Last Updated on December 6, 2022 by Faiza Murtaza
The pandemic and other factors have increased the cost of living, and people are looking for ways to build another income to live well. One of the ways working professionals can achieve this objective is to do trading. But it involves risks as well as investing a good amount of time which is not always easy to do. Automate trades are a perfect solution for those who want to build another source but want to spend as minimum time as possible. In this article, you’ll learn about automate trades to build another income in detail.
What Is An Automated Trading System, And How Does It Work?
The automated trading system is called algorithmic trading, system trading, and mechanical trading. It is a system that allows traders to set specific rules for entry and exit. Once it is programmed into the system, it gets triggered automatically by the computer. The biggest advantage of using this system is that it removes the emotion from the trading and allows precise entry, exit, and money management rules to be used once the criteria are met.
The rules that can be programmed into the system can be simple conditions or complex strategies and require an understanding of the programming language specific to the trading platform. First, you have to choose a platform to set your trading strategy. For instance, you can use the Algo trading platform in India to set conditions and rules using your trading experience. Your custom algorithm will be applied at the time of trade on your behalf. The platform monitors the financial markets continuously and triggers the trade when the predetermined parameters and rules are met. The purpose of using an automated trading system is to execute trades more efficiently and quickly to make use of market events.
Advantages of Automated Trading Systems
Automation has a lot of advantages over manual, and there is a long list of benefits to having an automated system monitor and execute your trades. Some of them are:
Removes emotions out of the equation
Traders sometimes find it difficult to pull the plug when things are going up or down. Using an automated trading system to set rules makes it easy to stick to your strategy. Trades are executed automatically once the criteria are met, and traders cannot question or hesitate. It is useful for those who overtrade.
Allow testing of rules
The trading platform allows for backtesting. It is a process where you can test your trading rules on historical data to determine how viable the rules you have set are. The rules need to be perfect to design an algorithm with no room for interpretation. With backtesting, traders can test these rules on historical data and fine-tune them. This helps in minimizing the risk of losing money in live trade and determining the average loss or gain as per risk.
Increase entry speed
Getting into or out of a trade a few seconds early or late makes a huge difference in markets. When you use computers to generate orders, they react immediately to changing events in the markets when the criteria are met. So others get generated automatically and make a huge difference in the outcome. As markets move quickly, it can be demoralizing for the trader to see a stop loss not triggered or an inability to get profits before the orders are entered. An automated system prevents all this from happening.
It allows the user to trade with many strategies and accounts at the same time. So you can spread the risk across various instruments. Accomplishing the same manual can be challenging, and it gets efficiently computed in an automated system.
There are many benefits of an automated trading system, but there are a few things to remember before using it. While it helps to make money but may take longer than expected, and you may feel it is better to trade manually. But once you understand the system’s nuances, you can achieve that passive income quite easily.