What are the pros and cons of automated stock trading systems versus manual strategies?

 


In stock trading business, there are changes that hitherto were not imagined and the new technologies hold the secrets of these changes. Out of all the innovations above, automated stock trading systems in stocks have been realized and accepted by the traders as a means whereby they control trading through computers that run a trading program and execute trades in accordance with a set of rules. But the manual trading systems are not outmoded they continue to reside in place due to the sheer trust on instincts and abilities of the traders. Still, each of them is evaluated by its benefits and drawbacks, which are important for a trader to know, before choosing, which method of trading to follow and use.

Challenges and opportunities of using Automated Stock Trading Systems

 1. Speed and Efficiency

 Integrated systems can complete trading operations in less than a millisecond, and this is much faster compared to the time it will take a human being to do the same. This speed is necessary in stock markets, which does not wait when it comes to the change of prices. High-frequency trading based on the high efficiency of automated systems stems from the ability to reap small changes in value across many trades.

 2. Elimination of Emotional Bias

 Emotions are known to affect rationality, thus posting a major challenge to traders in their decision-making processes. Trading using robots is unemotional and is carried out using sets of rules as opposed to instinct and emotion. This can lead to better and orderly trading patterns prevalent in the trading accounts.

3. Backtesting Capabilities

 The efficiency of automated systems can be tested on historical data in order to establish the feasibility of a particular trading strategy. The drastic requirement for this is that it allows traders to tune their skills and plan their movements tactfully without risking actual money.

4. 24/7 Trading

 Machines need not rest and so whether in local markets or other distant regions of the globe, they can trade during their free time. This means that no avenue goes unexplored even at times that are outside the normal market trading.

 

Disadvantages of Automated Stock Trading System

  

1. Technical Failures

 Since execution of trades is done mechanically, trading robots are prone to glitches that include faulty software code, network failures or even a power surge. Such problems may cause the trader to either fail to make a trade or enter the wrong trade, which can be very dangerous since traders risk a lot of money in these trades.

2. Over-Optimization

 Also, relying too much on historical data might produce a technique or system that is over-calculated and not suitable for the actual environment of the stock market. This is commonly referred to as curve fitting where a strategy may not be great under future market conditions.

 3. Lack of Flexibility

 Traditional systems are run on a strict set of guidelines and are not easily adaptable to sudden market changes or living unpredictable events. The text signals and the qualitative factors that are related to news, market sentiment, and so on, are something that human traders can decipher and understand while it is very difficult for an algorithm to do so.

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