An automated trading system can be an efficient way for individuals and institutions to take part in securities market action. Many of the retail products on the market today are much more sophisticated than earlier versions. It’s actually quite common for large companies to set their in-house programmers to work on proprietary automated trading system setups that are used to make daily buying and selling decisions for the company’s account. Additionally, individuals can purchase retail automated trading system products or simply take advantage of what their brokerage firms have to offer in the way of licensed or proprietary software.
Either way, people who opt for automation can spend the time they save focusing on higher-level trading decisions, like vetting new investment opportunities or tweaking the software to create custom indicators and charts. Unfortunately, like every good software product, auto-trading bots come with their own set of drawbacks. Granted, that’s in addition to all the pluses of such systems, like removing emotion from the decision-making process, increasing the speed of order placement, allowing for a more disciplined trading approach, allowing for all sorts of statistical back testing, and more. What are the drawbacks, and how can everyday traders overcome them? Here are several of the most frequently encountered dilemmas with the software products and suggested ways to work around them.
Depending which system you choose to work with, or which ones your broker offers, the learning curve can range from low to moderate. Those with few technical skills to begin with are at the biggest disadvantage. Plus, some of the more complex packages demand strong skills if you decide to add your own indicators or choose techniques other than those offered within the pre-packaged template.
The solution is if you’re new, search for a broker offering automated trading software as well as training simulators and large-scale educational resources. The better brokerage companies are more than willing to assist new account holders in any way they can. That includes offering webinars, video tutorials, and online chat help with auto-trading strategies.
Like everything else in the digital and IT universe, securities-trading software is susceptible to mechanical downtime. Sometimes the source of the trouble is the platform itself, but at other times it could be your internet connection. Regardless, some retail and proprietary auto-traders are finicky and encounter their share of glitches.
You can work around this challenge by being prepared. First, always make sure your internet connection is reliable. Some people like to do their buying and selling of securities on a computer or tablet that is set aside for that purpose alone. Then, if one device goes down or loses its connection, you can use the other as a backup. This is particularly helpful when you’re in the middle of making a transaction and run into a mechanical problem.
Some of the inherent limitations that are part of any auto-trade product can throw you for a loop. Namely, if you make errors, the bot won’t necessarily correct you. This pertains especially to situations in which you place an order for the wrong number of shares, set incorrect stops or entries, apply technical indicators that don’t relate to the kind of order you’re placing, and many other human-based errors.
Trading-bots are not all-knowing AI geniuses that have the power to read your mind and correct your own mistakes. When people put too much faith in a mechanical, automatic application, they’re usually disappointed. What’s the best remedy? Learn what your particular program can and can’t do. Spend several hours on a simulator making sure you know how to set things up properly and jump in when the situation calls for it.
While it’s all too easy to assume that a beloved app or bot can operate as a set it and forget it arrangement, that is not the case with automated trading system programs. In fact, human monitoring is a must. There are several reasons. First, any digital-based program can breakdown or simply stop working as it should.
Second, even if there is no indication that a problem is occurring, a small dose of oversight can give you peace of mind that all your orders are being placed correctly. Finally, nothing lasts forever, including the state of the economy. That means you need to update, upgrade, and review results and functionality on a regular basis. The good news is that there is a real-world solution to every one of the drawbacks of automated-trading, regardless of the sophistication of the program you decide to use.