Many are attracted to trading with the hope of making quick and easy profits through automated bots. A trading software, is an automated trading program that runs on your computer and manages the trades in your trading account for you. Selling these software online has become a full-fledged business, but before we see this there are a few things to consider.
Sure, automated trading software has its advantages, but there are some disadvantages as well. The most important thing to keep in mind is that easy money doesn’t exist in the financial markets . It is possible to make money with automatic trading, but unfortunately, doing it effectively may take longer than expected, since a person must first learn how to trade and then learn how to automate strategies via a programming language.
Obviously it is possible to buy and rely on software programmed with someone else’s strategies, but this involves problems, which we will discuss shortly.
Below, we’ll go over all of this and more, exploring the pros and cons of auto trading.
What is an auto trading software
The automated trading software are called in many different ways, such as Expert Advisors , Trading Bot , Robo advisor , trading program , trading software or Black box trading .
In this case the robot or bot is nothing more than a software that runs on a computer and trades for the person running the software. Since it is software, it will only perform operations with parameters that align with what is written in the program. Creating trading software requires in-depth knowledge of trading and programming.
These software are based on one or more trading strategies, so they must be simple enough strategies so that they can be broken down into a series of technical rules that can be programmed. The more complex the strategies, the more difficult it will be to program them effectively.
Investors who rely on trading software are completely dependent on the trading and programming skills of the person who wrote the program . This could be a problem for someone.
Also, like most programs, they need some updates from time to time. Markets change and software needs to be updated as market conditions change . If the software is not updated by a knowledgeable person, it is very likely that it will have a very short shelf life ( if it was profitable, for starters ). Software programmed and managed by experienced traders are more likely to be profitable in the long term.
Beware of misleading advertising
While some auto trading software will work and produce good returns, most will not. About 70-80% of people who trade lose money , and this includes the people who create and buy trading software.
People who are successful with trading software are constantly observing its performance, making changes and intervening when events occur that could affect strategies. Successful auto traders, just like traditional traders, do the work needed to create and maintain profitability.
This is quite different from online software that promises easy, automatic earnings… all for just € 99.95! Once you have purchased auto trading software , there are rarely any supports and updates . Even if the creator of the software is profitable, this does not guarantee that you will get the same results as him.
The programmer may occasionally modify or disable the software during major macroenomic events, such as elections, press conferences, etc. Even minor changes can drastically change the results . Unless the seller instructs you on what to do on certain occasions or provides long-term updates and support as market conditions change.
Automatic trading is not fully automatic
As mentioned above, successful auto traders go to great lengths to keep their software profitable. The real job is to keep the program constantly updated . You can’t press a button and watch the money come in without doing anything. This may also work for a short period of time, but market conditions change and unexpected events occur that require manual intervention by the trader.
Those who buy trading software are unlikely to have the programming skills to know when to get their hands on the code and when not . Changing the parameters of the software, when it is not necessary, could compromise a winning strategy, just as not intervening when it is necessary could cause the trading account to collapse.
In Jack Schwager’s Market Wizards book series , several successful auto traders were interviewed. All of these traders are very involved with their strategies and don’t just sit around doing nothing . It is highly unlikely that a person will be able to purchase a trading bot and launch it without monitoring, such as while sleeping or doing other work. This approach can only work if you have the knowledge to modify the program manually if market conditions change.
Advantages of automatic trading
Forex is considered one of the main markets in which to trade and an automated trading system can help the trader who will only have to turn on the computer and let the software take care of the operations.
Let’s take a look at some of the main benefits of using auto trading software
Automated trading is emotionless
Probably the biggest and most obvious benefit of using automated trading software is the removal of human emotions . An automated system is programmed to enter and exit positions in the financial markets once certain criteria are met, removing any emotion (negative or otherwise) from the decision-making process.
