Auto Trading Software: Pros and Cons 

Auto trading software, especially when powered by AI, has the power to enhance various parts of the online trading process. For instance, it can scroll through vast amounts of data involving price movements, trading volume, and moving averages, analyzing it with a thoroughness and speed that would put any human being to shame. More than that, automated trading systems can recognize relationships between market events and price movements, identify shifts in sentiment, spot trading opportunities, and put your deals in motion without your say so. 

Trading bots are great for these brain-intensive tasks and have the potential to save you plenty of time and energy, thus freeing you to develop and implement your strategy. And this doesn’t necessarily imply you are handing over the reins of your trading activities entirely. On the contrary, many professionals customize their algo trading, meaning that they sit with programmers for hours in order to tailor their trading algorithm just as they want it. Even if you won’t be doing exactly that, some platforms allow you to establish your own set of trading rules through selecting from a list of technical indicators. Once you do so, the bot will follow your instructions to a tee. 

At the same time, we must remember not to undervalue our own human minds. Certainly, there are some parts of the trading process that you can do better than a robot, or that a robot can’t do effectively at all. There are all sorts of factors that influence asset prices, from social media news items to central bank policy to hurricanes, and machines can’t interpret much of it as well as you can. Moreover, entrusting auto trading software with such interpretations could lead to disastrous results in your online deals. Join us now as we set out some guidelines for the efficient use of automated trading systems. 

Automated Trading Scams

Searching the internet, you’ll find lots of cases where fraudsters were caught peddling auto trading software as an infallible system that guarantees high returns. (By the way, there is no such thing as an infallible trading system that guarantees high returns). For example, the founder of Mirror Trading International was imprisoned in 2021 after promising his clients 10% monthly returns on their money, when all they had to do was “sit back and relax”. In reality, it was he who sat back and relaxed, watching $589 million flow into his bank account and ultimately blocking clients from withdrawing their own funds. 

Sometimes, trading bot scams take the form of selling substandard software at high prices, or, alternatively, software that was never tested or properly trained. It may be advertised as a new trade secret, with lots of testimonials of the wealth it has produced for people, but, in truth, it’s nothing out of the ordinary and the testimonials are faked. Experts warn that any automated trading scheme that promises immediate success, explains its system in vague language, or displays grammatical errors on its website should be mistrusted. This is especially true since some auto trading scams want you to download malicious software onto your computer in order to steal your private information. 

Why Aren’t Automated Trading Systems Perfect?

Take, for example, the forex market, which is highly active, liquid, and complex. The array of factors that give one currency an edge over another at any given time is enormous. Geopolitics, economic reports, societal trends and many other things are at work in an intricate web of influence that would escape the grasp of any computer. It’s hard, even for seasoned traders, to know which factor will come to the fore today and determine exchange rates tomorrow. Even with the help of AI, auto trading software does not have what it takes to digest all this information and come out with actionable conclusions. This is particularly so when it comes to fundamental analysis. On a basic level, the reason is that the financial markets are made up of human beings, which machines have a hard time comprehending. 

Even when you program your trading bot to do something within its repertoire, it will often find itself unable to adapt to changing market conditions. While efforts have been made to improve their abilities in this area, success still eludes us. Related to this issue are the difficulties caused by over-optimizing trading software to succeed in historical market conditions. Backtesting is commonly done to fine-tune the sensitivity of automated trading systems, and can indeed yield great improvements, but problems tend to arise in transplanting those systems into live trading conditions. It’s very possible that a system will work impeccably in some historical scenario, but fail dismally when employed in today’s markets. The reason is that market conditions are constantly evolving.  

Aside from this, automated trading suffers from technical failures due to internet interruptions or system quirks. Either of these two factors could result in your market order not going through at the time you want it to. For this reason, you’ll need to monitor your auto trading software even after it’s perfected. So, auto trading isn’t entirely hands off. 

Beware of using software programmed to implement the Martingale trading strategy, which implies your position size will grow with every loss you incur. This is done to ensure that you recover your losses. For obvious reasons, this carries large risks and may deplete your trading account rapidly. 

Benefits of Automated Trading

Now that we’ve mentioned all these precautionary issues, we can move onto the benefits of trading mechanically. One of the main struggles of online traders is in following through with their strategies once the action gets going. On the one hand, when your asset is surging to higher prices, it’s tempting to let your earnings accumulate, even if your target price has been reached. This has been the undoing of many traders, who have then been forced to watch those gains rapidly dwindle and disappear.  

On the other hand, imagine if your last three trades bombed severely. Even if all your pre-established conditions are met the fourth time around, you may hesitate – out of sheer trepidation – before acting. This is where automating your trading can be a great help. Since bots don’t have emotions, their judgement is always cool and collected. Neither fear nor greed can prevent them from performing their designated task as ordered. 

Other psychological phenomena impede humans’ trading prowess too. Our arrogance can convince us that our understanding of the markets is surely superior to any trader out there, and that we can do no wrong. Alternatively, we may know that the time has come to close off a losing deal but, somehow, avoid doing so out of an abhorrence for “losing”. In short, we don’t always act rationally. 

At times, the speed at which your market order is sent in makes a big difference. Trading bots do this automatically and instantaneously, saving you a good few seconds at the least. This gives you the dexterity to enter or exit a deal before a fast-moving market can magnify your losses or erase your gains. Neither will you have to worry about mistakenly punching in an incorrect order, say 2,000 shares instead of 200. This sort of thing is the forte of your auto trading software, and it won’t normally err in this regard. 

Another thing bots can do well is multi-task. It’s no problem for them to scan various markets for trading opportunities, execute multiple trades at once, and then monitor all those deals. If your strategy entails this type of diversified trading, trading bots can take a load off your shoulders.  

Conclusions to Algo Trading

Those who use auto trading software effectively know the ideal place for it is as part of a worked-out trading strategy they have developed on their own. Many people resist the idea of giving over their portfolio to an automated system they don’t even understand, and there are good reasons for this, namely that you would lose control of how your finances are being utilized. 

It’s best to establish at the outset how you want to trade in your market of choice, and then – if you choose – to enlist the help of an automated trading system to assist you in reaching your goals. If you entrust your money entirely to a pre-established algorithm, it may end up proving either too simple or too complicated. Remember: computers are good at following instructions, but not at thinking on their own. 

Even if you’re a beginner in the trading world, don’t discount your ability to steadily build up knowledge and ultimately become a skilled, confident trader on your own. Taking the short cut of turning to a trading bot may not yield the results you hope. In any case, if you intend to make use of auto trading software, first take some time to read about the different types available, and make sure to purchase from a reputable source.