Automated trading systems can also be referred to as mechanical trading systems, or algorithmic trading.
Investors and traders have the power of turning money management rules into automated trading systems that allow computers to monitor and execute trades.
Trade entry and exit rules are associated with simple conditions, or complicated strategies that require understanding the programming language before the user trading platform.
The algorithmic trading volume has recently increased by 11.23%.
Let’s not wait any further because in this article, we will dive deeper and learn more about automated trading strategies and how they bring profits.
How Do Automated Trading Systems Work
Automated trading systems use algorithmic trading based on the set entry and exit rules an investor sets. Automated systems will usually use basic tech indicators for building the set rules.
Many trading platforms you use will usually have a “wizard”, which will offer you many tech indicators you can use for your trading strategies, which an investor can choose from.
Additionally, an automated trading system can set up better strategies required for understanding the programming language of a platform.
When the situation becomes more complex, you may be required to closely work with a programmer for developing a better trading strategy.
When you start to customize your automated trading system, it’ll require more of your time and might even result in much higher costs.
However, many traders might think of this as a downside, but the truth is that you’ll get much more flexibility and your long-term gains might be much higher than expected.
Statistics show that around 50% of today’s work can be automated. Even because many trades are going on, an automated trading system can handle them. The power of modern-day technology has overcome many of these issues.
8 Reasons Automated Trading Brings Profits
1.) Automated Trading Minimizes Emotions
When you are trading, you have lots of emotions going on in your head because you are either in a win-or-lose situation.
By checking over your emotions, you’ll have a much easier time sticking to your plan and not thinking twice about it.
Once trade rules are met, trade orders are automatically executed and traders won’t question or hesitate to ask about the trade.
Automated trading is helpful for all traders who are afraid to make a decision. At every good opportunity, automated trading will recognize it and take action.
2.) It Provides Consistency
Trading with algorithms is an excellent way of being consistent. In fact, algorithmic trading accounts for around 60-70% of overall equity trading.
One of the largest challenges most traders face is planning a trade and trading the plan. Even if the trader doesn’t follow all the rules, the trading plan can still be profitable.
Trading has both losses and gains. Sometimes, human traders might get demotivated over time after they get into big losses or lose money consecutively.
However, this is only a way for losing over time. Automated trading eliminates this issue by providing consistency in trading, making the trade according to the plan and increasing winning chances.
3.) Increased Scalability
Automated trading systems are excellent for handling a large number of trades at the same time. Scalability for traders is excellent because it allows multiple trades to occur on financial instruments.
4.) Backtesting
Backtesting adds all trading rules to historical market data for determining the viability of an idea.
When you create a system for your automated trading, rules need to be absolute with no interpretation involved.
The computer isn’t like a human being and can’t guess. Traders can use these types of rules and test them on the data they’ve gathered before they conduct trading practices.
Overall, backtesting is an excellent way to evaluate your trading strategy. For instance, it can show you what to expect based on how much you might win or lose.
However, keep in mind that statistics show that around 500–700 trades are a sufficient amount for making reliable assumptions about the trading market when backtesting.
5.) Improves The Order Entry Speed
Computer systems can instantly respond to any changes in market conditions. Once the trade criteria are met, automated systems can generate orders quite quickly.
Even if you get out of a trade only a few seconds before, it can make a significant difference in the outcome.
Once the position is entered, the other orders are automatically generated. Markets change rapidly and it’s sad to see your profits gone before the order is even processed.
Automated trading systems completely stop this from happening because they instantly react.
6.) Keeps You Diversified
Trading is all about maximizing your profits and minimizing the risks that go with it. Automated trading systems allow you to quickly achieve these goals without any errors compared to trading manually.
Additionally, the automated trading systems allow you to trade several accounts at the same time, making rapid market analysis.
7.) Allows You To Do More In A Short Period Of Time
Many professional traders will spend several hours a day looking at how the market is doing.
Simultaneously, trading professionals will use this time to improve their trading strategies and for looking at other strategies on how they can improve.
Automated trading systems can do so much in a short period of time, so this is your chance to focus more on your profits while the ATS focuses on building your strategies.
8.) Encourages Discipline
Trade rules are automatically performed when using an automated trading system. For this reason, the plan’s discipline is effective even in a high-risk market.
Discipline is usually lost when traders are scared of losing, or from making the wrong decision. However, remember that trading discipline is 90% of the game, so it’s important to have it.
Whenever trading occurs, it’s important to maintain discipline and ensure that a powerful trading plan is maintained. This reduces the chance of error for beginners as well.
What To Keep Your Eyes Open For When Conducting Automated Trading
1.) Mechanical Failures
Automated trading isn’t difficult to do, but there are some things to look out for.
Depending on the trading platform you are using, you might sometimes run into mechanical failures. A common one is losing your internet connection and losing an order.
To avoid this issue, many traders should learn more about automated trading and if you’re a beginner, it’s good to start with small trade sizes and increase it over time.
2.) Scams
While you are searching for your ideal automated trading system, you need to look out for scams.
There are plenty of scams ongoing in the online world. Many platforms will offer you cheap prices, but might only be there to take your money in reality.
How can you distinguish what a scam might be? Here are a few ways to do so:
- Check if the platform has a trial. Scam sites usually won’t give you this offer
- Read reviews on third-party sites or even financial regulatory sites for reviews.
- Continuously research the system and be sure to read the terms and conditions before you commit further.
3.) Requires Consistent Monitoring
It’s not bad to leave your desktop on all day, but the thing about automated trading is that it requires you to continuously monitor the market. Due to technological failures, connectivity issues and computer crashes occur.
When automated trading is conducted, anything can happen, resulting in duplicate and missing orders. However, if you continuously monitor the system, these events can be avoided.
4.) Pay Attention To Your Power Source And Wi-Fi
Automated trading systems are electronic, meaning that they can rely on reliable power sources and a strong Wi-Fi connection.
If your automated trading system is functioning on your desktop, you might experience several connection failures, so it’s important to use software that can handle these orders.
After all, it’s not worth having a weak internet connection and an unreliable power source.
Why Automated Trading Systems Are The Future
Automated trading systems are the key to future profits and they are changing the way we are working.
Manual trading is an old-school deal and time-consuming in the modern-day age. However, everything has its downsides, so keep an eye out for the disadvantages of automated trading.
Automated trading isn’t about letting your computer on all day, but rather being there at all times and seeing what might go wrong.
Maybe your internet connection might go wrong and not being there might not be such a good idea.
Also, consider the fact that automated trading systems need a reliable power source, so it’s not a good idea to use your personal desktop as a main source.