Should Investors Use Automated Trading Software?

| Updated on February 28, 2024

Day trading robots and expert advisers entice many traders with the promise of quick money (EAs). An EA, often known as a trading robot, is a computer program that automatically trades in your account on your behalf. When it comes to making money selling robots and EAs, there are a few factors to keep in mind.

Learning how to automate trading techniques and using trading robots is a lucrative endeavor. As a result, learning how to trade manually and then learning how to automate the methods using a programming language might take longer than merely learning how to trade manually. In addition, there are a number of drawbacks to purchasing software, which will be covered in further detail later.

For an EA to work, it has to have a basic trading strategy that is easy for a computer to develop. The more difficult it is to program a strategy, the more complicated it becomes.

Pros of Using Automated Trading Software

Having a computer watch the market for trading opportunities and then execute the deals has a lengthy list of benefits.

Automated trading systems reduce the impact of human emotions on trade. Traders are more likely to adhere to their strategy if they keep their emotions in control. Traders will be unable to second-guess or delay the execution of their orders if the trading rules are satisfied. Automatic trading may assist traders who are hesitant to “pull the trigger” by preventing them from over-trading or buying and selling at the first sign of a potential profit opportunity.

One of the main advantages of using automated trading software is testing an idea’s feasibility by applying trading rules to past market data. This process is known as “backtesting.” For automated trading, all rules must be set in stone and there should be no opportunity for interpretation of any of them. Because of the utility of backtesting, there is a plethora of trading software that enables investors to utilize it. One example is MT4, which provides novices with an MT4 backtesting guide where traders can understand every detail about how backtesting works. Also, newcomers should know that, because they are unable to make educated predictions, computers need explicit instructions. Prior to risking money in live trading, traders may use these same sets of rules to try them out on historical data. By doing thorough backtesting, traders may analyze a concept and fine-tune it to calculate its expectancy – i.e. how much money they’re likely to gain or lose on average for each unit of risk.

Even in tumultuous markets, discipline is maintained due to set trading rules and automated transaction execution. Emotional considerations, such as the fear of losing money or the urge to squeeze every last penny out of a transaction, are frequently to blame for a lack of trading discipline. Discipline is easier to maintain with automated trading since the trading strategy is followed by the letter. Additionally, the risk of “pilot mistake” is reduced to an absolute minimum. An order for 100 shares will not be mistakenly recorded as an order for 1,000 shares.

The result of a deal may be greatly improved by entering or exiting the market at the right time. All additional orders, including stop losses and profit goals, are automatically produced as soon as a position is opened. Having a transaction hit the profit objective or blow over a stop-loss level before orders can be placed may be discouraging in today’s volatile markets. 

Trading numerous accounts or different methods simultaneously is possible with automated trading systems. It’s a way to protect against losing positions by spreading the risk over many instruments. Computers are capable of scanning for trading opportunities across a variety of marketplaces, creating orders, and keeping tabs on the deals that are made.

Cons of Automated Trading Software

While automated trading systems have numerous benefits, they also have certain drawbacks and realities that traders should keep in mind.

Set the software, set up the rules, and watch it trade. That’s how automated trading is supposed to work. Automated trading is a complex form of trading, but it is not without flaws. If you’re using a computer-based trading platform, your trade orders may be stored on your computer rather than on a server. As a result, orders may not be transmitted to the market if the internet goes down. Additionally, there may be a disparity between what a strategy suggests and what an order entry platform component really does. Automated trading systems have a learning curve for most traders, so it’s a good idea to start off with modest transaction amounts while the process is being optimized.

Traders who apply backtesting methods might design strategies that appear fantastic on paper but perform poorly in a real market. Excessive curve-fitting results in a trading strategy that is unreliable when used in real-time trading. A strategy may be tweaked, for example, to obtain remarkable outcomes on the historical data that it was tested against. Traders sometimes make the mistake of thinking that a trading plan must be successful or never suffer a drop to be considered a good strategy. A “near-perfect” plan may be created by tinkering with various factors, but when put into action, it fails miserably.

Janvi Panthri

Senior Writer, Editor

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