The concept of autotrading is one that is quite new in the market. Autotrading is basically a trading strategy in which buy and sell signals are generated based on an underlying trading system. Typically, these trading systems have been developed and used by traders regarded as successful traders and are then deployed to other traders to use, usually for a fee.
Autotrading as a business idea was conceived to find a way to monetize profitable trading strategies. An autotrading company then assembles trading strategies of successful traders, and gets members of the trading public who want to use them an opportunity to try them out and eventually pay money for their use. This is a creative money-making strategy devised by autotrading companies, which include forex brokers and independent companies. But while this may be a way for these companies to make money, the big question is: how do traders benefit from this?
There are advantages to autotrading. Trading forex is mentally demanding. Many people do not have the mindset to approach the forex market with the dedication and the psychology that it requires. If you are the type of trader that really finds it difficult assimilating numbers, figures or you just can’t stand looking at charts all day long, then autotrading offers you a way out. Autotrading lets inexperienced traders tap into the brain of other successful traders, with the hope that the same results that the experienced traders are getting will be replicated on their accounts.
Autotrading was pioneered by independent companies, but forex brokers have come into the business and actually changed the way the game is played. For instance, forex brokers easily have access to the trading records of their clients and at a glance, can easily tell who is making the money and who isn’t. For a share of the money that will be generated, these successful traders can be made to give out their strategies. These strategies can then be put up in the autotrading system where other traders can subscribe to them for a fee.
There are a number of parameters that traders who want to start autotrading need to look out for when looking for an autotrade forex trading system. By the way, we need to mention here that autotrading is a style of trading that cuts across trading forex, commodities and other financial instruments.
When considering a strategy to use for autotrading, take a look at the following:
- What is the draw-down of the strategy? A strategy may look like it is making a lot of pips, but at what cost?
- Look at the trading style. Is the trader a scalper or swing trader? Does the style match your risk appetite?
- How long has the strategy been at work in the autotrade system?
- Take a look at the traders following the strategy. What is their success rate? If their rate of success is not measuring up to the success of a supposedly successful system, then something is not adding up.
- What is the number of open trades? Is the trader behind the strategy overtrading or taking on too many positions for the account size?
- What is the success rate of the trader whose strategy is being used?
- What is the month to month performance? Consistency is a good index top use. I have seen a trader who boasted of an 83% success rate, but who lost in 6 trades over a week, what his strategy had made in two months! Believe me you do not want to be following such a trading system.
It is obvious from what we have listed here that any trader who wants to follow an autotrading system really has his work cut out for him.
Autotrading is good. It takes a lot of stress off you. But you must take time to select a good system and continuously monitor it to ensure you get good returns on your investment.