As the advancement of technology is happening, it is not sparing a single field out of its ambit. We have seen sectors taking paradigm shift only because of technology. A significant sector concerning the finance world is Stock trading. The world is now trying to learn artificial intelligence and machine learning. Adding this aim to one more step ahead, automated trading has already made the most significant impact in this field. Automated trading is also known as mechanical trading systems, algorithmic trading, automated trading or system trading. It facilitates traders to establish specific rules for both trade entries and exits. Which need to be programmed once and then they can execute automatically through a running computer. Note that around 75% of the trading that happened in the United States belongs to automatic trading systems.
Experts say that the trade entry and exit rules should be on simple conditions. Or it can also be based on the expertise of a qualified programmer. It requires software linked to a direct access broker, and any specific rules must be present in that platform’s proprietary language.
Advantages of Automated Trading
The most significant barrier for a trader to get out of its position and make a profit is emotions. Automated trading systems leave no room for emotions. With no emotions at play, traders can feel ease while trading. As all the trades are executed automatically as per the trade rules, the trader cannot hesitate or question the trade. Along with helping the traders who are afraid to “pull the trigger” it is also beneficial for who overtrade.
It is one of the biggest advantages of the automated trading system. Traders have been feeling the pressure of sticking to their computers while trading. But, this system will not require the trader to be present there. As you set the trading rules, the trade will happen automatically, and it would let you complete your sleep with no fear of any unwanted loss.
It applies rules to historical market data for getting the viability of the idea. Designing the system for automated trading, every rule needs to be absolute. With no scope for interpretation. The system is not able to make guesses, and it needs to have the information about what it should do. Traders can take these rules for applying on historical data before risking money in live trading. Backtesting allows traders to calculate and fine-tunes a trading idea. And it also helps in determining the system’s expectancy.
The biggest decision for one trader to make is to pull the trigger. With the automated trading system, this doesn’t seem tough anymore. It allows the system to take such steps that could not be taken by the trader due to lack of courage.
It allows the trader to diversify the holdings. Most traders cannot hold and manage multiple holdings due to the fear of losing to some part. But, with the help of an automated trading system, you can control multiple options while trading.
Discipline is what lacks in most of the traders. As the system will operate through a set of rules, trade executions perform automatically. And regulation can be maintained even in volatile markets. Note that discipline is mostly not present due to emotional factors. Like taking a loss, or they want to eke out a little more profit from a certain trade.
Consistency in maintaining and following a set of rules is the biggest challenge for the traders in their lives. People often start trading with discipline but soon after getting losses, tend to change their path. The change of path could have cost them, dear. So, automated trading can make the whole scenario more disciplined, and it will not let the trader play with emotions.
Everyone likes to make money, but they have some more responsibilities to complete at home. The lack of time is also a big constraint in helping the traders achieving their aim. The automated trading system would allow you to participate in the market even if you don’t have the time for it. You can even trade and make money while you are sleeping.