The Pros and Cons of an Automated Forex Trading System
Automated forex trading systems have become more popular over the years as the sophistication of the systems increase. However, it is important that you understand all of the pros and cons related to these systems. By understanding the two sides you are able to make an informed decision about whether or not these systems are right for you trading.
The Pros of an Automated Forex Trading System
There are a number of advantages to having an automated trading system that you should know about:
- These systems are known to minimise the emotions of trading. Many traders have a problem keeping their emotions under control when they trade. If you use an automated system you do not have to worry about this because the computer algorithm does not feel emotions and works solely on the strategy you provide.
- Automated systems are able to backtest trading rules to verify the validity of the idea. When these systems are created all rules have to be absolute as the system cannot complete interpretation. Traders must set rules for the system to work on and the system will test these to see whether or not they will work in a future market based on historical events.
- These systems allow a level of discipline in trading. Some traders find their discipline tested during highly volatile markets and this often leads to winning trades turning into losing trades. As the automated system only follows the rules you set it never varies or losing discipline.
- Trading consistency can easily be accomplished with an automated system. These systems only use the trading plan you have to trade. Of course, this does not mean that you will always have a winning trade because no trading system is 100% guaranteed.
- The order speed is often faster with these systems. When you manually trade there is a limit to how fast you can work. These systems are automated and work much faster than humans. When the indicators in the trading plan are triggered the system places a trade which you may have missed with manual trading.
The Cons of Automated Systems
Of course, there are a number of disadvantages that also come with these systems:
- As the system is a piece of software it can suffer mechanical failure. These failures could be a range of problems from loss of connection to the market, to the system freezing or there being a bug in the coding of the software. All of these problems can lead to losing money on trades or having to replace the system.
- Automated systems do require a level of monitoring. While most traders assume you simply set the system and leave this is actually a risky thing to do. There are times when the automated system duplicates trades, misses an order or enters something in incorrectly. No system is infallible which means you have to monitor what they are doing.
- Trading plans that look good on paper may not work on the live market. While these systems complete backtesting they may not pick up the difference. It is possible that the trading plan passes the testing only to cause losses on the live market.
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