Electronic trading platforms invade into traders lives more and more in the last years. A trader is able to trade thousands of markets all over the world from his laptop or his mobile phone. It’s very easy to open/close positions, to have configurable charts, to put technical analysis indicators and many other actions that only professional traders, banks or funds were able to do just a few years ago.
There’s something more important though, something that many retail traders don’t know even if it exists or they have a limited comprehension on it: automation
An automated trading system is a computer software that creates and places trading orders. This software runs on an electronic trading platform which provides the appropriate programming environment for the implementation and the mechanism/framework for the connection with the broker and the markets. An automated trading system may also implement more advanced trading techniques such as risk management, signal management etc
There are traders that prefer semi-automation in their trading attitude. They use sophisticated tools that help them to indicate trading signals and opportunities but they want to have a serious discretionary stage on the process as well. They use automation not in a sense of opening/closing/managing positions automatically but in a sense of having an easy, efficient fast and reliable way to do their markets analysis.
Modern people use cars to go to their work, they use e-mail and cell phones for their communication needs etc. In the same way, sophisticated tools save time and money for the traders and the bottom line is that traders should spend their time studying and designing new strategies instead of doing endless and time-consuming actions that a software can do in a few seconds.
Trading automation advantages
The most important advantages of trading automation are:
- Availability – some markets are open many hours per day while other markets are open 24/5. Trading signals and opportunities may appear any time and manual traders cannot take advantage of it.
- Save time – There are fantastic trading tools, available for the retails traders at a low cost that make their lives very simple. Traders don’t need to look at dozens of charts simultaneously or they don’t need to wonder if a fast moving average has crossed above a slow moving average: a software can do it better
- Execution speed – it’s very simple: a software executes orders instantly.
- Psychology – we all have the experience of our attitude filtering through our emotions. If we risk money it’s getting even worst. We can be very pessimistic, very optimistic so we can see things different than the reality. A pilot should always trust the electronic equipment and devices instead of his perception, we should definitely do the same in our trading.
- Discipline – most of the traders have experienced moments where we change the rules of our own strategy. We move the Stop Loss, we open positions without signals, we don’t open positions while there’s a signal…the list is endless. Some say that the world of the computer and machines is a cold, soulless and inhumane world. Maybe it’s a philosophical problem to resolve but for the trading is exactly what we’re looking for.
Trading automation disadvantages
We’ve mentioned many and important advantages of an automated trading system, there are some issues though that we need to consider:
- An automated trading system is not a machine that will make us rich. It will implement exactly the same trading rules of our strategy but it will do it better than us.
- Software most of the times have bugs. We need to test very extensively a trading software before we use it with real money
- Since we use computer software and internet, we depend in a very serious degree on the reliability of our hardware and software equipment (computer, internet connection, trading platform etc). There are very reliable and low-cost solutions for those issues such as VPS (a virtual machine which comes as a service)