Many people are lured to the markets by promises of easy money via day trading robots or expert advisors EAs. An EA, or trading robot, is an automated trading program that runs on your computer and trades for you in your account. Selling robots and EAs online has become a huge business, but before you take you plunge there are things to consider.
There are certainly some benefits to automating a strategy, but there are also some drawbacks. The thing to keep in mind is that rarely is making a boat load of money easy.
The promise of easy money is the oldest trading scam in the book. There is money to be made with trading robots and learning to automate strategies. Unfortunately, to this do effectively could actually take longer than simply learning how to trade manually, since a person needs to learn how to trade first, and then still learn how to automate the strategies via a programming language.
And buying a program comes with loads of pitfalls, which will be discussed shortly. Automated trading software goes by a few different names, such as Expert Advisors EAs , robotic trading, program trading, automated trading or black box trading.
Automated software is a program that runs on a computer and trades for the person running the program. Since it is a program, it will only take trades with parameters that align with what is written in the program.
Creating a trading program requires extensive trading knowledge, as well as programming skills. EAs are based on a trading strategy , so the strategy needs to be simple enough to be broken down into a series of rules that can be programmed.
The more complex a strategy, the harder it will be to effectively program. For people who buy trading software, they are completely dependent on the trading skills and programming skills of the person who wrote the program.
This is a vulnerable position to be in. Like most software, it will require an update from time to time. Market conditions change, and the trading software needs to be updated with it. If the software is not updated by someone who knows what they are doing, then it is quite likely the software will have a very short shelf life of profitability if it was profitable to begin with. EAs that are written by and maintained by experienced traders and programmers have the best chance at maintaining profitability over the long-term.
The odds of success are still very small even when using a trading robot. The people who are successful with EAs constantly watch how their EA is performing, make adjustments as market conditions change and intervene when uncommon events occur random events can occur that affect the programming in unexpected ways. Successful robotic traders, just like successful manual traders, put in the work required to create and maintain profitability.
This is quite different than the EAs sold online that describe a life of easy money and no work Once you buy an EA, rarely is there support and updates after the fact. Even if the creator of the EA is successful, that doesn't mean someone who buys the EA will be. The creator may occasionally intervene, or turn the program off during major news events , for example.
Slight changes to when the program is run can change results dramatically. Unless the creator of the program is coaching you on how to do this, or providing long-term updates and monitoring as market conditions change, it's best to avoid getting sucked into the sales pitch.
The real work is maintaining the program. Someone can not simply flick a switch and watch the money role in while doing nothing. This may work for a time, but market conditions change and unexpected events occur, which require intervention on the part of the trader. If a person buys an EA, it is unlikely they will have the expertise to know when to intervene and when not to. Intervening, when not required, could turn a winning strategy into a losing one, just as not intervening when required could drain the trading account in a hurry.
In the Market Wizards book series by Jack Schwager , several successful automated traders are interviewed. All these traders were highly engaged with their strategies, and not just sitting back doing nothing. It is highly unlikely that a person can buy an EA and just leave it running while they sleep and work at another job. This approach may work, but only if they stay on top of the EAs performance, have the know-how to alter the program if market conditions change and know how and when to manually intervene when required.
Some people think that robotic trading takes the emotion out of trading. Unfortunately, this is not true. While the program doesn't feel emotion, the person running the program does. People may feel tempted to intervene when they see the program losing money, but the program may still be functioning well losing trades happen.
Or they may intervene to take profits prematurely, manually overriding a trade when the person sees a profit they like. All these emotionally-driven actions could destroy an EAs profitable edge in the market. Automated traded is rarely auto-pilot trading. Pros of Automated Robotic or EA Trading Getty Images Some of the pros of automated trading have already been discussed but let's go through more, in bullet form.
Some of the drawbacks of automated trading have already been discussed but let's go through some more, in bullet form. Automated trading can be a beneficial and profitable skill to have, but typically this skill can't be purchased for a few dollars on the internet.
Automated trading takes a lot of work and skill. To effectively create and maintain an EA, a trader needs both trading and programming knowledge. Robotic trading also requires time. It is not something to set and forget. It needs to be routinely checked and manual intervention may be required when random events occur or market conditions change. Learning to automate strategies is a worthwhile endeavor though. Automating a strategy requires in-depth knowledge of the strategy, and makes testing the strategy very easy.
If a simple strategy can be programmed, seeing how that program performed recently may provide insights into how it will perform in the future. EAs can monitor more markets for trading opportunities than humans can, and can react quicker when trade signals occur. Updated June 23, Below, we look at all of this, and more, exploring the pros and cons of robotic trading and EAs. Beware the Sales Push. Cons of Automated Trading.More...