What is an Automated Trading Strategy?
As Automated Trading becomes more and more popular, many people are curious about it, and exactly how it can make money for them. This is also known as algorithmic trading. What exactly is an Automated Trading strategy?
An Automated Trading strategy is a specific set of rules that a computer uses to trade. We can have different strategies for different markets, including stocks, options, commodities and currencies (known as Forex). One of the major benefits of Automated Trading is that these strategies are executed with the cold precision of a computer. There is no room for human emotions, second guessing or regret.
What is it like to have an Automated Trading strategy working for us?
When we have an Automated Trading strategy working for us, it will typically take over all of the work that a trader would do. It is constantly aware of the current prices of the assets that it trades. It is analyzing trends and monitoring its positions. It makes trading decisions and sends its orders to market.
One of the major benefits of an Automated Trading strategy is consistency. Humans are very good at analyzing a variety of information, and making decisions. However, they are not very good at investing. 90% of investors lose money, and a lack of consistency is a big reason. Since the Automated Trading system uses set rules, it always makes the same decision given the same circumstances. This is a recipe for trading success.
Automated Trading strategies tend to have patterns in their behavior that help us choose which ones are better than others. One of the major indicators is account drawdown. This is a measure of how far the account goes down over time. For example, if the account goes from $10,000 to $8,000, then that is a drawdown of 20%. Automated Trading systems that have large drawdowns are of limited use because they can loose too much money. Systems that have small drawdowns are great because we can turn them off when they stop making money, and not lose a large amount of money in the process.
It will be interesting to see how Automated Trading diffuses throughout the investing industry. It is at its infancy at this time, but we believe that it will continue to grow and flourish.
Related posts:
- Automated Trading and Index Funds
- How You Can Optimize Your Automated Trading System Strategy
- Automated Trading and the Internet
- Automated Trading and the Risk of Catastrophic Loss
- What Is the Ideal Automated Trading System?
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