Should You Use Automated Day Trading Software (EAs)?

A large number of individuals are drawn to the financial markets by the allure of quick wealth that may be attained through the use of day trading robots or expert consultants (EAs). A trading robot, often known as an EA, is a type of automatic trading program that may be installed on your computer and will make trades in your account on your behalf. There is a lot of money to be made from selling robots and EAs online, but before you dive in headfirst, there are several things you should think about first. There is no doubt that automating a strategy comes with a number of advantages, but it also has a number of disadvantages. It is important to keep in mind that making a significant amount of money is not typically simple. The oldest trading scam in the book is the one that promises quick and simple money. Trading robots and learning how to automate trading techniques both present opportunities to generate profits. Because a person needs to learn how to trade first and then still learn how to automate the strategies via a programming language, doing this effectively could actually take longer than simply learning how to trade manually. This is because a person needs to learn how to automate the strategies via a programming language. Purchasing software also comes with a tonne of risks, all of which will be covered in the upcoming section. Following this, we will examine all of this and more as we investigate the benefits and drawbacks of using EAs and robotic trading.

What Is Meant by the Terms "Automated" and "EA" Software?

There are several names for the software that executes automated trades, including Expert Advisors (EAs), robotic trading, program trading, automated trading, and black box trading. Each of these titles refers to the same type of software. Automated trading software is a program that is executed on a computer and trades in place of the individual who is controlling the machine. Because it is a computer program, it will only engage in transactions if the parameters of those trades match the instructions that are placed into the program. The development of a trading program demands not just expertise in programming but also substantial experience in trading. Since EAs are built on a trading strategy, that strategy needs to be straightforward enough to be parsed into a set of rules that can be automated. It will be more difficult to effectively program an approach that has a higher degree of complexity. People who acquire trading software put themselves in a position in which they are fully dependent on the trading expertise and programming skills of the individual who developed the software. Being in this precarious position puts you at risk. It is necessary to periodically update the software, as is the case with the majority of programs. Since the market circumstances are always shifting, the trading software must be kept current at all times. If the program is not kept up to date by an experienced individual, then there is a good chance that the software will have a very limited window of time during which it can generate a profit (if it was profitable to begin with). EAs that are not only created but also maintained by seasoned traders and programmers have the best potential to remain profitable over the course of a longer period of time.

Be wary of pressure from salespeople

Although some EAs will be successful and generate positive returns, the vast majority of them will not. People who try their hand at day trading have a very low rate of success, and this includes those who develop and purchase expert advisors (EAs). Even when utilizing a trading robot, the likelihood of being successful is still quite low. People that are successful with EAs monitor the performance of their EA regularly, make adjustments when market circumstances change, and take action when unusual events occur (random events can occur that affect the programming in unexpected ways). Robotic traders who are successful, like manual traders who are successful, put in the labor required to build and sustain a profitable trading environment. This is very different from the EAs that are marketed online that promise a life of effortless wealth with no effort required — all for the low, low price of $79.95. Once you have purchased an EA product, there is very little chance of receiving support or updates in the future. Even if the developer of the EA is successful, there is no guarantee that whoever purchases the EA will also be successful. It's possible that the show's creator will periodically step in or even pause the show entirely (for example, while a major news event is taking place). Even minute shifts in the timing of when the program is executed can have a significant impact on the output. It is in your best interest to avoid getting drawn into the sales pitch unless the inventor of the software is providing long-term updates and monitoring as market conditions change. If the creator is not doing either of these things, it is better to avoid getting sucked into the sales pitch.

Rarely does it involve automation? Completely and Utterly Computerized

As was just mentioned, profitable automated traders devote a significant amount of time and effort to the development and upkeep of their trading algorithms. Keeping the application running smoothly is the bulk of the job. It is not possible to just flip a switch and sit back and watch the money come in a while doing nothing at all. This strategy might work for a while, but eventually, market conditions will shift, and unexpected events will take place, requiring the trader to step in and make adjustments. It is doubtful that a person who purchases an EA will have the experience to recognize when to intervene and when not to intervene in the situation. A winning strategy could be turned into a losing one by intervening when it is not necessary to do so, just as failing to intervene when it is necessary could quickly deplete the trading account if it is not done. Jack Schwager's Market Wizards book series features interviews with a number of the financial industry's most successful automated traders. These traders were all really involved in their techniques and weren't just chilling out and doing nothing with their time. It is quite improbable that a person could purchase an EA and then simply leave it running while they slept or worked at another job. This strategy may be successful, but only if they continue to monitor the EA's performance, are familiar with how to modify the program in the event that market conditions shift, and are aware of when and how to manually intervene as necessary. There are others who believe that automated trading removes the element of emotion from the process of trading. The unfortunate reality is that this is not the case. Even if the software itself does not have any feelings, the person who is controlling it does. When people perceive that a program is losing money, they could get the idea that they need to do something about it, even though the program might be doing fine otherwise (losing trades happen). Or, they may manually override a deal in order to grab profits early by intervening when the individual spots a profit that they like and then canceling the trade. All of these behaviors influenced by emotion have the potential to damage the financial edge that an EA has in the market. Automated trading is not the same as trading on autopilot quite often. To be able to sustain an EA requires a significant amount of information, and trading skills and psychological abilities are still required in order to intervene when necessary, but not to an excessive degree.