This allows traders to maintain their discipline and stick to their trading plan , whatever it is, as the software will ensure it is followed precisely and consistently. This means that traders do not have the opportunity to hesitate and question a particular trade for fear of suffering a loss. It is important to understand that there is no trading plan or strategy that will always win . Losses are part of trading and it goes without saying that they can be emotionally frustrating. An automated system has no emotions and, therefore, losses will not lead to a deviation from the original plan.
Accessibility
Auto trading software can be, and is, used by both beginners and professionals, both of whom may find these systems useful for decision making . The software is available in different levels of price and sophistication. The manufacturers will also provide a demonstration model, allowing traders to familiarize themselves with the product before implementing it in their trading account.
Backtest capability
Backtesting allows traders to test the system’s criteria on historical price data before implementing it in a real money account. This practice allows traders to make improvements to their strategy and also gain an understanding of the system’s expectations (i.e. risk vs reward).
Speed of order entry
Financial markets can move quickly, therefore, the speed at which a position enters and exits can have a large impact on the success of a trade . An automated trading software can respond immediately and place orders (complete with stop loss and take profit) as soon as predetermined criteria are met.
Diversification
Automated trading software offers traders the opportunity to trade across multiple accounts and multiple markets using a variety of strategies simultaneously. Diversifying in this way allows traders to spread their risk across different markets and instruments instead of putting all their eggs in one basket, so to speak.
Disadvantages of automatic trading
Automated trading may seem easy on paper, however, reality doesn’t always reflect appearances. Despite the advantages we have listed above, using trading software also comes with some disadvantages that you should be aware of.
Automated systems need to be monitored
The most natural reaction when you learn about automated trading is to think that you can just turn on your computer and then let the software go for the rest of the day, allowing the system to run on its own. However, the reality is that automated trading systems need to be monitored .
This is mainly due to the possibility of technical failures such as internet loss or computer malfunctions. However, it is also possible that the software itself is malfunctioning, creating duplicate orders or missing them altogether. Unfortunately, automated systems are not foolproof . System monitoring allows traders to quickly identify problems and correct them as needed.
Over-optimization
As mentioned earlier in the article, no trading strategy is a winner every time . However, some traders may mistakenly believe that they are. If when backtesting a strategy on historical price data it always wins, it is possible that the trader has “over-optimized” his strategy.
This implies that the trader has “perfected” his strategy for all the unforeseen events that have historically occurred in the financial markets. However, when an overly optimized strategy is implemented in a live market, it could prove unreliable in light of future events.
Is automated trading a scam?
The idea of having software traded on the market for you may seem too good to be true, which can lead many to wonder if this is all a scam. In fact, some federal governments consider automated trading systems to be scams . Likewise, you are unlikely to find any articles in Forbes, the Wall Street Journal, or any other reputable news source promoting them.
Furthermore, even online trading robot sellers try to praise their robots by shaming those of their competitors. Many are advertised with fake reviews from people who claim to have made a lot of money by applying these systems. The truth, however, is that a large number of investors and traders have lost a lot of money using so-called “free” Forex robots that work. There have even been circumstances where entire accounts have been completely burned.
The biggest drawback of automated trading systems in the market is that there are a lot of scams. The more you search for a perfect system, the greater your chances of seeing pages promoting software with 100% daily yield . These pages show MetaTrader history which shows how profitable their software is. You can buy some software for as little as € 25, while some software can cost up to € 1,000. Some websites will guarantee high profits and may even offer money back guarantees . However, the vast majority of these types of software are, unfortunately, scams.
Think about yourself for a moment. Would you sell a highly profitable trading system for only € 25? It is extremely unlikely.
Conclusions
Although automated trading may seem interesting for a number of reasons, such systems should not be considered a substitute for traditional trading but an optimization of it.
Mechanical failures can and do occur, and systems require continuous monitoring . Server-based platforms could provide a solution for traders who wish to reduce the risks arising from technical issues. Many professional traders recommend using a hybrid approach, consisting of manual and automatic trading for best results.
