Automated trading systems allow traders to develop specific rules for entries and exits positions that, once programmed, are automatically executed via a computer. The trade entry and exit rules can be based on simple conditions such as a moving average crossover, or can be complicated strategies that require a comprehensive understanding of the programming language specific to the user’s trading platform, or the expertise of a qualified programmer. Automated trading systems typically require the use of software that is linked to a direct access broker, and any specific rules must be written in that platform’s proprietary language.
Advantages of Automated Trading Systems
- Automated trading systems minimize emotions throughout the trading process. Without emotions traders usually have an easier time sticking to the strategy.
- Traders can take rules and test them on historical data before risking real money in live trading.
- Automatic trading encourages discipline because the trading plan will be followed precisely.
- Traders can trade multiple accounts or various strategies simultaneously.
- Automatic trading holds potential for superior profits than traditional trading methods.
- Automatic software systems can recognize trading opportunities and risks in markets which are moving extremely quickly and react accordingly.
Disadvantages of Automated Trading Systems
- Due to potential setbacks, such as connectivity issues, power losses or computer crashes, and to system quirks, automated trading does require surveillance.
- Traders who use back testing techniques can create systems that look great on paper and perform terribly in a live market.
- Some online trading software may minimize your ability to profit from your specific knowledge of currencies. As with everything else in life, in trading, there are exceptions, not all trades will fit into the automated trading model.
- Always do your own testing. Performance results are often quoted by signal providers and are generated from past testing rather than a result of real time testing.
- Errors do occur, trading programs can and do go wrong. Whether or not these mistakes arrive from faults with the software or broker , your trades will be affected.
- Latency or slippage can occur. By the time trade directions reach your trading terminal and are sent to your broker, the investment opportunity may have passed already.
With so many trading options available, choose a method that is suitable for you. Test each available option: robot trading, technical analysis and automated trading. In the end, with patience and a practical strategy you will know which method to use.