The reason why trade automation is in use varies from trader to trader. However, it is vital to weigh the advantages and disadvantages of such a system before completing the purchase process.
Many amateur traders use forex robots with the hope of earning easy money with a lesser time commitment. However, there is no guarantee, and traders need to select the appropriate currency pair and time frame for trading. This article highlights the pros and cons of trade automation.
Pros of Trade Automation
24/7 Trading
It is not humanly possible to work throughout the day. Even the most dedicated ones also need time to do their daily chores or engage with family and friends. An automated trading system does not need any break, and hence it can monitor the market at all times and take action accordingly.
No Emotional Influence
You can provide instructions to an automated system that it will follow. Human beings seldom stick to a decision due to their emotional attachments. It often leads to delay or wrong execution of trades. Even when there is a firm strategy, traders lack objective-driven and critical thinking.
Increased Efficiency
An automated system can execute trades or scout new opportunities based on predefined rules in a few seconds. Any human being will take much longer to do the same. It can also happen that some of the aspects get missed out, leading to a lost opportunity.
Faster Backtesting
Backtesting helps to get an optimized strategy based on the various trading possibilities against historical data. The manual process is cumbersome and complex. Such systems also help to store and analyze large historical datasets. These allow the traders to quantify the effectiveness of various strategies before applying them.
No Prior Knowledge Needed
The easy availability of automated trading systems eradicates the need for an expert. However, you can do thorough research before opting for a particular automated trading system. It can help free up your time, which you can engage in learning trading and forex in depth.
Cons of Trade Automation
A Stable Internet Connection
A continuous and stable internet connection is essential for an automated trading system. Any lag or glitch in the server can lead the robot to execute incorrect trades. They can also face attacks from hackers.
Lacks Human Attributes
Successful traders use their analytical skills, knowledge, apply research, and a certain degree of imagination, observation, and creativity. These qualities help them better predict the market movement in the near future. Automated systems use the inputs given by the user, its original programming, and past performance.
Lacks Fundamental Data Interpretation
The automated trading systems are experts at technical analysis. They can process price charts and historical market statistics to predict future movement. However, they cannot analyze fundamental data.
Fundamental analysis takes into consideration the extrinsic factors and influencers for the evaluation of asset value. It can include political, economic, or industrial trends.
Humans can keep track of the developments around the world, but the same is not possible for a trading bot. They can use their skills to gauge the impact of such scenarios on the market. However, in such a situation, an automated system can trade ineffectively.
Vulnerability
By design, an automated trading system scouts for positive trends. Such a system is okay when the market is moving in one direction. However, when there is a sideways movement, it can impact a bot’s functionality.
Higher Chance of Scam
A crucial aspect that one must be aware of is that forex robot scams are common nowadays. Therefore you should be careful about your software supplier. Many scammers sell trash products in good faith.
Past data suggests the use of robots, designed specifically to put misinformation and spam the traders. Some companies help such victims with forex scam recovery. Their services help assimilate information, build a case, and help get back the money from the scammers.
Data-Mining Bias
A data mining bias happens when an analyst continues to look for a pattern till they find it. It leads to putting needless significance on a market event that may have been due to an unforeseen circumstance. Similarly, an automated trading system can put up results based on a particular backtest to the trader. The trader may bet on such a data set that has not gone through proper testing.
So, you can be cautious while choosing the appropriate automated trading system for you. An automated system can help you save your time spent on research and give you meaningful data sets. However, you must not fall prey to any ‘get rich overnight’ trap and keep track of your trades.
