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TOPIC: What Are The Disadvantages Of Automated Trading ?

What Are The Disadvantages Of Automated Trading ? 06 Apr 2019 18:33 #1

  • smdsajir
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Hi friends, the automated trading system is now considered one of the best trading platforms in the world today. Even though this is technology and sometimes it causes a lot of technical errors.

So, today I will share the weaknesses of automatic trading with you. Therefore without wasting time, let's go straight to the point. But before that,

What is an automated trading system?

Automatic trading system - also known as mechanical trading, algorithmic trading, an automated trading system - allows traders to institutionalize the right rules for trading entries and exits.

After being programmed, it can be run automatically via a computer. In fact, around 75% of shares traded on US exchanges come from the automated trading system.

Rules for entering and leaving operations can be based on simple conditions, such as moving average crossover, or complicated strategies that require a global understanding of the appropriate programming language for the operator's trading platform.

They can also rely on the expertise of a qualified programmer. Automated trading systems usually require the use of software related to direct brokerage access, and any special rules must be written in the platform's exclusive language.

Platform Trade Station, for example, uses the EasyLanguage programming language. On the other hand, the NinjaTrader platform uses NinjaScript.


Losses and Reality of the Automated Trading System

The automated trading system has many advantages, but there are weaknesses and facts that must be considered by traders.

Mechanical damage - The theory behind automated trading makes everything simple: configure software, program rules, and watch trade. In fact, automated trading is a sophisticated, but not easy, trading method.

Depending on the trading platform, trading orders can be on the computer, not on the server. This means that if the internet connection is lost, the order may not be sent to the market.

There may also be a difference between "theoretical transactions" generated by the strategies and components of the order entry platform that turn them into actual transactions.

Many traders must imagine spheroid learning when using an automated trading system. It's usually wise to start with a small transaction when the process is perfected.
Monitoring

Monitoring - Although it is interesting to turn on the computer and leave that day, an automated trading system requires monitoring. This is because of the potential for technological failure.

Such as connectivity problems, power outages or computer failures, and system hazards. The automated trading system can experience anomalies that can result in incorrect orders, lost orders, or duplicate orders.

If the system is being monitored, this incident can be identified and resolved quickly.

Over-optimization - Although they are not particularly specific to automated trading systems, traders who use the backtest technique can create systems that look great on paper and work very directly in the market.

Over-optimization refers to curve adjustments that produce business plans that cannot be relied upon indirect transactions. For example, it is possible to refine strategies to get extraordinary results on historical data that has been tested.

Traders sometimes mistakenly assume that a business plan must have a profitable transaction close to 100% or should not be withdrawn into a feasible plan.

Thus, the parameters can be adjusted to make an "almost perfect" plan - which fails completely immediately after being applied to the real market.

These are some technical errors that sometimes occur. Even though it has several problems, we also cannot ignore the advantages.

So, please let me know if you agree with my opinion and if there is a topic that you want to discuss.
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