Automated Trading Systems: The Pros and Cons
He has provided education to individual traders and investors for over 20 years. Article Reviewed on July 22, Gordon Scott Updated July 22, Many people are lured to the markets by promises of easy money via day trading robots or expert advisors EAs.
An EA, or trading robot, is an automated trading program that runs on your computer and trades for you in your account.
Selling robots and EAs online has become a huge business, but before you take you plunge there are things to consider. There are certainly some benefits to automating a strategy, but there are also some drawbacks. The promise of easy money is the oldest trading scam in the book.
There is money to be made with trading robots and learning to automate strategies.
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Unfortunately, to this do effectively could actually take longer than simply learning how to trade manually, since a person needs to learn how to trade first, and then still learn how to automate the strategies via a programming language. And buying a program comes with loads of pitfalls, which will be discussed shortly. Below, we look at all of this, and more, exploring the pros and cons of robotic trading and EAs. Automated software is a program that runs on a computer and trades for the person running the program.
Since it is a program, it will only take trades with parameters that align with what is written in the program.
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Creating a trading program requires extensive trading knowledge, as well as programming skills. EAs are based on a trading strategy, so the strategy needs to be simple enough to be broken down into a series of rules that can be programmed. The more complex a strategy, the harder it will be to effectively program.
For people who buy trading software, they are completely dependent on the trading skills and programming skills of the person who wrote the program.
- Automated trading systems — also referred to as mechanical trading systems, algorithmic tradingautomated trading or system trading — allow traders to establish specific rules for both trade entries and exits that, once programmed, can be automatically executed via a computer.
- Automated trading software is a sophisticated trading platform that uses computer algorithms to monitor markets for certain conditions.
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This is a vulnerable position to be in. Like most software, it will require an update from time to time. Market conditions change, and the trading software needs to be updated with it. If the software is not updated by someone who knows what they are doing, then it is quite likely the software will have a very short shelf life of profitability if it was profitable, to begin with.
EAs that are written by and maintained by experienced traders and programmers have the best chance at maintaining profitability over the long-term.
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The odds of success are still very small even when using a trading robot. The people who are successful with EAs constantly watch how their EA is performing, make adjustments as market conditions change and intervene when uncommon events occur random events can occur that affect the programming in unexpected ways.
Successful robotic traders, just like successful manual traders, put in the work required to create and maintain profitability.
Once you fast trading robot an EA, rarely is there support and updates after the fact. Even if the creator of the EA is successful, that doesn't mean someone who buys the EA will be.
The creator may occasionally intervene, morning breakout strategy for binary options turn the program off during major news eventsfor example.
Slight changes to when the program is run can change results dramatically. Unless the creator of the program is coaching you on how to do this or providing long-term updates and monitoring as market conditions change, it's best to avoid getting sucked into the sales pitch. The real work is maintaining the program. Someone can not simply flick a switch and watch the money roll in while doing fast trading robot.
If a person buys an EA, it is unlikely they will have the expertise to know when to intervene and when not to. Intervening, when not required, could turn a winning strategy into a losing one, just as not intervening when fast trading robot could drain the trading account in a hurry.
In the Market Wizards book series by Jack Schwagerseveral successful automated traders are interviewed. All these traders were highly engaged with their strategies, and not just sitting back doing nothing.
It is highly unlikely that a person can buy an EA and just leave it running while they sleep and work at another job. This approach may work, but only if they stay on top of the EAs performance, have the know-how to alter the program if market conditions change and know how and when to manually intervene when required. Some people think that robotic trading takes the emotion out of trading.
Unfortunately, this is not true. Fast trading robot the program doesn't feel emotion, the person running the program does.
October 30, UTC Reading time: 17 minutes Forex trading is versatile due to the different trading styles, Forex strategiesand Forex systems that can be used. In the Forex market, there are traders of all levels of proficiency, and each type of trader will have different ways of working. One of the features of Forex is the split between the traders who want to manually trade, and those who want to utilise automated trading with the best Forex robots.
People may feel tempted to intervene when they see the program losing money, but the program may still be functioning well losing trades happen. Or they may intervene to take profits prematurely, manually overriding a trade when the person sees a profit they like.
All these emotionally-driven actions could destroy an EAs profitable edge in the market.
Automated traded is rarely auto-pilot trading. EAs remove some of the psychological pressures of trading. EAs react quicker than humans can. When a trade signal appears to enter or exitthere is no hesitation on the part of the EA. Humans, on the other hand, may freeze or question the trade.
The lightning-fast reaction time of the EA is beneficial in fast moving market conditions. At any moment a human can only effectively monitor a few markets, but an EA can monitor hundreds. Once let loose, an EA can find opportunities in all the markets it is programmed to monitor.
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EAs can take advantage of more opportunities than a human can. Will take trades that suit a strategy, even if the trader feels otherwise. Forces the trader to fast trading robot a strategy down to a level where it can be programmed. This process gives traders an in-depth look at their strategy.
People who buy EAs don't receive this benefit, and often don't know what is "under the hood. This means that for certain periods of time an automated trading program may be less work than trading manually. When a program needs work though, it may require a lot of time. Automated trading is the truest test of whether a strategy is viable or not.
Manual trading has too many variables, whereas a program just does what it is told. Automating and testing a strategy is a good way to see if a strategy is viable under current market conditions.
Once a strategy is automated, it can be easily tested in different market conditions using current or past price data. This will reveal weakness and strengths of the program. For example, it may perform well in trending markets, but poorly in ranging markets.
This data can then be used to alter the program or to show the trader when it is appropriate to intervene and turn the program off fast trading robot on.
Manual intervention is occasionally required, meaning automated trading is not fully hands-off. For example, if volatility increases much more than normal then position size may need to be manually altered.
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Some programming skills are definitely desired. Even if buying a program, most don't come with long-term support or updates as market conditions change. If you don't know how to alter the program, the program will eventually be useless unprofitable. Buying a program means not knowing what is under the hood. One of the benefits of automating a strategy is that it forces the user to really know fast trading robot ins and outs of the strategy.
That benefit is lost when buying someone else's program. The user will still face psychological pressures, such as wanting to intervene when the program is going well protect profits or doing poorly protect capital.
There is also the psychological pressure of deciding when it is the right time to intervene. It's unlikely that buying an EA online will produce positive long-term results.
It may work for a short period of time, but ultimately the person using it needs to maintain it, and know when to intervene and when not too. To create your own EAs, trading, and programming skills are both required.
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The trading skills are required to create the strategy that will be programmed. Since automated strategies can be easily tested, that leaves them open to over-optimization.
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Over-optimization is when a program is fine-tuned to create the highest profit on past price movements. While this may make the program look very profitable in the past, optimization often leads to poor performance in the future. Also, since tests can be easily run, EA salespeople will often only show the periods in which the program performed very well. A test of the strategy can be performed for any period in history, so it leaves it open to a lot of tinkering with the statistics.
Keep this in mind when viewing automated trading statistics.
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Ideally, statistics should be based on live trading and not run on simulated or backtested data.