Why Automated Trading Platforms Mostly Failed?

Automated Trading System

The automated trading systems, which is also known as mechanical trading system sets specific rules for trade entries and exits. After the programming can be automatically performed by a computer. The trading platform is based on a simple calculation of moving averages or the complex one strategy that needs a brief understanding of the programming language. The understanding of the programming language can be done by the professionals and programming experts. The automated trading system is done through the use of software, that is linked to the broker. The trading platform has an easy and understandable language. On the other hand, the Ninja Trader platform utilizes the Ninja script language programming.

Trading platforms possess have "wizards" for strategy building which allow the users to select from a number of generally available indicators to construct some rules so that it can be traded automatically. For example, a user can establish a long trade that will be entered when the moving average of the 50 day reaches above the moving averages of more than 200 days. This can be done on a chart of a trading instrument. Furthermore, the users can enter the type of order and when the trade will end, it can use the input of default platform. However, a lot of traders program their custom strategies and indicators for developing the system. This requires much more effort than utilizing the wizard. It allows a high degree of flexibility and then the results is outstanding. Sadly, there’s no ideal strategy for investment that ensures success.

As you establish the rules, the system will search the markets for buying and selling opportunities, which is based on the specifications of trading strategy. Depending on these rules, when a trade is confirmed, any orders for trailing stops, stop losses,  and profit targets will be generated automatically. In a moving market, this instant entry by placing an order, mean the difference between a catastrophic loss and small loss.

Apart from several benefits it provides, there are certain failures of an automated trading system, due to the following factors.

  • Mechanical failure. The process of automated trading seems very simple: After setting up the software you have to program the rules and then watch it while trading. There is no doubt that automated trading is a complicated trading, but still, it's not reliable. On this trading platform, a trade order can be raised on a computer, not a server.  What do you get from this? It means if your internet connection is not available due to any reason, then your order might be stopped from sending to the market. There can be the inconsistency between the strategy of the  "theoretical trades" and the component of the order that eventually transferred into actual trades. Most of the traders should look forward to a learning curve by utilizing an automated trading system. It is basically a smart technique to start your trade with a small idea for the refining purpose.

  • Monitoring.  The automated trading system requires more monitoring, so it would be a good idea to let the computer on and let it open for the whole day. This is the main reason of the potential mechanical failures, like connectivity issues, computer crashes, system quirks and power losses. It is likely that an automated trading system faces anomalies that will result in the form of errant orders, duplicate orders or missing orders.  If the trading system is monitored, events can be quickly identified and resolved.

  • Over-optimization. Although it’s not specific to the automated systems of trading, traders who adopt typical testing techniques can build systems that will look awesome on paper but perform horribly in a live trading market. Over-optimization is like a curve-fitting that will produce a non-reliable trading plan in a live trading. For example, it's impossible to squeeze a certain strategy to get the exceptional results on the past data. Sometimes, it happens that traders incorrectly presume a 100% profit on a trading plan or should never face a drawdown. In short, the parameters can be settled to create an "almost perfect" plan – that will be completely failed as it is qualified for a live market. This over-optimization will only create a system that will look great on paper.

Server-Based Automation

Traders also have the option to operate their trading system through a trading platform of server-based, strategy runner. These trading platforms offer strategies for sale. Traders of “wizard” are able to design, or have the ability to create existing systems for the platform of server-based. The automated trading system will be scanned for free, operate and monitor the trade, having all the orders on the server that will result in faster and reliable entries in the order.

Conclusion

The automated trading system should not be perceived as a substitute of executing trades. It is often that mechanical failure will happen, that needs a lot of care and monitoring as well. The platforms based on server-based are the solution to minimize the mechanical failure risks.