For most people the advantage of an automated trading program is obvious: people want a computer program that will make them money in their sleep.
Thousands of people a year flock towards these programs with dreams of becoming a millionaire and retiring to the French Riviera but instead are left disappointed with an empty bank account. These unrealistic expectations, along with a lack of due diligence and research, have given the retail automated trading industry a bad name. However, automated trading programs offer much more than the chance to make a quick dollar.
One of the biggest problems in designing a new strategy is determining how well it will perform on a live account. Having an automated trading program allows you to backtest and objectively measure your strategy’s performance. The program has clear entry signals, a set risk to reward ratio, and a predetermined trade size, which can all be optimized to fit your trading style and goals. Knowing your strategy was profitable in your backtest gives you the confidence to run your strategy on a live account.
Keeping your emotions in check and sticking to a strategy is one of the most difficult and important aspects of becoming a successful trader. The market is indifferent to your feelings. Trading when you’re scared, angry or just after your girlfriend has left you is a great way to lose money. Automated trading programs take the emotions out of trading, and by definition, must follow the rules of your strategy. Allowing an automated strategy to run, without your interference, will force you to become a disciplined trader. This discipline is essential to long-term success as a trader.
Automated trading programs give you the ability to adjust each variable of your strategy to achieve your trading goals. This could mean changing the stop loss or take profit, applying filters for certain market conditions, or even altering your entry and exit signals. In manual trading this could be an arduous and risky process filled with assumptions and guesswork. Automated trading, on the other hand, gives you the ability to conduct backtests quickly and easily with clear, objective results. Optimizing can easily turn an unprofitable strategy into a profitable one.
Automated trading programs won’t make you a millionaire overnight nor are they a get-rich-quick scam. However, using the right program that fits your trading style will help you build confidence, optimize your strategy, and teach you the required discipline to be a successful trader. The right program is also not a bad way to make money while you’re out looking for that new girlfriend.