7 Advantages and Disadvantages of Automated Trading in 2022

The popularity of automated trading in Australia has steadily grown. However, a habit of based on algorithms has both advantages and disadvantages.

In this article, we will list the main advantages and disadvantages of automated trading that you must keep in mind in 2022. In addition, we will provide you with recommendations for finding the best stock trading platform australia.

Advantages of automated trading

Ability to work 24/7

Some trading platforms operate 24/7, without taking breaks for weekends and holidays. Automated trading tools can continue to operate uninterrupted even when the human trader is sleeping. They can take advantage of any profit opportunities that appear in the market.

No emotions

Unlike humans, auto trading tools never get tired, stressed or anxious. Their decisions are always based on impartial calculations and analysis. They act much faster than even the most skilled person and never make mistakes.

Backtesting

The term “backtesting” means that all decisions made by an automated tool are supported by historical data. Unlike humans, bots leave no room for guesswork or interpretation.

First, the human trader “feeds” the bot historical market data and statistics from their previous trades. The tool processes this information and builds a strategy that will determine its behavior in the future.

Such an approach does not guarantee that each transaction made by the bot will bring you the maximum possible profit. But it’s one of the surest ways to minimize risk and increase your chances of making money.

Diversified trade

Each auto trading tool can only stick to one strategy. If you want to test several strategies, you can open several trading accounts and assign a bot to each of them. This should allow you to continue making profits regardless of the current market situation.

Disadvantages of automated trading

Mechanical failures

Robots can fail unexpectedly. You should visit the trading platform regularly to make sure your tools are working as expected. The term “automated” is not synonymous with the complete absence of human supervision.

Over-optimization

When performing backtests, everything may look fine until the moment your bot starts trading. A strategy that looked great on paper might not turn a profit in a real market. You will need to thoroughly review and refine it and keep testing until the strategy becomes sustainable.

Scams

Automated trading tools will only bring you profits if you use them on reliable platforms.
Moreover, you should buy bots from trustworthy developers.

Final Thoughts

I hope you found this article informative and have a better understanding of the pros and cons of auto trading in 2022. For one thing, bots have no emotions and can operate 24/7 . You can benefit from backtesting and diversified trading.

On the other hand, bots are prone to mechanical failure. You must remain vigilant to avoid scams and over-optimization.

Summing up, we can say that automated trading tools can be very useful, but only if you need to know how to set them up correctly and monitor their effectiveness.

Garland K. Long