While automated trading may not necessarily be a new concept in the world of financial trading, it's one that has yet to truly take hold amongst part-time or mainstream investors.

In simple terms, automated trading enables investors to set the criteria that determines both entry and exit points in specific markets, while it also leverages advanced and variable algorithms to make rules for effective money management.

But what are the pros and cons of automated trading in the digital age, and how can you incorporate this into your wider investment strategy?

The Pros and Cons of Automated Trading

On a fundamental level, automated trading software in the modern age can now be used to access an array of markets and asset classes, from forex and equities to commodities, bonds and even mutual funds.

This is one of the main advantages of integrated automated trading into your investment strategy, as you can automatically increase the efficiency, speed and volume of your traders without compromising on market accessibility.

Another critical benefit of automated trading is that it negates the risk posed by emotive trading, which often creates indecision and has the potential to undermine even the most carefully considered trading strategies.

By compelling investors to manage their trades and capital according to data-driven insight instead of instinct and emotions, they're also able to maintain their discipline even in instances where specific markets endure short-term depreciations.

Once you've formulated your automated trading system, you can also leverage backtesting to evaluate its performance in relation to historic price data. This permits traders to adapt and improve the strategy over time, while also enabling them to manage their expectations of the system in question.

By increasing your trading volumes through the implementation of an automated strategy, it's also far easier to diversify your portfolio and trade multiple markets in real-time.

Of course, there are numerous pitfalls to using automating systems, even as part of a wider investment strategy. For example, you cannot ignore the fact that automated systems need to be monitored, due to the fundamental risk posed by technical failures such as the loss of Internet connectivity.

Some traders also enter their chosen markets in the belief that automated strategies are guaranteed to deliver winning results every time, but this is a significant fallacy that can lead to over-optimisation.

This occurs when traders falsely believe that they've perfected a strategy that accounts for all unexpected occurrences, with the result that it may deliver unreliable results when implemented in a live and corporeal marketplace.

How to Incorporate Automated Trading Into Your Strategy?

Clearly, there are many benefits to leveraging automated trading, but the prevalent risks suggest that novice investors must start out small before scaling their efforts over time.

You should also note that there are two primary categories of automated trading; namely expert advisor (EAs) and forex robots. Both of these entities are created by skilled and experienced professionals who write algorithms, which analyse market trends and identify the optimal entry and exit points.

However, the two differ in terms of the placement of the trade, as EAs don't currently place market orders on the user's behalf. Instead, they provide the user with trading signals, which investors utilise to inform their own unique decisions.

With this point in mind, true novices would benefit from using forex robots, which automatically place trades and deal with the entire process automatically.

Conversely, EAs allow traders to deploy their own knowledge and experience, as they continue to grow and achieve success in the marketplace.