Advantages and Disadvantages of Automatic Trading
Trading the currency markets can be made in two ways: manually (meaning there is a human standing in front of the screens that actually take the trades) and automatically (meaning there are robots/expert advisors that are programmed to automatically open positions if specific conditions are met).
Programming an expert advisor to trade for you is something that can be done if, like mentioned above, specific conditions are being met: if price breaks some specific levels, if an indicator shows some specific value, etc. These robots are being programed to buy/sell or to open/close positions automatically, without even being necessary for somebody to actually watch those trades as they are being executed.
Everybody knows about HFT (high frequency trading) and how big investment firms/companies use these algo's to trade based on news or economic releases with execution speeds that are virtually close to incredible facts: hundreds of trades per second. But these HFT algo's are extremely expensive and do not address the real retail trader. So what about the retail trader? Is automatic trading a mirage?
Of course not. Just Google the Internet and there are a lot of programmers offering to build your robot/ea (expert advisor) for you to trade with. Virtually any trading system can be programed if there are specific entry/exit rules for a trade and even money management can be programmed.
But why would somebody want to switch from manual to automatic trading? Well, there are certainly some advantages associated with automatic trading and the ones below are only some that are worth being mentioned:
– trading is a 24/7 job as markets are in a constant changing mode and that requires a lot of time and dedication many people do not have. Having a robot/expert advisor taking the trades for you allows the actual trader (human) to have more free time to use for other purposes: do research, spend time with family, etc.
– clear entry/exit rules make human errors disappear as the expert advisor will just entry/exit the market when it is instructed to do that. That gives accurate signals and the risk of not taking a trade because the trader was not in front of the computer disappears;
– possibility to trade other sessions than the ones in your time zone. A robot/expert advisor can trade 24/7 and that gives access to markets that otherwise would not be traded as on the manual trading the human needs some rest. The robot doesn't.
The ones listed above are only some of the advantages automatic trading offers but how about the drawdowns? Are there any? Well, of course there are and they may be as important as the advantages listed above: slippage, large spreads during economic releases, being filled too early/too late than the original plan was, etc.
Automatic trading is here to stay and with the rising IT industry there will be more and more complex ways and algorithms to trade markets without human intervention.
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