Automated trading how when and why

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Wouldn’t be perfect if you had a robot to trade on your behalf? Automated trading is a rising phenomenon, and as its name suggests, you will use a software program to place and close trades. If you have done research, you already know that you can choose from numerous trading systems. However, before selecting one, some questions need to be answered.

  • What is an automated trading system?
  • What does the process imply?
  • Can you earn money if you use software to trade forex?
  • Are there any disadvantages?

Here are all your answers. Keep reading!

What is an automated trading system?

You got the short answer above, but if you are new to this, you may need some further details. If you will use an automated trading system, it will carry trades on your behalf, according to some particular rules, you will set for entries and exits. You decide if you prefer to use rules based on simple conditions like MA crossover, or if you prefer more complex strategies.

As a beginner, you probably don’t have too much knowledge about the subject, and this is why you may consider the automated trading system a great tool to use. If you have decided to start trading, you will need a computer with a steady internet connection, and some cash for your first deposit. Depending on the system you decide to use, you can set the trading limits in advance, so you will have no issues in staying on track.

How does the system work?

All automated trading systems need the application of software that is connected to a broker, and certain rules to be written in the platform’s proprietary language. For example, MetaTrader 4 and MetaTrader 5, some of the most used trading platforms use MQL programming language.

You will also find on the market some systems that have strategy building “wizards” that allow you to select from a list of basic technical indicators to create the rules the process should be based on. For example, you can decide that a long trade should be entered when the 10-day MA crosses above the 100-day MA, on a 10 minute chart of a certain trading instrument. You can decide what orders you prefer and when the trade should be triggered.

It’s advisable to establish your own strategy and to personalise indicators. This may imply more effort, but it will offer you extended flexibility.

As soon as you decide the rules, the computer will monitor the markets in order to identify the buy or sell opportunities based on your strategies, and then it will perform auto trading.

Why should you consider automated trading?

It will promote more discipline

Most of the traders have a predefined trading plan that establishes how trades will be placed and exited, but most of the times they find challenging to follow their own rules.

If you are a highly emotional person, then manually trading may not be the best decision because you can overleverage or overtrade. You will probably end up placing orders without following your initial strategy. Sometimes this can prove drastic because you will continue to dwindle until you break your bank account. Automated trading will keep greed away from your business. The software will open and close the trades according to the conditions you establish.

It will help you be consistent with your plans

You may find at a certain point the strategy that works miracles for you, and it will continue to bring you gains if you manage to stick to it. But if you prefer to manually trade, you will probably often be tempted to shift to another strategy.

People use to stick with their winning strategy as long as they earn, but when they are experiencing a losing streak, they easily try something else. However, drawdowns are part of any business and only because their strategy proved to be unsuccessful once, it doesn’t mean it will not help them win.

The last thing you want is to have poor performance because of your lack of consistency. Your system places the trades according to a permanent strategy, so consistency is guaranteed. It will perform trades only if they meet the conditions you establish.

It will place swift orders

You have probably heard that traders often miss big opportunities because they spend too much time analysing the markets. Overanalysing can be one of the factors that ruin people’s trading careers. When you are doing manually trading you are too busy overanalysing the market, and it continues to move. The trading robot will place the trades at the speed of lighting if the market conditions are the right ones.

If you are decided to use a trading robot, you should make sure that the one you choose is compatible with the operating system you have installed on your computer. For example if you have IOS, you should choose a source that offers MT4 mac download. If you are using another operating system, you should choose the MT4 version compatible with it.

After you install the trading system, you have very low chances to miss signals, because once the software detects an opportunity, it will not fail to open and close the trade.

Are there any disadvantages?

Before you invest in a trading system, you should check the market to find out if the broker you want to use supports automated trading. The only disadvantage is that not all brokers encourage the use of robots. If you collaborate with a broker that discourages the use of automated trading systems, you will be able to trade only manually. But new brokers are registered daily, so you can make sure that you will find one that will allow you to use the robot you prefer. In addition, you should know that automated trading can work only if you have installed a VPS, it is the tool that helps your system to be hosted on the internet.