1. It Allows Backtesting
Backtesting is a word used to describe testing potential trading ideas using data from previous years. An automated trading system is characterized by absolute rules with no option for interpretation. This means the computer must be allowed to what must be done without making guesses. Backtesting allows a trader to evaluate:
a) How reliable their trading approach is
b) How likely the approach can turn a profit
c) How the strategy would behave in varying market conditions
In addition, it lets a trader identify how much money they expect to win or lose, per unit of risk. Backtesting is premised on the assumption that trading strategies that worked before will also work in the future
2. Diversifies Trading
Automated forex trading allows you to diversify your trade by offering you the option to trade on multiple accounts or use different strategies at the same time. This ability has the added plus of spreading risks so you don't sink all your money into one trading basket, which might result in losses.
Also, an automated system can identify new trading opportunities across a wide market network, as well as make orders and check the progress of trades.
3. Promotes Discipline
Trading on an auto trading system enables you to preserve discipline. Even experienced investors will tell you they have made rushed and impulsive decisions at one point. Discipline is lost when a trader makes trading decisions based on emotion. Traders who do forex hedging are particular beneficiaries of automation since they can rely on facts and data to carry out their trade.
In automated trading systems, the rules are already set and trades are executed automatically. Also, your trading outline is followed to the letter. The 'Pilot error' factor, which may lead to an inflation of numbers, is also eliminated. In addition, even if a trading plan had the potential to bring a profit, ignoring the rules subverts any expectancy the system had. Automated trading systems help you avoid this.
4. Minimizes Emotions
The success of any forex trader is determined by more than being knowledgeable or being able to predict movements in the market. Even if you are well versed with countless strategies or can use all the trading indicators in your sleep, you are better off knowing how to manage your emotions - an often overlooked factor in forex trading success.
Because of the exciting, fast-paced nature of the forex trade, many debutantes, and veterans alike, are tempted to place trades without thinking it through, either due to fear or euphoria. Automated systems do not give traders the room to doubt or question the trade, because all rules have been set prior. Also, just like they help traders who are afraid to make a move, they prevent traders from overdoing it - buying and selling at every perceived prime window time.
5. Improves Order Entry Speed
Once the criteria for an order are met, automated systems are able to follow it up with a fast generation of orders. Even a few days of forex trading can show anyone just how mere seconds can make all the difference. Entering or exiting a market at the right time often means a lot for the outcome.
Conclusion
The market moves really fast, and it can be dispiriting for a trade to come to the profit target or edge over into the stop-loss level before you get a chance to make an order. Automatic trading eliminates this possibility.
While an automated system has its advantages, it can also be complex. Before you start using the platform, get some experience, know the intricacies of the system. Also, always remember an automated platform is not a substitute for careful trading.