MT2Trading Blog

News and updates from world's leading automated trading platform
Feb 08 2021

Automated Trading Systems: An Overview of Pros and Cons

Significant developments in technology have disrupted almost every industry, and online trading is no different. According to Forbes, more than 1,300 hedge fund managers use technology like automated trading systems for most of their trades to stay profitable and prevent losses due to wild guesses. With an automated trading system, traders can make educated decisions on whether to buy or sell assets.

Automated trading solutions also enable you to perform backtesting initiatives to enhance and optimize strategies before using them on everyday markets. This way, you can evaluate your trading plan’s patterns, strengths, and weaknesses for a consistent revenue on your desired timeline. It can also provide you with binary options signals that can help prevent losses due to unexpected market movements.

While automating binary options with systematized trading strategies can bring numerous advantages to your trading plan and help with your budget, it does not come without drawbacks. These issues can range from lack of options to make voluntary trading decisions to mechanical failures and additional development costs. This article will take a comprehensive look at the pros and cons of automated trading platforms to help you understand how these solutions can improve and impact your trading strategy.


Stay Data-Driven

Controlling your emotion while trading can make a world of difference between profits and losses. However, doing so is easier said than done, especially when a buying frenzy hits a market. The fear of missing out (FOMO) often creates a strong desire for traders to take the plunge without performing in-depth assessments. A recent report reveals that 95% of traders lose money, with most of them continuing to trade regardless of repeated losses.

Automated trading systems comply with predefined trading rules rather than wild decisions driven by the trader’s guesses or emotions. This helps traders to stick with their strategy and prevent losses as a result of reacting to sudden market movements and newsworthy events.

Automated trading apps can also curb FOMO among traders and allow them to stick to their strategy rather than following market news and opinions. While sitting through your trading strategy’s drawdown timeline can open you to a string of losses, it increases your chance of becoming consistently profitable in the long-term since you are making fact-based investment decisions.

Perform Comprehensive Backtests

Identifying patterns is critical in becoming a successful trader. You have to know past movements and tie them to current trends to make sound buying-and-selling decisions. Recognizing trading patterns allows you to form a basis of learning and action, yielding potential revenues when applied in real-life situations.

Automated trading systems empower you to perform backtests by evaluating historical trading data to determine the accuracy and adjust strategies to achieve your desired result. This makes it easier for traders to determine whether their automated trading strategies have a predictive value when implemented in existing market conditions.

It also eliminates the bias and errors from backtests since insights are based on the information you input. One way to ensure objective and fair test results is to check digital asset management software options that match your requirements. This way, you can ensure that your decisions are data-driven, achieving consistency and improved decision-making.

Diversify Trading Portfolio

The benefits of diversification in trading are too essential to ignore considering the trading market’s volatility and unpredictability. Diversifying your assets enables you to reduce the brunt of a wrong forecast and avoid having your trading account all wiped out.

The advantage of knowing how do automated trading systems work is that you can trade numerous strategies and several accounts simultaneously at a quicker rate. Doing so enables you to build a reliable hedge over a losing valuation and ensure that your portfolio is less sensitive to market volatility.

It can also help you gain compounding profits to create a snowball effect that will prompt prior investments and income earned from those to increase together, thus, growing your portfolio over time. Automated trading systems also protect you against negative market cycles, which often occur when you expect it, thus preventing significant losses.


Mechanical Issues

Perhaps the most significant downside to employing automated trading systems in your trading strategy is the increased risk of mechanical failure. Automated trading solutions are not immune to power losses, computer crashes, and connectivity issues.

Therefore, traders must continuously monitor their devices to prevent unauthorized transactions as a result of mechanical problems. Manually monitoring your devices’ statuses can be exhausting and could take a toll on every trader.

An excellent way to avoid mechanical issues is to perform regular tests and evaluations on your system. By keeping your automated trading system updated and patching bugs, you can prevent mechanical issues from hunting you in the most suitable time and ensure that your plan delivers its promise.

Over-Optimizing Backtest Results

Over-optimization is another risk that comes with using automated trading apps. These solutions often deliver backtest results that look good on paper but are not applicable in real-world trading situations.

As a result, traders are forced to alter specific parameters to ensure that their trading plans are suited only to find out that it ultimately failed on a live market. While there is no one-size-fits-all solution to prevent over-optimizing, traders can avoid falling victim to these circumstances by improving selected parameters.

By reducing the number of unnecessary rule combinations, you also minimize the probability of basing your entire trading plan on past data. You can also conduct forward performance testing on your automated trading system so that you can evaluate the system properly for entries and exits.

Limited Trading Choices

Reacting quickly to market movements helps active traders become more profitable in the long-term. Unfortunately, that is not possible with automated trading systems because of their predefined rules.

This means that you won’t be able to enter or exit other markets based on your evaluation of the news available and existing market conditions. Although it may not seem like a big deal for most traders, lack of discretionary choices may hunt you should market conditions change outside of your initial assessment.

This can also lead to your trading strategies being deemed ineffective and unable to deal with market changes, resulting in potential losses. While there is no getting around this dilemma with automated trading systems, you can still maximize its full capability by performing a comprehensive evaluation and setting stop-loss limitations on particular assets.

Ensuring Successful Trading through Automated Trading Systems

Automated trading systems are not fool-proof tools that guarantee successful trading, although it can be useful in helping you make sound decisions in the heat of a moment. The best algorithmic trading software is brimming with robust features like automatic trading, risk management, signal builder, MetaTrader connectors, and economic news filter, which work conjointly to help traders succeed in the long run. Such features are available on dynamic trading systems like MT2Trading.

MT2Trading is a robust platform that allows traders to automate their investments using trading robots, eliminate emotion-based decisions, and use data to improve their trading strategies. It is also geared with an industry-grade signal builder that lets you design and create educated trading strategies that fit your specific needs for comprehensive backtesting. MT2Trading offers a generous free trial on top of its Pioneer, Visionaire, and Expert bundles, available monthly, quarterly, and annually.