Certainly, there are some benefits to automating a strategy, but there are also some drawbacks. The thing to keep in mind is that money loading is rarely facilitated. The promise of easy money is the oldest commercial scam in the book. You can earn money with commercial robots and learn to automate strategies. Unfortunately, doing this effectively could take longer than simply learning to trade manually, since a person needs to learn how to trade first and then learn to automate strategies through a programming language. And buying a program comes with many traps, which will be discussed shortly.
Next, we look at all this and more, exploring the pros and cons of robotic trade and EA.
What Is Automated or EA Software?
Automated trading software has different names, such as Expert Advisors (EA), robotic trading, program trading, automated trading or black-box trading.
Automated software is a program that runs on a computer and exchanges for the person running the program. As it is a program, it will only take operations with parameters that align with what is written in the program. The creation of a commercial program requires extensive commercial knowledge, as well as programming skills.
EAs are based on a commercial strategy, so the strategy must be simple enough to be divided into a series of rules that can be programmed. The more complex a strategy, the more difficult it will be to program effectively.
For people who buy commercial software, they depend entirely on the business skills and programming skills of the person who wrote the program. This is a vulnerable position to be.
Like most software, it will require an update from time to time. Market conditions change and commercial software must be updated with it. If the software is not updated by someone who knows what you are doing, then it is very likely that the software will have a very short useful life (to begin with, if it were profitable). EAs that are written and maintained by experienced operators and programmers have the best chance of maintaining long-term profitability.
Rarely Is Automated FULLY Automated
As mentioned earlier, successful robotic operators worked hard to create and maintain their programs. The real job is to keep the program. Someone cannot simply press a switch and see how money accumulates without doing anything. This may work for a while, but market conditions change and unexpected events occur, which require the intervention of the trader.
If a person buys an EA, he is unlikely to have the experience to know when to intervene and when not. Intervening, when not required, could turn a winning strategy into a loser, just as not intervening when required could quickly deplete the business account.
In the Jack Schwager Market Wizards book series, several successful automated merchants are interviewed. All these operators were very committed to their strategies, and not only sat down without doing anything. It is very unlikely that a person can buy an EA and simply leave it running while sleeping and working at another job. This approach may work, but only if they remain above EA performance, do they have the knowledge to modify the program if market conditions change and know-how and when to intervene manually when necessary.
Some people think that robotic commerce eliminates the thrill of commerce. Unfortunately, this is not true. Although the program does not feel emotion, the person who executes it does. People may be tempted to intervene when they see the program lose money, but the program can continue to function well (exchanges are lost). Or they can intervene to take profits prematurely, manually canceling operation when the person sees a profit he likes. All these emotionally driven actions could destroy a profitable advantage of EA in the market.
Automated trading is rarely the autopilot trade. A lot of knowledge is needed to be able to maintain an EA, and commercial skills / psychological skills are still required to intervene when necessary, but not too much.
Pros of Automated (Robotic or EA) Trading
Some of the advantages of automated commerce have already been discussed, but let’s see more, in the form of bullets.
- EAs eliminate some of the psychological pressures of trade. However, people who use an EA still need to know when to intervene and when not, what remains a psychological pressure/ability.
- EAs react faster than humans. When a commercial signal appears (to enter or exit), there is no doubt on the part of the EA. Humans, on the other hand, can freeze or question the trade. The ultrafast reaction time of EA is beneficial in fast-moving market conditions.
- Automated software can monitor many more markets than humans. At any time, a human being can only effectively monitor some markets, but an EA can monitor hundreds. Once released, an EA can find opportunities in all markets that it is scheduled to monitor. EAs can take advantage of more opportunities than a human.
- It will take operations that adapt to a strategy, even if the trader feels otherwise. If the strategy has proven profitable, this is a good thing.
- It forces the merchant to simplify a strategy at a level where it can be programmed. This process gives operators a deep look at their strategy. People who buy EA do not receive this benefit, and often do not know what is “under the hood.”
- While some intervention is required, once a negotiation program is created, it may require minimal maintenance for long periods of time. This means that during certain periods of time, an automated trading program may be less work than manual trading. However, when a program needs work, it can take a lot of time.
- Automated trading is the truest proof of whether a strategy is viable or not. Manual trading has too many variables, while a program only does what it is told. Automate and test a strategy is a good way to see if a strategy is viable under current market conditions.
- Once a strategy is automated, it can be easily tested in different market conditions (using current or past price data). This will reveal the weaknesses and strengths of the program. For example, it may perform well in trending markets, but deficient in rank markets. This data can be used to alter the program or to show the operator when it is appropriate to intervene and turn off or on the program.
Cons of Automated Trading
Some of the disadvantages of automated commerce have already been discussed, but let’s look at some more, in the form of bullets.
- It still requires a lot of work to create and/or maintain the program.
- Occasionally manual intervention is required, which means that automated trading is not fully automatic. For example, if volatility increases much more than normal, the size of the position may need to be altered manually.
- Some programming skills are definitely desirable. Even if you buy a program, most do not come with long-term support or updates as market conditions change. If you don’t know how to modify the program, the program will eventually be useless (not profitable).
- Buying a program means not knowing what’s under the hood. One of the benefits of automating a strategy is that it forces the user to really know the ins and outs of the strategy. That benefit is lost when you buy someone else’s program.
- The user will still face psychological pressures, such as wanting to intervene when the program is going well (protecting profits) or doing badly (protecting capital). There is also the psychological pressure to decide when is the right time to intervene.
- It is unlikely that buying an EA online will produce positive long-term results. It can work for a short period of time, but ultimately, the person who uses it needs to keep it and know when to intervene and when not.
- To create your own EA, commercial and programming skills are required. Commercial skills are necessary to create a strategy to be programmed.
- Since automated strategies can be easily tested, that leaves them open for excessive optimization. Excessive optimization is when a program is adjusted to create the greatest gain in past price movements. While this can make the program look very profitable in the past, optimization often leads to poor performance in the future. Also, since the tests can be run easily, EA vendors will often only show the periods in which the program worked very well. You can make a test of the strategy for any period of history, so it is open to many changes in statistics. Keep this in mind when viewing automated business statistics. Ideally, statistics should be based on live commerce and not run on simulated or proven data.