Automated Trading: Yes or No?

Getting to Grips with Automated Trading

When automated trading first became possible in 2005/2006, it was greeted with so much enthusiasm the world over, as traders felt that at last there was now a tool that could take on the markets and pull in huge profits for traders.That feeling soon evaporated as thousands of junk automated trading software filled the market for every genuine one that was available. The people who were smiling to the bank were those who sold the software, not the traders themselves.

A certain entrepreneur I know introduced automated trading into his country for the first time. The seminar venue could only hold 50 persons, but he ended up with more than 750 attendees, prompting an instant change of venue. He walked away with $50,000 in seminar fees on that fateful day. He is no longer involved in the automated trading market: two more seminars and he had made enough money to venture into solar panel construction. Needless to say that the software he sold his attendees have long been abandoned.

This true story is replicated across world, as the internet if loaded with all manner of horror stories about how traders have lost money to automated trading software. For these traders, the very mention of automated trading will attract a resounding NO.

However, I have tested and found that it is possible to use automated trading software to get in great results, whether it works on neural networks for deep learning or relies on forex signals for trading based on indicators or news is down to the situations you would like to use automation however, here is snapshot of a trading software which I got a programmer to build for me:

autotrading

The strategy used in building this program was modified by me using a modified indicator, and the software is working. This has led me to say that if a vote were to be taken on whether automated trading is the way to go, I would vote a resounding YES.

Automated Trading in Forex

Today, automated trading has reached advanced levels from the early days when it first came on stream in forex. Automated trading is no longer just about entries and strategies. It is also about speed.

The big institutional traders use automated trading software known as algorithms or algos. These algorithms are not only built to recognize when trading opportunities come up, but are designed to enter the market and offload positions at such speeds that cannot be matched by retail traders. For instance, an algo automated software can enter and exit the market with a latency period of 11 milliseconds. This is so fast an entry, it is enough to get the big firms who own them in big bucks almost instantly.

Retail traders cannot match these speeds that HFT (High frequency trading) are operating within, so rather than compete with them, emphasis should be on accurate entries and exits based on the parameters we have talked about in some of our article pieces.

What would guarantee a YES vote for automated trading? The following would guarantee a YES vote for an automated trading system:

a)    If you have a strategy which is tested and trusted to work.

b)    If you can get the strategy programmed into an EA.

c)     The strategy has a risk management system which can be coded into its parameters.

d)    You have access to a virtual private server where the EA can be hosted so it never sleeps.

e)    You have access to a programmer who is excellent at his job. A bad programmer can make nonsense of a good strategy.

What would guarantee a NO vote for automated trading?

a)    An automated software bought over the internet. Not all of them are bad, but how do you test them before purchase to separate the good from the bad?

b)    An EA without any risk management system in place. Such EAs can wreck accounts in days.

c)     No access to a good strategy, or a strategy which does not stand the test of time.

Nowadays, there are even EA builder software that allow traders without any coding experience to build and test strategies before converting them into expert advisors. A check on the internet will reveal many of them. Even the good old MT4 has radically enhanced automated trading software programming with the new MT4 Build 600 and other higher versions.

Conclusion

There are benefits to trading with automated software, but a lot of time should be devoted to the research and development of such EAs before they are taken to the market.

 

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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