Advantages of Automated Trading Systems
Day traders love to make a trash talk about automated robots. I have a feeling that they see only disadvantages of this approach. Spreading the word that automatic trading is not working. Here, at trade-robots we see it differently. For sure, automating trading is not working for everyone, I will even say, it is not working for most of the people, similarly as manual trading. It is working for people that put enough effort to make it work and we are proud to be one of them. If you wonder why to use automated trading systems instead of manual trading; here is a short list of benefits of automated approach:
Automatic trading system can work for you from first millisecond after market is open, till the end of the session, without breaks, without complaining. As long as electricity is there and machines are working, your strategy will do what it should. Trading manually you need to count breaks, some of them you cannot even plan. Traders cannot put the same work in to it. Bearing in mind that money never sleeps, you’re stealing yourself from opportunity to make higher profit.
Diversity of trading
Trading robot can trade multiple markets using different time frame. Searching for opportunity for trade where even brightest trader will have limited perception redistributing risk on different markets will have huge influence on total profit. Trader can have more screens, tons of charts all over, still he/she will not be as efficient as wisely written automated system.
Speed of execution
The reaction time of a trader is limited. On the other hand computer can place order in milliseconds. Analysis of market conditions for automated strategy is constant, compared to human being. Trader can also have some doubts that will influence the decision time. Having this advantage you can be faster than manual traders, both on entry and exit side of your position.
Following every setup
Discounting breaks from the first point. Trader can also misread the chart and miss a trade. By not being objective he can delay to take a trade, or take it too fast. Automated trading system work as it was programmed, follow only everything that was coded. I remember when we had trading floor it really was hard for traders to follow simple setup rules. They were violating the system by placing entry at wrong time (before candle close and setup was confirmed). Much worse, some of them tried to find Holy Grail, forgetting what they should do in the first place – following strategy, following setups.
Following all rules
Every strategy have defined set of rules. From entry point to profit target, through stop loss and so on. For machine it’s easy to follow every rule. It doesn't mean that automated strategy is simple. Stop loss for example can be mathematically adjusted depending on market conditions. Some traders have problems respecting the rules, especially their risk parameters per trade. Bringing again our trading floor example; the traders in training were placing position, but they needed to exit them after 5 ticks of winning or lost. I was shocked when I saw how many people are not respecting this simple rule, hoping that position that they took will come back and bring them money.
Automated trading system don’t have any emotions. In this case trading is purely based on logic. Trader can have better and worse days, his emotions can affect his judgment. In case of human trading when you lose three trades in a row can be way more different from one where you make some winnings in the beginning. Of course trader can train himself for that, but simply speaking ATS don’t need to.
Testability – Having strategy written in a code gives a possibility to test it. Testing code and fixing it is so much easier than creating a good trader, at least in my opinion. Another part of testing is making a back tests. Having a back tests based on different time frames, market conditions with proper statistic validation, can assure that strategy will behave similarly in real-time. Traders can make paper trading, trying to validate their ideas. They can also look back into historical charts, checking if the same setups made sense in the past, but this kind of tests says nothing.
Collecting all together: constant work on more markets, detail analysis, logical and emotionless decision making process, respecting algorithmic rules and setups, testability of approach and results. All of this comparing to manual trading, convinces us at trade-robots that automatic approach is way better. Why not to leave computers what they are made for? Statistic, algorithm-based decisions, fast in execution, this is the field where computer abilities match. If you are an investor what you prefer to have: worker that does his job constantly, at the same expected level without complaining, without asking for raise, maybe only when the electricity price changes? Or one that have limited time for work, limited perception, focus, may feel not so well? Here at trade-robots we made our decision. It is not like we don’t give a chance to day-traders on trading floor, we do. But this is story for another post…