Automated Day Trading Definition
Automated day trading is when a trading system places orders in the market without any human interaction. These systems work best for traders who are unable to manage their emotions and or have poor money management techniques. With a number of direct access brokers providing automated trading, it is no longer just an option for large banking institutions.
Pros of Automated Day Trading
There are very few traders that can handle the emotional runs that come with actively trading in the market. Day trading requires you to have a constant conversation about risk, entries, exits, etc. Since the market is actively moving, you have to constantly react as an active trader. This is where an automated trading system will help. The system will identify the trading opportunities and execute the orders. This allows the day trader to step back and simply watch their system at work.
Cons of Automated Day Trading
Each day in the market is completely different. Some days the market will trend, while other days the market will be completely choppy. Traders of course will be able to react to the market environment, while the majority of systems are only optimized for specific market situations. Lastly, unless you develop the trading system yourself, you have no idea how the system works. So, if you purchase a “holy grail”, how do you know when it is broken? Are you suppose to just sit there and wait for your account to hit zero before you cut off the trading robot?
Popular Automated Day Trading Systems
Automated day trading systems perform best when they are focused on one security. The popular systems target the e-minis and forex. System traders are most attracted to the forex market due to the clean price structure and available leverage. When looking for a system make sure you can monitor it in a trading simulator before putting up any real cash.
Summary
In summary an automated day trading system can take the emotions out of trading and reduces trading to simple rules. Remember though, that there is no free lunch in the market, so traders will have to determine how well a respective system fits into their trading profile. Lastly, the trader must test drive the system for an extended period of time before committing any money to the system.
