Advantages of Automated Trading Systems

Trading in an ever-changing stock market can often become frustrating. There are so many variables that you need to keep track of to ensure that you make the best decisions. But being humans, we’re prone to making mistakes – sometimes analytical and sometimes emotional. Traders often become scared or greedy and end up making the wrong trading decision. But what if we had a mechanism that eliminated the possibility of human error? Well, actually there is – it’s called automated trading. By using algo trading strategies, computer software performs the analysis of the market for you based on the data collected from live feeds and thus, helps you make the best decisions. Let us take a look at some of the advantages of automated trading.

Removing the emotional bias

Humans are prone to being swayed by emotions, whether it’s fear or greed. Therefore, by eliminating the emotional bias, intraday trading strategies help you make least risky decisions. Amateur traders often invest a lot of their money in the market in the hopes that they would be able to generate a lot of profit quickly, but since they do not have too much capital to spare, they start panicking even if the things go slightly wrong. But with the help of Algorithmic trading strategies, you can safely maximize your profits while minimizing your losses.

Backtesting for performance guarantee

Given how high the stakes are in the stock market, the strategies aren’t implemented directly. They are first tested against a historical data set to ensure that they’re giving the desired results. Once they’yve been rigorously backtested, they’re allowed to be used in the market. These intraday strategies then help people earn money from the stock market passively, without having to monitor every bit and detail. Instead, the software does that work for them.

Discipline is preserved

Since the trading protocols are established beforehand and trades are executed automatically with the help of the software, discipline prevails even in volatile markets. In manual trading, emotional factors such as the fear of incurring a loss or the greed of eking out a bit more profit from a trade can often lead to making bad decisions. But since the trading plan is executed automatically in automated trading, these problems are resolved.

Higher volume of trades

One of the best things about automated trading is that you can still earn more profit overall even if you’re earning lesser profit per trade compared to manual trading – which need not be the case. The sheer volume and high speed of execution that the computer software offers, results in the accruing of profit and you end up making a lot of money without taking too high a risk.

Bringing diversity into trading

One of the greatest things about automated trading systems is that they facilitate multiple accounts and allow the user to utilize different strategies at the same time. What this does is that it spreads the risk over various instruments while at the same time, it also creates a fence against losing positions. This level of computational power is beyond our minds. Even to think about doing so is frustrating but the computer is able to do this within a fraction of a second.

The power of computing has helped reshape the trading industry and as a result, nearly 40% of all the trades that are conducted at the NSE (National Stock Exchange) are via automated trading. Earlier, only institutional investors were allowed but ever since the market has been opened for retail investors as well, we’re seeing a rise in the number of people using algo trading strategies to garner profit from the market, and as far as we can see, this trend is only going to get stronger.

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Created on Sep 11th 2020 01:18. Viewed 298 times.

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