What to Know About Automated Stock Trading
It seems like the ideal way to earn money to have a robot do your trading for you. Many people are looking for an automated trading system that is safe and profitable that will free up their time to earn money in other ways. There are many automated systems out there, but there are some important things you should know before you put your money on the line and relinquish control to a robot.
What is automated trading?
Automated trading systems enable traders to create their own set of parameters to enter a trade, and the system places the trade automatically without the need for any action by the person. Traders can use their existing rules about money management, entry signals and exit strategies to create an automated system that functions the way a trader would in a traditional trading scenario.
Traders can set entry and exit rules based on simple concepts like moving average crossovers and more sophisticated ones that require in-depth programming knowledge. For these rules, the trader would need some expertise in the programming language supported by the trading platform they intend to use.
Setting the rules
Some platforms have built-in functionality for automated trading. Typically, the trader has access to strategy-creation wizards that enable the user to select from lists of common technical indicators and some parameters for setting rules for those indicators for entry and exit of trades. One popular method is to set a moving average crossover point that fits the trader’s typical pattern of entry for trades. The trader can choose the length of the moving average and the type of charts to use, such as 5-minute, 15-minute or daily tick charts.
Many traders find that they can become more profitable if they build custom rule configurations that are more robust than the ones provided by default on the trading platform software. In such cases, the trader will work with a person who is adept in the programming language of the trading platform to develop and tweak a profitable system.
Once the system is enabled, the automated bot will enter and exit trades to the desired specifications. The system is able to generate protective stop-losses, trailing stops and other money management techniques that the trader would typically use on his own.
There are many advantages of automated stock trading, but there are some disadvantages and risks to be aware of as well. An automated system is not subject to emotional impulses that cause traders to abandon a well-researched strategy based on a gut feeling. There are always risks when putting decisions in the hands of automated systems because they are not infallible. The programming could have some flaws, or the hardware could temporarily experience glitches that disrupt the trades or cause errors. Automation could be a way to enhance your profits, but take all the pros and cons into consideration before jumping into this technology.