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Technical trading robots are one of the leading choices for investors who like to introduce a certain amount of automation into their daily buying and selling. One of the most interesting aspects of this new niche is that many IT professionals are leveraging their own programming talents to build their own bots from the ground up. In addition to that, many others with the requisite skills are creating a wide variety of automated solutions to enhance potential profitability for individual investors and traders.
But, like everything else in the world of advanced technology, there are positive and negative features that users need to know. When it comes to any of the common forms of bot customization, investors should experiment with several methods and techniques before settling on one particular customization they’ve come up with. Tweaking and editing are part of the process. Consider the following points before committing to the regular use of a custom trade-bot.
Testing, Testing, Testing
No matter how high-level your skills are, it’s essential to do enough back-testing on verifiable historical data before putting your system into practice. Even after the back-test phase is complete for your automated trading software, be sure to work with a brokerage firm that allows account holders to run customized bots. Some don’t. Once you’re settled in with a reputable broker, move slowly.
Step one is to deploy your creation and all its amazing power in a demo account. Using a demo account and trade simulator are the real secrets to getting familiar with potential bugs and kinks in any app, especially one you developed on your own. Once you’re confident that all the wrinkles have been ironed out, try a few small purchases with real funds in a live trading environment. Consider going back to the simulator and demo account from time to time when you feel the need to tweak your system or experiment with new strategies.
Pro: Emotional Control
One of the primary downfalls of DIY trading robots and related trading solutions is that human emotions are pushed completely out of the picture. Even the most sophisticated trading and investing enthusiasts who execute all their transactions manually fall prey to the lure of emotional decision-making. Even though peak inflation is behind us the ups and downs can still invoke emotions. The most common manifestation of the problem appears when someone is about to take a large position but backs out due to nerves.
Another variation on the theme happens during a live trade that starts to go south. Before the position touches the stop-loss point, many people just can’t help themselves and are unable to wait. They back out and sell too early. Inevitably, or at least quite often, when someone pulls out of a position early, that falling price has a tendency to turn around and start moving upward again. It’s almost like Murphy’s Law in the world of investments, and it is unable to ensnare those who use automated robots.
Automation breeds discipline. A more accurate way of describing the phenomenon is to say that automation enforces discipline. That’s because once you set it and forget it with a bot, there’s no danger of failing to follow rules-based protocols. All the guidelines are built into the program, which leaves human interference out of the equation.
Con: Mechanical Problems
There are two kinds of mechanical problems. One is fully under the programmer’s control, and one is not. This concept goes back to testing and tweaking. If you thoroughly vet your program before deployment, there should be no worries about mechanical drawbacks and unwelcome surprises in the form of breakdowns. So, on your end, the in-built probability for potential breakdowns is controllable. You can’t predict that a platform will fail, but every now and then, they do. Some traders go to great lengths to secure devices from hackers and vet brokers and only work with those that can guarantee uptime. Always ask prospective online brokerage firm reps about downtime while you’re in the information gathering stage.
Con: The Need for Monitoring
It’s instructive that most automated manufacturing plants need human oversight. That’s because nothing is perfect, even in the sophisticated world of high-tech industrialization. Be prepared to check on your bots regularly. This guideline is especially important during the first few months after deployment. Additionally, unless you have built and succeeded with several robo-traders in the past, consider monitoring every live program at least once per trading session. Remember, there’s no guarantee that the system will produce profits even if everything goes exactly according to plan. Some perfect robots deliver lackluster results. The first duty of the programmer, however, is to make sure that bots function as expected, not necessarily that they will be profitable.