Benefits of Automated Forex Trading Systems
Automated Forex trading systems have enjoyed popularity during recent years and enable a trader to execute trades without being directly involved in the decision-making process. Automated systems instead open and close their respective trades by use of algorithms and pre-set conditions based on market data and allow more hands-off approaches to trading. Even so, automated systems also have risks and drawbacks associated with them.
One of the things that would definitely make an automated Forex trading system appealing is that it can conduct trades 24/7. And since they are not a human machine of emotions and fatigue, they could monitor the markets around the clock, reacting at a moment’s notice to changes in the market. This may be very important in Forex trading due to its generally fast-paced market conditions. Traders can set their parameters and let the system execute their trades at the most opportune moments without necessarily being at their computers.
The other advantage is the destruction of emotional trade. A human trader is primarily swayed by psychological factors such as fear and greed, which cloud judgement and results in impulsive trading moves. An automated trading system bases its judgements solely on logic and predefined rules and therefore limits the impact of emotions. This renders the outcomes more predictable, as the system conducts the set strategy to the letter without any finesse.
However, there are also a few significant downsides with applying automated systems. One of the most critical concerns is that the automated systems are only as good as the algorithms on which they are based. Poorly designed strategy by the system or those not suited for changing market conditions may result in losses. Automated systems cannot adjust to unexpected events or news that might cause major market shifts. While the system might execute its trades based on the historical data, it fails to account for sudden changes economically or politically, which can significantly impact the market.
The third con of the automated system is the possibility of technical problems. Since the automated system works through the use of technology, it might run into technical malfunctions or servers that stop working or suffer a similar problem and affect the trading. A possible system glitch might mean missing trades or worse, trades at the wrong time, resulting in losses.
The installation, optimization and even the maintenance of the automated system can be quite impossible to understand for a trader who is not very skillful in programming. In most of the automated systems, adjustments and fine-tuning are sometimes necessary in order to assure that the system is working at its optimal. This can be quite time consuming. Other subscription or licensing fees apply to most automated trading systems, which makes their cost over time much higher.
Automated systems are user-friendly and efficient but not foolproof at all. The risks of traders, their level of experience, and the reliability of the system must be considered in order to be allowed for automation. A good sense of market is a must while utilizing such tools as it should shape your entire approach to trading.