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Automated trading systems – some advantages

More and more home-based traders are using automated trading systems rather than discretionary judgement based methodologies.

Automated trading systems or “robots” as they are sometimes called  can be left to trade unattended and do not require the  individual  trader to make any decisions during the trading session.

Other advantages of this type of trading include:

It is evidence based. As there are no discretionary judgments being made by individual traders all traders trading the same system will get near identical results.

More importantly the systems can be fully back/forward and walk forward tested to show how they have performed. Whilst this does not “prove” they will perform similarly in the future it gives the trader far more confidence than when trading a discretionary system where no such evidence is available.

Many of the psychological problems associated with trading and failure in trading disappear as during the trading session the computer is “left” to make all the decisions.

Systems can monitor markets and recalculate entry and exit points much faster than humans and also physically place the orders much faster. They do not make the mistakes humans make (ie going long instead of short, keying in 2 contracts instead of 1 contract, panicking and exiting before the allotted levels etc)

Many markets today trade more of less around the clock and computers can monitor and trade around the clock and don’t get tired or bored.

Computers can monitor and trade an almost unlimited number of markets (even on very short time frames) at the same time. This means the available field of markets and instruments you can trade is increased dramatically and allows far more efficient use of trading capital ie it can be “sweated” 24 hrs a day and used multiple times throughout a 24 hour trading day which can dramatically improve and smooth results.

Once the Algorithm has been formulated the trading process has been de-skilled sufficiently for almost any disciplined individual to trade the Algorithm as intended – In the same way as manufacturing processes are deliberately de-skilled to a point where almost anybody can perform the simple tasks that remain.

Certainly fully automated systems are ideal for traders  that have a limited amount of time or who  become psychologically de-stabilised or fatigued when using discretionary systems  or those who’s trading has progressed to a level where they want to trade a large number of markets or instruments at the same time.

 

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