A QUICK GUIDE TO AUTOMATED TRADING IN 2020
Greetings Traders!
With increased volatility on GBP throughout last week I thought it would be a good time to talk about Automated Trading. During periods such as these, those who use Automated Trading Systems can often face unexpected changes in their account balance, this is simply because robots don't watch the news. Well... Not yet anyway... So let's dive right in to today's article and discover some of the benefits and drawbacks of automated trading!
What is Automated Trading?
Automated trading essentially means a robot trading on your behalf, wouldn’t we all love to have a robot produce profits for us without having do anything. There are many automated trading systems out there, and we will be identifying those questions on the subject that need to be answered.
I WANT TO PERFECT MANUAL TRADING FIRST!
What are Automated Trading Systems?
These types of systems allow traders to place parameters for their trade entries and exits, these will be automatically carried out by the automated trading system. The systems can be based both on simple strategies and complex ones which is custom to the trader’s computer.
Many Beginners to trading don’t have the knowledge to trade the markets themselves, this is one of the reasons automated systems tend to be so popular. Automated systems allow traders to get involved in the market straight away, it can also enable better risk management as this can be programmed into the system.
Some systems tend to be formed by expert advisors (EA). These are very high skilled professionals who are able to programme algorithms to analyse the markets and take trades.
Watch this video: Automated trading systems explained (02mins 23secs)
Automated Trading Systems and how they work?
Automated trading systems will require software which can be used via a broker. The most popular platforms to use are MetaTrader 4 and MetaTrader 5.
These types of platforms have accessible tools to use with technical analysis and indicators, this will enable traders to build a set of rules around these tools.
Traders have control over the type of orders they place i.e. limit orders based on the platforms default features. But the vast majority of traders will program custom trading strategies and indicators. This provides a much larger variety of strategies to traders however it will take longer to program.
Once the parameters have been set, the automated system will monitor the market to place buy and sell orders based on your strategy.
Forex Automated Systems and Profitability
As with any trading, there is no guarantee of profits. But they do ensure you make the most of market conditions. EAs are very easy to handle, therefore don’t require vast training to use them to start making profits.
Using an Efficient EA
The best EA is the system that fits into exactly what you would do, but automatically. Therefore, it is efficient and saving you a lot of time. Trading on the MT4 platform will require the trader to program their own robot using the MQL language.
How to identify an Automated Trading Scam?
Unfortunately, there are many scams in the automated trading sector, you will see many ads of EAs that produce 100% daily returns. But of course, as we all know, these should be red flags when it comes to investing into them.
Most of these types of guaranteed profit ads will be scams, in general you should avoid paying for any EA as you will not only lose money on the market but on purchasing the EA too.
The Pros and Cons of using Automated Trading Systems
One of the benefits of having an automated system is that will it minimise your emotional investment through trading, which can be the largest hinderance for most traders. Being able to back test your EA is a big advantage to see how profitable it will be in the future.
Auto-trading systems will always remain disciplined in the volumes of trades even through volatile markets. Discipline is one of the best advantages to automated systems as psychology is a big factor for the majority of traders.
One of the drawbacks is if you experience a weak connection, this would interrupt your EA and therefore your orders in the market. Automated systems also require constant monitoring, for issues like internet connectivity or power loss.
One of the biggest cons is the misconception that a robot will make you millionaire, auto trading systems are not the holy grail, so always be realistic with the types of returns to be made.
Conclusion
From this article, you can clearly see the advantages and disadvantages of using automated trading systems. We would always say regardless of using a system, you should always learn how to trade the markets yourself. This will provide you with enough knowledge to use EAs efficiently and program them correctly.
In short, there are a few ways to partake in automated trading. There's the copy-cat method, in which your account is effectively linked to that of another trader, automatically copying trades and executing orders. Then there's the other method, which involves a trading robot, commonly referred to as a bot, which trades for you based on a predetermined set of rules and parameters.
There are both benefits and drawbacks to automated trading. The main drawback being the fact that if you're automatically trading, you're not likely to be watching your trading screen, and could either miss vital opportunities, or your system may trigger a trade that you know will lose out, and you'll be powerless to stop it. The main benefit would be the removal of emotion from the trading process. Emotion and irrationality are the leading killers of trading accounts in the forex markets. Revenge trading, faith trading, these are not healthy habits for a trader to have, and so automated trading can often act as a stop-gap for those most afflicted until they learn to get full control over their emotions when it comes to trading on the forex market.