader would then get more time to focus on developing a working strategy to amass more wealth and not have to implement it themselves. People who use an MT4 trading platform can use MQL programming language to create their personalized EA, which is reliable. Those who lack the skill can hire programmers to do it at an affordable cost.

  • Forex robots

These are software programs that are designed to analyze the market before conducting a trade. Unlike EAs that do not actively make trades and a person has to decide if they will open a transaction manually, robots do everything automatically. Automated trading thinkorswim is an example of forex robots.

How effective are forex robots? Most robots promise to make profitable trades, but to be honest, not all do what they promise. Sometimes, clients have excessively high expectations, so they end up feeling disappointed when these expectations are not met. The truth is that robots scan numerous charts within seconds, but 90% will give you incorrect information.

Even though they are designed to conduct sophisticated tasks, robots cannot think creatively. Their inability to imagine what will happen in the future inevitably affects their functionality. They are restricted to how they were programmed, so they may sometimes fail you.

To cope with this deficit, traders who use robots are encouraged not to entirely depend on them for all trading activities. They should do some human observation and research as well as make follow up to know the prevailing economic conditions.

Remember that to be a successful trader like me, you need to think critically, and show proficiency and skill in your decisions. You have to be wise as you use forex robots.

Can Forex robots and EAs lose your money?

At this juncture, you and I can agree that both EAs and robots are a good idea. Before you use any of the two, you must know that they trade within a specific range. They can only make a certain number of pips in a tight range, and they regularly have a few pip targets.

Like any other human trader, both EAs and robots face a risk of failure. In such circumstances, you will get a message that seeks your approval before any transaction is done. In an uneven forex market, some robots can lose money.

Is automated trading profitable?

Yes, I can assure you, from my experience, that you can accumulate wealth through automated forex trading, but only if you are patient, consistent, and flexible. There is, however, no guarantee that you will make profits. The EAs and robots are articulate and coherent, meaning that they ensure that you will get some benefits from the market movements.

The excellent aspect about them is that even people who lack training in this field can use them and earn some cash. Whether you are conducting automated trading India, Africa, Europe, America, or any other part of the world, you will certainly reap some benefits from using EAs and robots.

What is the best automated trading software?

Numerous firms claim that they have the best software, and most are offered without any charge. However, the market is diverse, and so are trading strategies and personal preferences. As a result, it is difficult to determine what the best software is. At the same time, you have to remain vigilant because some of them are run by scammers. Even so, we have a list of some of the most commonly used software that you should consider;

  • ProfitSource
  • MetaStock
  • E-Trade
  • Yewno|Edge
  • TradingView
  • Ally Invest
  • eSignal
  • INO MarketClub
  • Ninja Trader
  • TD Ameritrade
  • EquityFeed Workstation
  • VectorVest

Pros of automated trading systems

Forex trading is a premiere market, and the life of a trader can be made simpler using computerized systems that instantly execute transactions. Whether you are searching for information on automated trading Reddit or any other platform, you will realize that these systems offer the following benefits;

  • They are easily accessible

Both beginners and pros who find these systems helpful can easily access them. Numerous vendors are available, and the prices are different depending on the level of sophistication. Usually, these systems come with free demo models to familiarize yourself with them before using them on live trading accounts.

  • They eliminate all the emotions of trading

Human traders often have negative and destructive emotions that may affect their work adversely. Automated systems do not have any feelings, and they place a trade as soon as all the criteria are met. The system will open and close trades for you as you sit and relax. When emotions are removed, a trader can stick to their original plan or strategy since they do not have room to question things. The systems also prevent overtrading, which many people do.

  • They allow the user to conduct back-tests

Interactive brokers automated trading and all other available systems allow foe practice before a real trade is made. During back-tests, historical market data is used to test the viability of the idea. Remember that once you set the system in place for live-action, you should have absolute rules that have no space for interpretation as a computer does what needs to be done. Back-tests, help to ascertain that the rules the trader applies are feasible beforehand to avoid losing real-time trades.

  • The systems promote discipline

Computers join and exit trades automatically, so discipline is maintained even in highly volatile markets. Human beings often lose this kind of discipline because of fear of making losses, greed for making a lot more money, and other emotional factors. Unlike humans, the computer system ensures that the trading plan is followed without fail.

  • EAs assist the trader in becoming consistent

Most traders struggle with coming up with the next move after a trade. Sometimes, there is an almost guaranteed chance to make more profits, but they lose out because they ignore some rules which then alter the expectancy that an automated system would have had. Although there is no plan that always wins and losses are inevitable, failures impact on traders negatively. They may thus decide to skip the next trade to recover. However, EAs must continue trading whether a loss or profit has been made, and their consistency is commendable.

  • The systems improve order entry speed

Computers typically respond immediately to changing market conditions. They can generate orders as soon as all the criteria are met. Their ability to join and exit a live trade very fast greatly influences the outcome. The speed at which markets move may otherwise make a human being to lose their motivation very quickly. Save yourself from this challenge by using EAs and forex robots.

  • They help to diversify trading

These systems allow one user to trade using multiple accounts, or to use different strategies simultaneously. This brings the potential to spread the risk over different instruments and to mitigate losses. Besides, these systems can scan for trading opportunities across various markets, and they also monitor all trades.

Cons of automated trading systems

There is a flip side to using automated trading systems. The systems are designed to trade after being programmed by human beings. Many times, they fail to deliver the very high expectations that the trader anticipates, and the systems are also not infallible. Their limitations include the following;

  • They are 100% dependent on technology

In most cases, trade orders are inside the computer and not the server. This means that if you have an unstable internet connection or lose your connection, the order may not be sent to the market.

Besides, there is always the risk of having an incongruity between the hypothetical trades that are generated using the strategy and the order entry platforms that engage in real transactions.

Once you install a system, you must anticipate a learning curve to deal with these challenges. It is always wise to start with small-sized trades as you refine your system to prevent massive losses.

  • You need to monitor your system

It would be excellent if you could leave your computer on for a few days then come back to massive profits. Unfortunately, this is far from reality as the systems require you to remain close-by for monitoring all operations. This is because the system may experience mechanical failures, issues with connectivity, power losses, and even computer crashes. You should be on your toes to note such anomalies to prevent errant, missing, or duplicate orders.

  • You can over-optimize these systems

Over-optimization means excessive curve-fitting that would generate a trading plan that is unreliable when live trading. Unfortunately, traders can come up with back-testing techniques that look perfect on paper, but they perform poorly in live trades.

Automated trading systems can revolutionize your trading experience, but only if you choose reliable systems and monitor them closely. They offer several advantages that can make your life easier. However, they also have their limitations, so the best thing to do is to conduct back-tests and always monitor your systems closely to avoid losing trades.


Affiliate Links

I love that you are curious and that you are checking out this page right now. You know me, I love to help and teach aspiring traders something new! You will see throughout the website and in my blog posts links that go to outside sources (other websites and services).

These links may be what is referred to as an affiliate link which means I could earn money if you end up clicking on one and purchase/sign up for that service/product. If I am sending you to an outside source know that it is only because I have tested it myself and believe in it. I am all about sharing my recommendations and providing you with the best service/product and even excellent support.

The money earned through my affiliate links is just another way for me to earn a little extra income so that I can continue doing what I love which is helping aspiring traders with the right resources. If you choose to purchase something through me and use my affiliate links it is greatly appreciated and I thank you!

Want to Invest? Learn How.

“I Wish You Well In Your Journey & In Your Trading.”-

Paul Mukara
Rate this post

Be the first to comment

Leave a Reply

Your email address will not be published.