In trading, there truly is no such thing as a guarantee. The most strategic, fool-prof investment in the safest possible asset at least has the potential to work out poorly. That’s just the nature of the game. With that said, however, automating the trading process can increase the likelihood of better and more consistent results. This is actually a fairly easy concept to accept on its face. But here we thought we’d get into a few of the specific ways in which automated trading leads to more consistency.
It’s a common refrain that traders shouldn’t be emotional, or that emotions can be among the biggest detriments to successful trading. Switching to automated trading more or less eliminates these concerns entirely. Hackernoon describes it as removing factors that cloud your judgment, in a piece about automated trading as relates to cryptocurrency specifically, and there really isn’t a better way to put it. With automated trading, decisions are made ahead of time according to data, thus eliminating the anxieties, excitements, and even greed that can so often mess things up at the last second.
Stress among traders can actually be a pretty big deal. Yes, any job or financial venture can be stressful, but the nature of trading puts people more on edge and causes more anxiety. It’s something being discussed more of late, to the point that The Wall Street Journal posted a piece about meditation as a “way for stock traders to rebalance” just this month. And naturally, a trader who’s operating in a stressed-out state is going to be prone to more mistakes. We can’t claim that automating trading takes the stress out of the equation entirely; it’s still the trader’s money at stake, and a poor or risky investment can still cause anxiety. But entrusting decisions to a process and removing the emotion, as discussed above, can remove some of the day-to-day concerns in this regard.
Timing is an aspect of trading a lot of people don’t fully appreciate until they try it themselves, with regard both to the moment-to-moment decisions and the level of activity in a given market during different hours or on different days. FXCM describes the benefits of proper timing, suggesting that making decisions during “periods of maximum participation” increases the efficiency of trade execution, as well as the probability of seeing opportunity. These statements concern the forex trading market specifically in that piece, but they stand as a broader point about optimizing timing – which an automated process can do better than a human trader. Such a process can be designed specifically to recognize and take advantage of high-volume trading hours.
Last but not least is the idea of performance evaluation after the fact. We have discussed evaluating trading strategy performance before, and the simple fact is that it’s going to be easier if said trading strategy involves automated practices. When you attempt to evaluate a typical trading performance, there can be further opportunity for emotion to come into play; you may be more inclined to pick and choose pros and cons, and you may strain to see patterns or justifications that aren’t really there, because you want to buy into your own methods or success. If you’ve used an automated trading process though, you’ll have no such reason to skew your analysis, and you will thus be more likely to put together a clear evaluation.
Hopefully the above points have made the benefits of automated trading even clearer. Beyond the idea that each individual trade is more strategic and more objective, there are numerous perks that make the whole process more consistent and more likely to succeed.
This piece has been specially written for Mudrex by JBelcher
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