What is automatic trading?

Automatic trading consists of computer applications or software that issue orders for the purchase or sale of a financial asset based on parameters previously programmed and that perform advanced analysis of multiple variables that are supposed to assure them in some way to make correct or exposed decisions of lower risk in the extent to which they are not affected by the psychological part of the trader .

There are multiple automatic trading platforms. A tool that most brokers and traders use. In spite of everything a wide debate has been created around its reliability. This issue has many nuances, since most traders opt for the creation of their own program systems or the optimization of existing ones.

t is important to remember that automatic trading must be a support and you can not create absolute dependence on them. The knowledge and know-how of the trader are the best way to take advantage of these tools. A well-known case is that of May 2010, in which the Dow Jones index suffered for a moment the biggest drop since the crack of 1987. The automatic trading programs made the stop-loss jump in a market without depth. Finally, the fall could be reduced before the end of the session.

Among the advantages of using automatic trading include the following:

– Objectivity: To be a good trader there are three basic pillars: emotional control, risk management and a good strategy. With automatic systems we will only need the third element, since a machine does not undergo mood swings nor is it driven by fear or avarice, always making objective decisions.

– Time: The hours dedicated to study possible opportunities are reduced since the program will act on a series of specific assets.

– Diversification: It is allowed to work simultaneously in several markets, thereby reducing the risk.

– Efficiency and reduction of margin of error: With a program we can preset some automatic values ​​of purchase and sale and these will be executed without need to give the order. In addition, if by mistake some manual operation is performed that does not fit within the programmed parameters, the system will issue a warning.

As most important disadvantages we can say that, given the wide range of options of these automatic systems, the main enemy of the trader is a bad choice of it. Before making a decision you have to study the history of each program and analyze its results curve. A badly designed program can lead to losing a lot of money in a short time. In the same way it is important to manage risk management and remember that a system that provides few benefits but with constancy is always better than one with which in the short term many profits are generated.

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