, also known as algorithmic trading, is extensively used by traders for participating in the financial markets. As a trader, you have to engage in some technical analysis and accordingly set the parameters for your position.
Automation in trading minimizes a lot of efforts on the trader’s part through a program that enables you to engage in many trades in less time. You can determine your strategies and trade accordingly with the existing trends. Here’s what makes automated trading a viable choice for active traders.
Saves Time While Engaging in Multiple Trades Using Set Algorithms
Automated trading is majorly known for its incomparable speed, faster than the human perceiving. In just a few seconds, you can get in and out of a trade, and these few seconds can significantly matter in your trade. The advanced software techniques immediately respond to the set algorithms with any change in the existing market conditions.
This was otherwise not possible for active traders that were indulged in manual trading. They had less control over their trading options back then. To keep up with the existing market trends, you need to act in time. A moment of delay can hugely affect your trading, and you need to have full control over them. That’s how automated trading helps you. It prevents any losses that can go past the stoppable limit and effectively takes control.
The aligned advantage of automated trading for active traders is to indulge simultaneously in multiple trades with speed. This helps them to diversify their trade options and to spread the risk among various instruments.
Emotional Control and Discipline
Anxiety and emotional fluctuations are likely to impact even experienced traders. Automated trading helps to keep your emotional levels duly balanced. This keeps a balance between the hesitant traders, who are too scared to take chances, and the over traders, who buy and sell at every perceived opportunity. Since there are preset rules of trading, the orders are automatically executed accordingly.
Automated trading also establishes a lot of discipline trading. This discipline is usually lacking due to the emotional factors involved, especially in highly volatile markets that include the hesitant and over traders. Due to the set parameters, the traders will stick to the trading plan. There are no discrepancies in automated trading due to the utmost accuracy in the process. So, automated trading ensures discipline and consistent trading.
You can place custom made trading strategies in automated trading. In this process, you will need to
- Choose a platform and set parameters
- Create a set of rules and conditions
- The trade will automatically execute with the help of the algorithms.
The traders can build up strategies with the help of tools with or without coding. Some traders closely work with the programmers to develop the system. However, this can be more time-consuming. You can instead go with the already available options on the platform for a greater degree of flexibility.
You can set the parameters and the rules with the available options on the platforms. Later, the program will monitor the market and act upon the buying and selling opportunities accordingly with the trading specifications provided by you. It is to be remembered here that there is no perfect strategy that may work all the time, but with the help of analytics and trends, you can build one with fewer chances of falling behind.
The automated trading can thus act accordingly with your customized strategies and performs within the set rules. The profit/loss will eventually depend on the strategies devised.
There is a list of widely available indicators that you can choose from. You can use these indicators to build a set of rules that can be automatically traded. Indicators like MACD, RSI, etc. can help you decide on your trading strategies. You can choose the indicators as per your convenience.
Backtesting Your Strategies
The computer can only perform within the set parameters, ensuring accuracy in the trading process. The profit/loss will majorly depend on the strategy that you chose to devise. However, the automated program can help you to some extent in backtesting your decisions.
The traders can test the preset rules from the past strategies and test them with the results through the historical data provided. They can align their strategies based on tried and tested methods from the past. This will effectively minimize any potential losses.
Automated trading is the most preferred option by active traders, and it has impacted the overall trading experience up to a great extent.