In this article, I would like to present you with 3 widespread myths about automated trading which are very popular among the newbies and drag in people into the naïve conclusion that you could beat the market easily and without any effort. What is needed is to just to find a “magical” algo strategy and then sit down and wait for profits. So, let’s begin!
Myth #1 – Automated trading is not emotional
There is a common belief that since your trading is done by algorithms without any human intervention regarding the entering and exiting positions you cannot be emotional like discretionary traders are. The first one doesn’t cancel the other – your auto strategy can put you in position today and you could be doubtful about it and get pretty emotional about it. You could start thinking of closing the trade manually because you know that later in the day a big news is coming and your position is on the opposite direction of the expected news outcome. So you check the chart every 10 min and you’re thinking all the time about it. One can easily burn out with thoughts and feel pretty emotional right at that moment.
Emotional state can be easily tapped into when you have open profits and your mechanical system is leaving a lot of them on the table with a wide stop loss order and you start worrying that you could give it the most back in case the market starts moving against you.
As you can see there are many occasions that can lead a trader into a pretty emotional state regardless of the fact that all trading is done by the computers.
Myth #2 – It is set and forget scheme
Another common belief is that once you install the strategy code into the trading platform you could go to the beach waiting for your profits to accumulate. It is true that auto systems save you time for everyday trading routines, but they are not a set and forget scheme because they need supervision. First you should monitor all trades for errors in the code. Some of the trades would not be executed properly and thus you’ll have to solve the problem with the code. It is not an issue you would encounter every day, but all trades have to be monitored.
Also, a mechanical trader has to stop a system when is not working anymore. This requires again monitoring and analysing the system’s performance on a regular basis – days, weeks, months – it depends on the type of the strategy.
It is obvious that although auto trading is time saving, it requires time for monitoring and thus it is not a set and forget scheme.
Myth #3 – It is too technical
You have to be a programmer to be an automated trader and succeed. You’ve heard this so many times. It may sound logical initially, but the truth is that if you’ve got an idea for a trading system you don’t have to program it yourself. There are plenty of programmers out there who will do the technical work for you. Of course, you have to pay for it. The hard job is inventing the system and deciding what the trading rules would be. Everything else will be done easily.
Running a virtual private server, setting up your trading platform and other technical stuff is not hard and require just basic capabilities not different from working with Windows for example. Nowadays you could easily find any needed information about setting up your auto system correctly on the Internet.
I hope that I have helped you bust some myths regarding automation trading. Mechanical traders could be emotional, they need to invest time for their systems and they don’t have to be programmers or too technical in order to succeed in the field of all-go investing.