After the many years of practice and experimenting your trading strategy, experienced traders have the option of placing all of their precise trading entries, exits and any other money management guidelines into an automated system that lets a computer program do all the trading for them. This program is usually placed on a charting platform, such as MetaTrader 4 or ThinkorSwim, which executes and monitors every trade that is placed. Automated trading is similar to upgrading from a manual transmission to an automatic – less work is needed on your part.
The main purpose of this article is to debrief you on the pros and cons of automated trading. What attracts traders to this type of strategy automation is that it removes the emotional aspect that they face since each trade that is placed must pass a series of criteria’s before being executed. A mechanical strategy that implements algorithms and rules to specify how trades should be executed – It’s a strategy that is only available today, thanks to the advent of programming and technology.
Automated Trading System Defined
By establishing rules and guidelines that the program must follow, automated trading systems give traders the freedom to let software perform all the work and analysis necessary to execute their trades. The rules that are set for trade entry and exits are based on very easy conditions such as a crossover from moving averages, or become more complex requiring more in-depth knowledge of a programming language that is specific to a trader’s platform. Other conditions can also include the type of expertise that comes from a certified programmer.
The trading systems usually require a direct access to the trading broker, and the rules that are written must adhere to the proprietary language of the trading platform. An automated system of MetaTrader 4, commonly known as an Expert Advisor, uses the MQL4 programming language that fits with multiple forex brokers worldwide.
Advantages of Automated Trading System
Having a computer perform all the analysis methods for you, as well execute your trades without any need of your input is something that many people look forward to. Some of the other benefits include elimination of emotions, the ability to backtrack and assess your old trades, have long term consistency, diversification in your trades as well as increased speed of trade entries. Albeit the benefits, there’s a realities that investors must be aware of, which includes:
- Too much Optimization: The term over-optimization refers to the way that a trading plan can be set to fit unrealistic goals when placed in a live market. There are ways to adjust the trading strategy to achieve the highest results as possible, but they shouldn’t be set to achieve 100% profitable trades as that wouldn’t be a reliable plan.
- Technical Difficulties: Having a set program do all the work for you is quite simple. But that doesn’t mean that there aren’t any issues that may come along the way. If your internet connection is slow or disconnected, it can affect the time that the trade entries are placed.
Even though there are many benefactors that come with using this system, it shouldn’t be used without the understanding that errors can take place. Automated trading systems are great to use when looking at easing your trading approach.