Virtually every aspect of our daily lives has been simplified by technological developments. Online trading has made investing and investing more accessible; automated trading simplifies the actual trading process. The majority of market orders are already placed using automated trading systems.
Large banks and investment companies make extensive use of automatic trading software and in recent years there has also been considerable interest in this among individual traders. We discuss the main characteristics of automatic trading and what you should pay attention to when you select automatic trading systems or automatic trading software.
Automatic trading systems automate (part of) the trading process. This includes placing trades using a computer program. The purpose of using automatic trading software is to simplify trading activities and reduce the effects of human error.
If you make your trading results partly dependent on trading software tools, you should make sure that the tool works properly and that it suits your way of trading. A common misconception is that trading using these systems is necessarily better or more profitable than manual trading.
Some traders see the application of automated trading systems as a panacea, thinking they can replace their own judgement and research. Although the development of this software is advancing rapidly, the best results are still obtained when automated trading is combined with traditional manual trading.
If you are considering using automated software tools, it is wise to test them in a risk-free demo account before making a real investment.
The primary purpose of an automatic trading system is to structure the trading process without human intervention. This can be useful, for example, for traders who place multiple trades per day and, as such, are prone to signs of fatigue and making emotional trading decisions.
Application of automated trading software could overcome this as it works on the basis of preset parameters and conditions. Automated trading is characterised by the fact that the decisions made are always based solely on the factors included in the coding.
Trading, especially short-term trading such as day trading, can prove very intensive and time-consuming. The Forex market is open 24 hours a day, 5.5 days a week. Due to the extreme level of liquidity, this market is ideally suited to the application of, for example, . Assuming that besides trading you also have other activities and obligations, it is practically unfeasible to constantly monitor the market and always be present at the most favourable times. Automated trading systems offer a solution here. It can observe your role as a trader at times when you cannot be physically present.
Although the stock market is almost a 24-hour market, differences can certainly be seen in the trading volume at different times. Short-term forms of trading such as intraday trading and scalping require a degree of volatility that is typically seen around the opening hours of exchanges or at the start of an important trading session. However, you may not be available at these times. You can use your auto trading tools or auto trading software in these cases to help you scan the markets and execute trades directly if necessary.
Moreover, automatic trading software approaches the first trade in exactly the same way as trade #100. After a long day of trading, the reaction and judgement of many a trader will be significantly lower than at the beginning of the same day. In addition, a series of winning or losing trades could colour your vision.
For example, you might let good trading opportunities pass you by because you are afraid of losing (more). Alternatively, you may place a position too easily if you are desperate to recoup your losses. Automated trading tools do not suffer from signs of fatigue nor can emotions influence decisions.
Automated trading systems scan the markets on the basis of objective yardsticks and preset parameters. The process is strictly mechanical, using the relevant data to determine whether a trading opportunity is valid or not and taking action accordingly.
The application of automated trading tools therefore ensures the truest representation of the success rate of the trading strategy on the basis of which the automated trading software has been programmed. This fact makes automated trading/automatic investing extremely popular among so many traders.
However, many people wrongly assume that automated trading software is infallible. This is certainly not the case. In fact, it is not even the case that trading using automated trading systems is necessarily more profitable than traditional, manual trading. Don't get us wrong, there are certainly advantages to trading using technical tools and software. However, no matter which software you choose, you will get the most out of it if you understand how it works, what the benefits are and how to overcome the lesser strengths.
In our next article we will elaborate on how automatic trading works