Automatic trading systems.
Automatic trading systems (ATS) refer to any kind of trading strategy that uses an automated system to place or receive trades in the stock market. This system is often used on autopilot to trade the markets for a trader or in the context of a larger strategy. In short, these systems essentially act as a robot that does the work and is able to place trades based on programmed algorithms.
Automated trading systems have been around for quite some time but only recently have become a common tool amongst professional traders. They have been especially popular in Europe and the United Kingdom because of their perceived advantages over other trading strategies. Automated trading allows traders to make trades based purely on their own set of trading rules rather than following a pre-set trading plan. Many traders also find that they are able to implement their trading plans quicker than with other systems because an ATS primarily trades in accordance with programmed algorithms, making the process of analyzing and interpreting trends much faster.
However, automated trading can come with its fair share of disadvantages. One of the biggest concerns traders have is whether or not using a system such as this is really worth the cost. While a good ATS will definitely have a few advantages over other trading strategies, it's important to remember that they are not free. Utilizing a backseat to confirm your trading rules and strategies can go a long way towards helping you determine if an automated trading plan is truly worth the money.
Backtesting, which refers to testing a system against various hypothetical or theoretical inputs, has been utilized by traders for years and is generally considered to be a reliable way of ensuring mechanical failures and or inconsistencies in a system. Using backtesting to verify the mechanical failures and inconsistencies inherent in your ATS will help ensure that your system is consistent with your rules. While it may take more time to perform a backtest than you would like, it is certainly possible to do. In addition, a reputable forex trading platform can expedite the process of performing a mechanical failure test.
There are several different reasons as to why traders choose automatic trading systems to execute their trades. Some use automated systems in order to free up time for themselves and can significantly lower the amount of human emotion involved with trades; however, other traders use these systems in order to confirm their rules and strategies without actually needing to be in front of their computers. Regardless of why traders choose to implement automated systems, it is imperative that automated trading systems be tested and demo'd before any real trades are made. By doing this, you can ensure that the trading system is following the same rules as you personally follow, which can greatly reduce the risk of losing money as well as making money by trading your account.
Most expert and experienced traders agree that automated systems are ideal for beginners or traders who don't have enough time to execute trades manually. While the reduction of human emotion can definitely reduce the risk of entering into trades without fully understanding their consequences, there are still traders who choose not to automate their trading activities simply because they have deeper pockets and wish to diversify their investments. However, it is entirely possible for all of us (even more experienced traders) to benefit from having automatic systems perform our transactions for us so that we can fully focus on developing our own investment strategies and managing our personal finances. With a properly implemented and managed automated trading system and the addition of specific rules and regulations, anyone can be able to successfully minimize the risks of investing while maximizing profits.
For example, a specific rule could state that you must only enter a trade if your exit strategy is completely risk-free. If you were to enter a trade and then immediately exit the same position without using a specific rule as stated above, your chances of getting out at the earliest possible point would be much higher than what is actually possible. To prevent this from happening, you would have to ensure that you set up your system so that your exit strategy doesn't rely on specific rules but rather relies on general market trends and economic factors alone. This is a much more effective way to ensure that you can avoid incurring losses and that you can maximize your returns as well. Of course, if you still want to apply some form of automation on your trades but you still want them to be executed according to specific rules, then you can add the rules that you would like to apply to your list of options and use the software to determine which of these rules should be triggered when the time comes so that your trades are more thoroughly controlled and can also become more profitable.
Another major benefit of using automated systems is that they provide backtesting services. The main reason why traders resort to automated systems in the first place is so that they can perform backtesting before launching their live campaigns. Backtesting is performed by traders so that they can find out which of their decisions or trading behaviors produce the most positive results. Once traders are confident in their trading skills, they can then go ahead and launch their live campaigns with real money. However, in the absence of back testing, traders will risk unnecessarily incurring losses as they will not be able to check their strategies' effectiveness based on real-time results.