Everything About An Automated Trading System

Traders can enter definite entry and exit rules for money management in the automated trading system that enables computers to execute and keep an eye on trades. One of the significant features of automated trading systems is that they are not influenced by emotions, meaning the trades are only executed if a certain criterion is met. The entry and exit rules for trading are based on some simple conditions like moving averages as well as complicated strategies which require you to have a good knowledge of the programming language related to the specific trading platform. These rules can also be based on what a qualified programmer will do in certain conditions. In order for an automated trading system to work, you need software linked to the direct access broker. Additionally, rules should be written in the trading platform’s language.

Advantages Of Automated Trading Systems

The advantages of using automated trading systems for trading in the forex market are endless. Some of them are explained below:

Minimizing Emotions

The best thing about an automated trading system is that it takes out the emotions from the trading process. Thus, once the traders’ emotions are in check, they can easily stick to their trading plan. Additionally, the trades are executed automatically when certain rules are met; hence traders feel much more confident and do not question the trade. Automated trading systems don’t only curb those traders who fear “pulling that trigger”; they also curb those who tend to overtrade.

Backtesting

Backtesting uses trading rules for analyzing historical market data to determine how viable an idea is. Whenever a system is designed for automated trading, the rules have to be outright, so there is no space left for interpretation. One cannot expect a computer to make guesses; therefore, you need to be given clear instructions regarding what is to be done. Generally, traders use such precise rules to test them on historical data before they invest their money in a live trading account. Cautious backtesting lets traders examine and tweak a particular trading idea as well as to check the system’s expectancy, that is, the average amount that a trader can potentially win or lose.

Preserving Discipline

Another advantage of automated trading systems is that a higher degree of discipline is maintained even if the market is highly volatile. This is so because trading rules are determined beforehand, and the execution of trades is performed automatically. Often it is seen that discipline is widely absent because of numerous emotional factors like fear of incurring a loss or squeezing a little more profit from a particular trade. As the trading plan is followed in the same manner as it should be, discipline is greatly maintained. 

Improving Order Entry Speed

It is a known fact that computers can respond to changing market conditions much more quickly. Thus, automated systems can generate orders as quickly as possible once the trade criteria are met. Furthermore, it is so convenient to move in and out of the trades making a big impact on the trades’ outcomes. Whenever the trader enters the position, the other orders will be generated automatically. The market moves so quickly, and it is disheartening for traders to see their trades blow past the stop-loss level before the trades are even entered. This is when an automated trading system comes in and prevents this from happening.

Diversifying Trading

Last but not least, automated trading systems allow users to trade multiple accounts or use numerous strategies simultaneously. They have the potential to spread risk across numerous instruments whilst developing a hedge against losing trade positions. Additionally, the computer can easily scan trading opportunities in a wide range of markets, generate and execute orders and monitor trades. Automated trading systems can effectively perform something that can be incredibly difficult for a human to achieve in a fraction of a second.