Autotrading also known as automated trading can be defined as the type of trading where buy and sell orders are placed automatically without the active involvement of an human trader. It could also be described as the trading done with the help of a sophisticated program or a BOT. Automated trading helps traders take advantage of marketing opportunities faster and more efficiently than manual trading.
How Does Autotrading Works?
Autotrading requires a predetermined set of commands and strategies. This commands sets the foundation for the conditions on which the trade is made and executed. Although the customization of strategies is made by investors however they see fit, human errors like “panic buy” and “panic sell” are eliminated as trading only occurs when specific conditions are met. For autotrading to be successful, the laid down conditions must be met in full. Once these conditions are met in full ,the trade is made quickly and executed in rapid succession.
When trading manually on the other hand, the trader could get baited by a spike in price resulting in making a trade order that could lead to further loss down the road. Autotrading completely kills the incidence of this kind of scenario but it also means that it might lead to the trader losing a market opportunity that was not predetermined or anticipated beforehand.
At its core, Autotrading is made up of complex programming languages and sophisticated algorithms that are used to analyze trade and execute in real time even when the trader is not present. But even though autotrading bots are extremely good at what they are designed to do, they are not sentient, and they still rely heavily on humans to give commands. Owing to this fact, before an autotrading strategy is preset, it has to be thoroughly tested for profitability before it is executed as the program is not capable of reading market data and making trading decisions on its own.
Benefits of autotrading for your portfolio
Helps to manage emotions and curb emotional trading
Picture this, As a day trader, you get up on a pleasant Monday morning and after studying the market and possible trade patterns the previous night, you are ready for a successful day of trading. But after starting your trade at $500 you notice the market starts to “bear” just after twenty minutes of entering the trade. You decide to hold on just a little longer but you just keep losing more money. In a panicked frenzy, you resort to closing the trade and licking your wounds— it’s a bad day at the office.
You decide to check on the trade after about 30minutes and to your surprise, the market has “bulled” astronomically giving returns of more than 90%. You stare at your screen in disbelief regretting how you let your emotions get the best of you.
The scenario above illustrates the reality of most traders, As humans we hate to lose money and this could have an effect on trades when they do not go the trader’s way. This emotional factor could lead to hasty and rash decisions by the trader as inability to wait for a favorable turn in the market could lead to complete loss.
On the flip side, autotrading reduces or even eliminates this problem completely as it is not bound by emotions like humans. Once the conditions and trading strategies are set, it will be strictly adhered to no matter the fall or rise that may occur in the market during trading.
This could help reduce the incidence of loss due to panic buy or sell.
Increased profits
Although automated trading requires human commands to perform its functions. It could increase profitability by accurately assessing market information ,identifying opportunities on specific occasions, reduce transaction costs and even eliminate the need for manual analysis and decision making subsequently resulting in more profits. Also autotrading provides the trader with flexibility as it allows the trader to quickly adjust to changing market conditions.
Lower Risk
As autotrading lets you trade with predetermined trading rules and conditions, you are less risk of total loss. Setting parameters like stop loss order, take profit order and other stipulations could help reduce risk greatly.
Another big factor is the absence of emotional triggers that could impede the decision of the trader before and during trade orders.
Improved efficiency
Autotrading executes trades rapidly and is efficiently as long as the required conditions are met. This is especially useful when the trader is not on seat at the time the trade needs to be closed. This also helps take advantage of market trends and opportunities faster and more effectively than manual trading.
Back testing
Autotrading allows traders to backtest their trading strategies .Traders could create custom trading systems and test them against historical market data to see how they have performed in the past. Platforms like Autotra allows traders simulate trading situations, test signals and sometimes test dire trading conditions.
This makes it easier to identify the best trading strategies and maximize returns.
Streamlining your trading with autotrading technology
Autotrading tools could be immense in streamlining trades and effectively maximizing trading profits when used for trading endeavors.
As autotrading does not offer complete autonomy, it is of utmost importance that the program is fed with the correct parameters to ensure profitability. This is why it is important to test and backtest various strategies to pinpoint the most effective and relatively safe one. Hurriedly picking a seemingly good strategy or overlooking a potential drop in price could lead to incurring massive losses. Traders are advised to avoid complacency when using autotrading technology as it is merely a tool and not a substitute for actual trading acumen. As a result, traders are to update themselves with the latest patterns in the market and pay keen attention to details.
How streamlining your trading with Autotrading could be Advantageous
Maximizes strategy success
When used properly, autotrading maximizes the effectiveness of the trading strategy and parameters on which the trading basis is formed. Once the strategy is preset, the technology bumps up the success rate of such trading strategy significantly leading to increased success rate.
Identify potential trading opportunities
Although this isn’t always true, Autotrading technology is capable of identifying and possibly predicting future market and trading opportunities. Despite this possibility, there’s a caveat. The technology could identify and predict such opportunities but cannot act on them by itself. This responsibility falls solely on the trader.
Improves execution speed
Autotrading technology executes trades fast and furiously as its not inhibited by factors like second thoughts, fear or greed. Once the set parameters are met, the trades are executed in the moment at lightning speed without wasting a second longer.
Autotrading could be of immense help to traders especially newbies as they could seek out working strategies from more seasoned traders and employ those strategies with the use of autotrading technology.