Today a large part of the markets are traded in auto-pilot – that is, through algorithms created by institutional investors managing a large amount of money. But you can also take advantage of automated trading if you want to. Whether you’re trading hot penny stocks or investing in the Forex market, all you have to do is to determine if this type of trading is right for you, and what kind of trading strategy you’re going to use to enter and exit the market.
What is Automated Trading Exactly?
Automated trading is a trading strategy whereby market participants take trading positions using a program that opens and closes trades autonomously, depending on predetermined rules. But for automated trading to work, it’s important to determine first the trading rules the program is going to follow to enter and exit the market.
That’s why you need to decide the kind of parameters your trading program will monitor and follow to take action. Depending on the trading platform you use and your trading plan, you will be able to include technical or fundamental parameters in your strategy.
What Are the Benefits of Automated Trading?
This type of trading is usually used to remove emotion from the trading process. If you’ve already been trading the markets, you know how important it is to control your emotions when trading to avoid costly mistakes. Greed, fear, overconfidence, euphoria, boredom, and other feelings can trigger toxic behavior that can really hurt your performance. By using an automated trading strategy, you’re removing the emotion management part of your trading, as your algorithm is executing all the trades based on your pre-set criteria.
Automated trading is also often used to carry out trades much more quickly and efficiently. As trading orders are carried out automatically by algorithms, you remove manual execution from the process. This will help you accelerate the process and avoid human mistakes. It is also possible to trade more frequently on different markets, as long as the predetermined parameters are met. Multiple trades can, indeed, be made simultaneously.
Compared to discretionary trading, this trading style is available with a wide range of criteria and indicators that can be incorporated into your trading to maximize your profit and better control risk. This will help you discover new ways to identify trading opportunities and take advantage of them.
Finally, automated trading strategies can help you take advantage of the markets even when you’re not in front of the computer, as trades are executed automatically day and night. You can therefore trade around the clock if the right parameters appear on the markets.
So, is Automated Trading Right for You?
You might want to consider automated trading strategies if…
- You want to automate trading execution;
- You have already worked on a trading strategy that you might want to try out on numerous markets at the same time;
- You have a profitable strategy and you want to apply it around the clock;
- You want to remove the psychological and emotional aspects of trading the financial markets and maintain discipline in your trading;
- You have some programming knowledge.