Pros and Cons of Automated Trading Solutions

By admin, 4 November, 2019

Automated trading software is becoming more commonplace among online financial assets traders, and rightly so. They enhance trading activity and help to eliminate the subjective vulnerabilities of manual trading strategies. Automated trading software basically scans the markets in search of trading opportunities based on coded algorithms. Any strategy, basic or complex, can be coded into an automated strategy that will require little or no human intervention when trading financial assets online. Automated trading software can trade the markets round the clock (no sleep required) with pure objectivity and precision at all times. They also keep human emotions in their place; completely out of your trading activities.

How Automated Trading Solutions Work

As mentioned above, any strategy can be automated such that it will enter, manage or exit trade positions in the market automatically. A trading strategy is basically a set of trading rules that guide how you trade your favourite assets in search of profits, while limiting your trading risks. You may develop your own strategy, or you can buy strategies from other parties, but you will have to set the trading rules that your automated trading software will adhere to.

The software will scan the market for trading opportunities based on your trading rules. This can be as simple as triggering an entry order based on a moving average crossover or a Fibonacci level. It can also be based on a news release, if you wish to take advantage of fundamental trading opportunities. Aside from trade entry and exit conditions, you can also set other parameters, such as trading times, tradable asset, stake amount, order type, as well as any other conditions you may prefer. Obviously, the more parameters you set, the greater control you have over your trading activity.

The automated trading software will have to be linked to your brokerage platform, and it will trade entirely based on the set conditions. Most modern brokers also support VPS (Virtual Private Server) technology, which allows automated trading software to be hosted on its own server in order trade without any interruptions, even when your PC is off.

Advantages of Automated Trading Solutions

1. Eliminating Emotions

Automated trading software completely eliminates emotions from your trading. As well, automation ensures that a strategy is applied in its most objective manner, devoid of any subjectivity that may arise when trading manually. Emotions are a major hindrance to successful trading among many traders. When using automated trading software, you do not have to worry about fear, greed or overconfidence creeping up to derail an otherwise working strategy.

2. Preserving Discipline

Successful traders plan their trades, and trade their plan, religiously. It is difficult to maintain disciplined in a fast-moving market where real money is on the line. Automated software solutions ensure that this is possible by making objective and repeated trading decisions at all times, regardless of the market conditions.

3. Speed and Accuracy

Automated trading solutions monitor the markets faster and more accurately than any human mind can manage. They are able to track trading opportunities across multiple assets and make accurate trading decisions in real-time. Trade orders will be executed as soon as set conditions are met, with no human errors involved.

4. Trade Sophisticated Strategies

Using automated trading solutions can help traders apply complex trading strategies in the market, which would ordinarily be difficult to do with the human mind. Whether it is applying complicated exit and entry conditions, or intricate trade management using trailing stops and time-sensitive alerts, you can achieve precision and complete objectivity using automated trading solutions.

5. Backtesting

Automated trading solutions allow for easy backtesting on actual quantifiable data to determine their effectiveness, or lack thereof. Backtesting is a time-consuming activity, but with a trading robot doing the activity, results can be seen quickly, and appropriate tweaking or optimization can then be done, if necessary.

6. Time-Saving

Human beings are inherently constrained by time; but traders can free up their time by using automated trading strategies. You are no longer a prisoner of your charts, and you can actually utilise your time expanding your knowledge or even optimizing other strategies.

Disadvantages of Automated Trading Solutions

1. Over Optimisation

This is the major risk of using automated trading strategies. In search of a trading "holy grail", traders may fall into the trap of over tweaking and over optimising an otherwise working strategy. Traders can be tempted to continually adjust trading parameters to achieve 100% profitable trades. It is important to note that the goal when developing a strategy is not perfection, but rather profitability; which essentially means that the strategy will generate more profits overall than losses.

2. Technology Failures and Inflexibility

Ultimately, automated trading solutions are computer software that remain vulnerable to random mishaps, such as downtime or crashes of the host computer. VPS users may get around this problem though. Still, because the software is programmed to adhere to set parameters, it can be very inflexible when market conditions change suddenly due to unforeseen factors, such as major political or economic events.

Final Word

Automated trading solutions provide traders with a unique and attractive opportunity to boost their trading activities. It is however prudent to understand the risks involved before going the automation way.