The Pros and Cons of Automated Trading Systems

Automated trading systems are all the rage lately, as they have quite literally taken the binary option trading world by storm, in various shapes and sizes.

What exactly are these automated trading systems?

An automated trading system is defined as a program which is capable of generating its own trading signals on one hand and acting on these signals on the other. Some automated trading systems are also capable of performing their own capital-management.

The advantages of automated trading systems

The advantages of these auto traders – also known as robot traders – are fairly obvious. Generating proper trading signals is by no means a walk in the park. It takes solid technical analysis skills and knowledge, and time to apply the various mathematical schemes. One can only consider a trading signal a solid one, once it’s confirmed by at least 4-5 technical indicators. On top of all that, fundamental analysis has to point to the same conclusion as well. While all this is fairly easy to sum up, in practice, it’s rather difficult to execute. This is the main appeal of auto traders. They do all the dirty work, so all one has to do is to set a few parameters and lean back.

Some traders use their automated trading systems in manual mode, which means that while they rely on it to generate trading signals, they apply those signals themselves. This approach has its hazards, as sometimes the resulting signals are so weak that if one blinks, he misses the ideal time to apply them.

The bottom line is that trading systems essentially do all the work for traders. This way, beginners don’t have to take months or years to learn profitable trading. All they have to do is to invest a relatively small amount of money with the right auto trader, and their profits start rolling in on auto-pilot.

While some auto traders cost money, others are offered for free, and there are even automated trading systems that are built by traders according to their own needs. There are brokers out there who offer platforms which allow the construction of these auto traders from scratch. On such platforms, traders can share their robots and they can grab the robots of other users for free. It’s easy to see why such a setup opens up a whole world of new possibilities in the realm of automated trading.

If all that sounds too good to be true, it’s because it sometimes is…and that brings us to:

The disadvantages of automated trading systems

Automated trading has struggled with a conundrum since its inception. Some of the market analysis elements needed for profitable trading are easy to automate, while others simply cannot be translated into exact science.

Technical analysis, with its chart- and candlestick patterns, is an easy target for software creators. These mathematical analysis elements thrive in a automated environment. Fundamental analysis on the other hand, does not lend itself well to automation. This is why the majority of auto traders out there are based solely on selections and combinations of technical indicators. That leaves them handicapped in comparison with human experts who are able to toss their fundamentals-expertise onto the top of the technical aspects. There are auto traders out there which claim to have such human experts working on their signals, but most likely, such claims are fake.

This brings us to another major auto trading problem: scams.

Scams have found extremely prolific breeding grounds in auto trading. In fact, the majority of auto traders being pushed through fancy videos and scammy-looking websites, are scams indeed. The perpetrators of these scams use various wild theories to explain why their software is better than anything else out there. Most of the time though, their prized technology is comprised of a handful of technical indicators pushing out dubious trading signals. Needless to say, such scam traders will gobble up the deposits of the victims quite quickly.

As mentioned above, there are platforms out there which allow traders to build their own trading robots. While such platforms usually come with handy robot-building wizards too, the bottom line about them remains that if one wants to build an advanced robot, he/she will need some thorough technical analysis knowledge. These things don’t just grow on trees, you know…

Another problem with robots is that given their vulnerability to real life, market-swinging events, one needs to keep an eye on them all the time. While they do indeed do their own trading, at the end of the day, a human trader needs to perpetually hold their hands.

Traders who record the best results with auto traders, always make sure they turn them off before major economic and political announcements that are expected to shake up the markets.

To make a long story short: though attractive as an idea, automated trading systems aren’t the golden solution to all your financial woes, despite what some scammers preach. They can be worked for profits, but it takes a lot of tinkering and fine-tuning to get them to function properly.



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