Out of many few merits of automated systems are:
1. No Emotions
Emotions are totally minimized in automated trading. By putting emotions at bay, traders are more focused to stick to the plan. As trade happens automatically, traders are left with no choice of reluctancy or questioning the nature of trade. It also helps in taking risky decisions that traders might afraid to take or it can also save some by restraining those who overtrade.
Backtesting is another trading strategy where rules are applied to historical data to evaluate the reliability of an idea. It should always keep in mind that while designing an automated trading system, all rules need to be absolute and there should be no room for elucidation. We need to tell the system what exactly to do as computers cant make estimation on their own. Traders can test these rules on historical data before actually investing in the real market. If a well-applied trader can evaluate their trading idea along with the system’s expectancy i.e., the average amount to win or lose as per unit of risk percentage.
3. Preserving Discipline
As in automated trading, rules are set and trades are executed relying on the set of rules, there’s discipline is maintained even in the volatile state of the market. Discipline is needed because it can easily be lost due to fear of risk, or greediness of making more money from a trade, etc. The automatic trading system here helps in ensuring discipline is preserved because of working on a set of rules. And it also saves trader from making pilot mistakes. There are generally typing mistakes as you are applying to buy 100 shares but you unintentionally entered 1000, in place of 100.
4. Enhanced Order Entry Speed
Since computers are working on your behalf and responding instantly to the dynamic market conditions, automated systems are capable of making a trade as soon as criteria’s are met with one another. Entry and exit could make a lot of difference in trading results. As soon as a position is entered, all other factors come into play such as protective stop loss and profit targets, etc. As we all know market moves quickly and it can also be demotivating to see trade reach the targeted profit or blow past stop loss- before the order can be entered into the system. The automatic system prevents traders from this to happen.
5. Varied Trading
An automated system allows traders to trade on multiple accounts or to use multiple strategies at a time. This helps in dividing risks by creating a hedge against losing position. What is not possible for humans, computers do that in milliseconds from scanning for trading opportunities across a wide range of market generating orders, monitor trades to making a profit or protectively stop loss.
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