Automated trading allows for a reduction in the risk of impulsive trading decisions, speeds up order execution, and enables strict adherence to a predefined trading plan.
Systematic trading with the best EA bots is becoming increasingly popular, partly because it is available 24/7. The popularity of automated trading is a proven fact, with nearly 80% of market orders executed using EAs. Both novice investors who use straightforward settings and professionals who customize the system to match their trading strategies and platform intricacies utilize trading bots.
However, in the latter case, it involves configuring this tool using additional code, which requires a good knowledge of programming or relying on professionals who can set up automated trading for you.
And although it may seem like an additional hurdle on your journey, the advantages outweigh the disadvantages. What other features, pros, and cons does automatic Forex trade have? It’s time to lay all the cards on the table.
Mechanics of automated trading
What is automated trading all about? Using specialized tools, such as free EA Robot MT4 allows you to pre-build your trading strategy and establish a set of rules for when the bot enters or exits trades based on indicator signals. You can also set parameters for trade types, entry and exit conditions, and more. The flexibility and functionality of bots may vary, so there are numerous tools available for automatic Forex trading.
Most free solutions offer relatively simple configurations, while paid tools provide more flexibility and versatility. If you have been trading independently for a while, have a well-defined strategy, and understand all the market nuances, you may find that such preset settings are insufficient for your needs.
In this case, manually adjustable systems (programmed bots) allow you to combine the convenience of systematic trading with your knowledge and experience. Then the computer, instead of you, monitors the market, identifying opportunities to buy or sell assets to achieve your desired profitability.
So, how to automate trading? What does the transition to automated trading look like?
- Data collection and strategy development, if you don’t have one already.
- Creating an algorithm that allows the bot to act on your behalf, following predefined parameters.
- Testing the viability of the strategy on historical data (this helps understand what decisions the bot would make in a live market based on real past performance).
- Configuring take-profit and stop-loss levels to manage potential risks.
- Launching the algorithm and generating orders sent to brokers for processing.
Automated trading cannot take place without monitoring and adjustments by the user. When you have control over what’s happening in your account, you can promptly identify technical errors and flaws in your strategy, analyze the tool’s performance, and make necessary corrections.
The Pros of Automated Trading
There is a whole list of reasons why automatic Forex trading is something you should consider.
- Less emotion – more excellent results. Trading may seem to be about numbers, strategies, and money. However, executing trades also involves a cocktail of various emotions: stress, fear, greed, uncertainty, and excitement. All of these affect how long you hesitate before entering a trade.
- Systematic trading is disciplined and follows clear rules.
- Trading according to a plan continues despite external circumstances. This helps you stay on track and adhere to your strategy even after one or several unsuccessful trades.
- The ability to test based on historical data allows for early evaluation of the effectiveness of the chosen system and the correctness of settings.
- The system can generate orders much faster than a human. As soon as all trading criteria align, the bot starts acting, keeping up with the market’s speed and dynamics better than any professional.
With the configuration of trading bots, you can use multiple systems or trade on multiple platforms simultaneously using different accounts. This way, you can diversify your trading and minimize risks.
The Cons of Automated Trading
A trading bot is still a program with its flaws and pitfalls. It’s essential to be aware of them:
- The possibility of technical failures.
- The system doesn’t do everything on its own and requires monitoring from the user.
- Sometimes, a strategy that looks good as a plan doesn’t work in practice as intended, and fixing it without trader intervention may be impossible.
- For deep professional system settings, you may need technical support from specialists.
Automated Trading in Forex: Risk Management and Drawdowns
Protecting yourself from the downsides of automated trading is relatively simple. Occasionally, you need to assess the bot’s effectiveness and make adjustments when necessary. Keep a trading journal to avoid emotional decisions and focus on areas that genuinely need optimization. Don’t forget to use stop-loss and trailing-stop orders to prevent significant losses.
Lastly, remember the need for diversification. You can trade manually with part of your assets or use multiple bots for automated trading. This allows you to employ various strategies and choose what works best for you.
Finding the Right Automated System
To find the perfect automated system that you can trust with your funds, pay attention to these criteria:
- How well a particular Forex bot aligns with your trading goals.
- What level of risk does a system offer, and how it matches your risk tolerance?
- How flexible and comprehensive the settings are.
- Which assets do you want to trade, and which strategy to follow?
Compare several top trading systems, highlighting the pros and cons of each, and choose the one that best suits your needs, is compatible with your broker, and is affordable. If a demo version of the bot is available, make sure to take advantage of it to test the chosen solution’s effectiveness.
Remember that no system works perfectly at 100% because the market is dynamic and ever-changing. Therefore, not everything can be configured or predicted. However, you can use multiple bots, practice proper risk management strategies, and thereby achieve profitability with fewer mistakes.