The Benefits Obtained From Automated (Robot or EA) Trading

  • EAs relieve traders of some of the mental strain that comes with trading. However, those who use EAs still need to be aware of when they should intervene and when they should not.
  • EAs are able to react far more swiftly than humans. There is no hesitation on the part of the EA if a trade signal occurs, whether it be to enter or quit the market. On the other hand, humans have the ability to halt the trade or call it into doubt. In conditions characterized by rapid market change, the extremely quick response time of the EA proves to be an asset.
  • A human being is unable to monitor nearly as many markets as can be done by software on its own. The number of markets that a human can properly watch at any given time is much lower than the number that an EA can monitor. After being released into the wild, EA is able to discover opportunities in all of the markets that it has been designed to monitor. EAs are more able to make the most of available opportunities than humans are.
  • They will enter into transactions if they fit the strategy, regardless of how the trader feels about the transaction. If the plan has already been tried and tested with success, this is definitely a positive sign.
  • They compel the trader to simplify a strategy to the point where it can be implemented using computer software. Traders might gain a comprehensive understanding of their approach by going through this procedure. People that purchase EAs miss out on this benefit, and they frequently have no idea what features are hidden "behind the hood."
  • Once a trading program has been established, it may require only minimal maintenance over extended periods of time, despite the fact that human participation is necessary. This indicates that there may be times when using an automated trading program is less work than manually trading during specific time periods. When software does need modification, though, it can take a significant amount of time.
  • The viability of a trading strategy can be most accurately determined through the use of automated trading. Trading manually is fraught with too many unknowns, but a computer program will simply carry out your instructions. The process of testing and automating a strategy is an excellent technique to determine whether or not a strategy is viable given the conditions of the market at the moment.
  • After a strategy has been automated, it is much simpler to test it in a variety of market circumstances (using current or past price data). This will shed light on the program's strengths as well as its weaknesses. For instance, it may have a good performance in markets that are trending but a terrible performance in markets that are ranging. After then, the data can be utilized to modify the program or to indicate to the trader when it is suitable to interfere and either switch the program off or turn it on.

The Drawbacks of Using Automated Trading

  • Developing and/or maintaining the program is still going to demand a significant amount of effort.
  • It needs to intervene manually on occasion, which means that automated trading is not completely hands-off. For instance, if volatility grows significantly above what is considered normal, the size of the position might need to be manually adjusted.
  • Some programming skills are absolutely desired. Even if you pay for a program, the vast majority do not provide long-term support or regular updates to account for shifting market conditions. If you are unable to make any changes to the application, it will become obsolete sooner rather than later (unprofitable).
  • When you buy a program, you don't get a look at what's going on behind the scenes. One of the advantages of automating a strategy is that it compels the user to become intimately familiar with the strategy's inner workings and nuances. When purchasing a program designed by someone else, you give up access to this benefit.
  • The user will still be subject to psychological pressures, such as the desire to intervene when the program is successful (to protect revenues) or unsuccessful (to improve performance) (to protect capital). In addition to this, there is the psychological pressure of having to decide when the appropriate time is to step in.
  • There is little probability that purchasing an EA digitally will result in favorable outcomes in the long run. It might be effective for a little amount of time, but in the end, the person who is using it needs to keep it up and maintain it, as well as understand when to intervene and when not to.
  • Trading and programming expertise are both necessary components for developing one's own EAs. Trading expertise is necessary in order to develop the strategy that will be used in the programming.
  • As a result of the ease with which automated techniques can be tested, it is possible for them to be over-optimized. When software is fine-tuned to achieve the biggest profit possible based on previous price movements, this process is known as over-optimization. Although this may have given the impression that the program was very profitable in the past, optimization frequently results in a subpar performance in the years to come. Additionally, because it is simple to conduct testing, EA salespeople would frequently only highlight the times during which the program worked exceptionally well. Since a test of the approach can be carried out at any time period throughout history, this opens the door for a great deal of tinkering with the statistics. When you are looking at the statistics of automatic trading, keep this in mind. The most accurate statistics are those that are derived from actual, real-time market activity rather than those that are computed using simulated or historical data.

The Closing Statement Regarding the Use of Computerized Trading Software (EAs)

The ability to engage in automated trading can be useful and lucrative, but contrary to popular belief, it is not something that can be acquired over the internet for a few bucks. Trading automatically requires a significant investment of time and expertise. A trader needs an understanding of both trading and programming in order to design and efficiently manage an EA for trading purposes. Trading with robots also takes up a lot of time. It is not something that can be put aside and forgotten about. It needs to be checked on a regular basis, and there may be times when personal intervention is necessary, such as when random events occur or when market conditions shift. However, being skilled in the automation of strategies is a valuable task. In order to automate a strategy, one must have a comprehensive understanding of the strategy, but this makes the testing of the plan much simpler. If a straightforward tactic can be turned into a computer program, looking at how well that program has done in recent history can provide clues about how the strategy will fare in the future. EAs are able to monitor more markets for potential trading opportunities than people are, and they are also able to respond more quickly when trade signals come. Do not let yourself be fooled by sales pitches that promise you fast money if you purchase an electronic application. Learning how to trade is a better use of your time than understanding how to program, but if you want to automate your trading techniques, learning how to trade is still important.

Questions That Are Typically Asked (FAQs)

How do you create an automated trading system for stocks?

You will be able to construct a trading bot based on your trading methods if your brokerage grants you access to the code that drives the trading program. This is far easier to say than it is to accomplish, given that developing a bot from the ground up would most likely require extensive prior skill in the field of programming.

How many different trades can I make in a single day if I use a trading robot?

The market that is being traded in can impose certain restrictions on trading. Traders in stocks and exchange-traded funds are restricted to a maximum of three transactions each week unless they have a minimum of $25,000 in liquid assets. The futures and FX markets do not impose any trading restrictions; nonetheless, brokers often request greater initial deposits for accounts dealing in these markets.

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