One of the most volatile factors when it comes to trading is the human emotion. What often separates the pros from the amateurs is their ability to take emotion out of trading – to create well thought out strategies and to stick to them under pressure. Many traders like to use automated trading strategies in order to take the human element out of trading.
How Automated Trading Strategies Work
With automated trading strategies, trades are automatically placed once specific criteria have been met. This is because the computer is set to execute and monitor trades according to specific rules that are programmed into the software. Automated trading strategies require software that is commonly linked to a direct access broker. Traders will choose a program and work with a broker to include custom indicators and strategies. Or, for those who are new to this, you can use the program’s custom default settings.
Advantages and Disadvantages to Automated Trading Strategies
There are advantages and disadvantages to using automated trading strategies. As we mentioned above, one of the main advantages of automated systems is that it removes all emotion from your trading, which generally results in more profitable trading. On the same note, your trades will be more consistent, while at the same time order entry speed will be much faster and you will be able to diversify your trades as you can implement multiple strategies on multiple accounts at one time if the computer is working for you. On the other hand, there are disadvantages as well – mechanical systems can fail and they require regular monitoring with the chance that anomalies could result in mistakes. While they have many advantages, traders need to make sure that when using automated trading systems they do not use them alone as a substitute for doing careful analysis of trades.