- What is Automated trading?
- How Can You Trade with Automated Trading?
- Pros of Automated Trading
- 1# It removes the emotions from the trading decision process
- 2# It allows you to trade around the clock
- 3# It allows you not to spend hours in front of the markets every day
- 4# It allows you to accelerate order execution
- Cons of Automated Trading
- 1# There is no possibility to make discretionary choices or to adapt the set-ups without your input
- 2# You’re 100% dependant on technology and the system you’ve created
What is Automated trading?
Novice traders that wish to enter the markets without having a deep understanding of trading, or without putting in a lot of time and effort to develop a profitable trading strategy, often use copy-trading strategies, particularly if they can find a reliable platform like DupliTrade.
After all, it’s not easy to find the right trading strategy, one that is going to provide consistent results in any given market cycle. Testing and refining such a strategy can be a long process and should involve back and forward testing over multiple time-frames to verify that your strategy is robust enough to make profits in a number of different market conditions. If you can find someone that has worked on this process and that is now offering a profitable strategy over time to copy, why wouldn’t you follow this person and copy his trades?
According to DupliTrade – a leading marketplace for trading strategy providers – this innovative way of trading allows you “to automate your trading by duplicating expert traders’ activity according to your selected duplication setup”.
The main advantage to copy-trading is the ability to follow and duplicate successful and profitable traders that have proven track records and battle-tested trading strategies.
With copy-trading, you do not need to deal with trading stress, or to be sitting at your trading desk following the markets for hours – your trading account is copying the trading positions of a profitable master account that you would have previously selected.
Copy-trading is especially useful for newbies in the markets, but it is also used by many experienced traders that understand copy-trading and want to take advantage of following and copying leading traders, or fund managers.
One of the most important steps in copy-trading is to select the strategy your trading account is going to follow. DupliTrade’s strategy providers give a lot of information about the general activity of the account, with full statistical data and additional information you might require to select the proper audited strategies displayed, and most of the strategy providers follow a semi-automated or automated trading method.
How Can You Trade with Automated Trading?
Automated trading is all about using a trading system that limits (or even eliminates) human intervention in the process of buying and selling financial assets.
The first thing you need to do is determine the range of factors your strategy will follow:
- Market direction
- Position size
- Risk management rules
- Money management rules
- Technical indicators
One of the biggest risks when putting together a systematic trading strategy is choosing parameters that aren’t viable in the long run. Here are a few things to think about:
Pros of Automated Trading
1# It removes the emotions from the trading decision process
By using a systematic trading method, you’re able to reduce human intervention, and you can consequently avoid being influenced by your own emotions, which can negatively impact trading performance.
2# It allows you to trade around the clock
As you’re using computer models and programs to implement your automated trading strategy based on a pre-determined criterion, your system never sleeps. You can, therefore, make money on markets that are not in your time-zone, or when you’re doing things other than trading.
3# It allows you not to spend hours in front of the markets every day
Even though creating a profitable trading method takes time and energy, an automated trading strategy reduces the amount of daily work you need to dedicate to trading, which means that you can make money while having a 9-5 job, or doing other things you enjoy doing.
4# It allows you to accelerate order execution
Computer programs used for trading are a great way to accelerate order entry speed, especially in fast-changing trading environments, which are often hard to follow.
Once your automated strategy opens an order, all the other associated orders are also in the system, such as stop-loss and take-profit orders, which can make a difference when markets move very quickly.
Cons of Automated Trading
1# There is no possibility to make discretionary choices or to adapt the set-ups without your input
Obviously, automated trading is the opposite of discretionary trading, meaning that there is no ability to make discretionary choices. What this means is that you will not be able to decide when to enter (or exit) the market based on your analysis of the current market conditions and the news available.
So, if market conditions evolve outside of your initial analyses, your trading strategy may not be equipped to deal with it. For example, some trading methods are very successful in rangy markets, but they poorly perform in trendy markets.
2# You’re 100% dependant on technology and the system you’ve created
Even though one of the biggest advantages of systematic trading is that it removes human emotion in the trading decision process, thus making your decisions more rational, it also means that you are entirely relying on technology, which has its own host of problems (Internet connection cut, network crash, computer/server problems, etc.).
Automated trading can help you free up time to dedicate to the things you like while making money on the markets, especially if you’re following expert investors through copy-trading platforms.
Copy trading will allow you to copy the actions of successful professional traders in real-time on your trading account. You won’t need to do anything; everything is automatically done for you.
In the end, the question you need to ask yourself is “how much time can you (or do you want to) spend on your trading on a daily basis?”.