Trading on the stock exchange using robots, Why stock market traders should be terrified of robots in the next decade

Building robots for trading. What should a beginner know?

He has provided education to individual traders and investors for over 20 years. Article Reviewed on July 22, Gordon Scott Updated July 22, Many people are lured to the markets by promises of easy money via day trading robots or expert advisors EAs.

Building robots for trading. What should a beginner know?

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 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.

trading on the stock exchange using robots

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. Below, we look at all of this, and more, exploring the pros and cons of robotic trading and EAs.

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.

trading on the stock exchange using robots

Creating a trading program requires extensive trading knowledge, as well as programming skills. EAs are based on a trading strategy, arrow strategies for binary options the strategy needs to be simple enough to be broken down into a series of rules that can be programmed.

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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.

Why stock market traders should be terrified of robots in the next decade

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.

trading on the stock exchange using robots

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.

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Successful robotic traders, just like successful manual traders, put in the work required to create and maintain profitability. 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 eventsfor example.

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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 roll in while doing nothing. If a person buys an EA, reviews earnings remotely 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.

trading on the stock exchange using robots

In the Market Wizards book series by Jack Schwagerseveral 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.

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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, trading on the stock exchange using robots the program may still be functioning well losing trades happen.

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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. EAs remove some of the psychological pressures of trading. EAs react quicker than humans can. When a trade signal appears to enter or exitthere is no hesitation on the part of the EA.

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Humans, on the other hand, may freeze or question the trade. The lightning-fast reaction time of the EA is beneficial in fast moving market conditions.

At any moment a human can only effectively monitor a few markets, but an EA can monitor hundreds. Once let loose, an EA can find opportunities in all the markets it is programmed to monitor. EAs can take advantage of more opportunities than a human can. Will take trades that suit a strategy, even if the trader feels otherwise.

Forces the trader to simplify a strategy down to a level where it can be programmed. This process gives traders an in-depth look at their strategy.

trading on the stock exchange using robots

People who buy EAs don't receive this benefit, and often don't know what is "under the hood. This means that for certain periods of time an automated trading program may be less work than trading manually.

When a program needs work though, it may require a lot of time. Automated trading is the truest test of whether a strategy is viable or not.

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