Advantages and disadvantages of automatic trading


Automatic trading is a trading process carried out by means of computer systems or special robots. The principle of work consists in the preliminary made algorithm according to which the trading robot on the basis of the received signals independently makes decisions and opens a series of orders to enter the transaction, and also independently closes them. As a rule, the functions of trading robots are set up to copy the trading tactics of successful traders. Below we will talk about the advantages and disadvantages of automated trading.

What is a trading robot?

A trading robot is a sophisticated software designed to read quotes fluctuations and manage a trading account. The main task of the trading robot is to make profit.

These systems can operate completely autonomously, without the direct participation of the trader and this type of trading is called automatic. The work of the system is controlled by an algorithm, that is, a specialized code written on the basis of a particular trading strategy.

Trading robots were actively developed in the 90s of the last century, that period, when the spread of computers and access to the Internet a large number of users, millions of traders from around the world have open access to trade.

Modern trading robot is an artificial intelligence, capable of conducting technical analysis without the participation of a man, taking into account the readings of dozens of indicators, variables, instantly make a decision on the entry or exit from the transaction, fix profit.

Depending on various factors, trading robots can be divided into the following groups:

  • classified by market type: currency, binary, cryptocurrency, etc;
  • divided by the type of trading strategy: scalping, medium-term, long-term, etc;
  • by type of market activity: flat, trend;
  • by the type of trading platform, in particular for MT4.

All the advantages of using trading robots

The main advantage of automatic trading is that in this case the psychological factor is completely eliminated. In other words, trading strategy is initially predetermined and does not depend on other factors, including market fluctuations, trader’s emotions and doubts, etc. According to numerous studies, it is the latter factor that has a lot of negative effects on the trading process. Ordinary human behaviors such as greed, doubt, impulsiveness often cause failures. With a robot everything is much easier – if there is an entry point, you enter the trade, if there is no entry point, you wait.

Another significant advantage is a significant saving of trader’s time. A person simply can’t sit in front of a monitor for 24 hours a day and look for the best positions in the market. A trading robot works without lunch breaks and weekends, around the clock. And he takes every opportunity to make money.

There are no doubts about the reliability of trading robots, because such a program can be easily tested. The most common way of testing is the reverse. That is, the system is run to test the situations that occurred in the market in the past. The robot as a result gives a result, which tells how effective the strategy algorithm would be in the tested situation.

Disadvantages of this method

Every phenomenon and object has its advantages and disadvantages, automatic trading is no exception. For example, the absence of human factor can be equally classified as advantageous as disadvantageous. Automated trading eliminates emotions and impulse orders opening, but excludes the possibility of quick change of strategy when interesting situations on the market arise. That is, there is no real adaptation to changing conditions. To eliminate this drawback there is an opportunity to combine automatic and manual trading.

Another flaw can be attributed to technical shortcomings. The basic settings of the programs are quite simple, so not only a major expert trader, but also a beginner can cope with them. However, specific programming knowledge is still needed to create a customized strategy.