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Category: Literature

Date Submitted: 09/26/2012 06:42 AM

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It is important to understand that no specific market exists for making large amounts of money in the short term, every market can create a large return for an investor but these returns should be made over a consistent period of time. Ideally, investors seek a reliable system which can deliver the largest return on investment with as little risk as possible. Reliability in the world of trading means that a system is consistenly good in quality or performance and able to be trusted. When considering computer-directed trading there are many advantages compared to human trading.

[Pros] Advantages of automated trading:

* [Mistake tendency] When you talk about human trading there will always be a tendency to make mistakes, irrespective of how smart or sophisticated the human is. When a traders’ strategy is programmed correctlty into a computer this tendency is eliminated. This is the biggest advantage of robotic trading since a small error made by a human can be the difference between profitability and unprofitability

* [Robots are inexhaustible] robots do not require any sleep and can therefore continue trading 24 hours a day on markets all around the globe.

* [Sticks to the plan] Due to emotional factors such as the psychological impact of taking a loss, or the desire to outlive return momentum, humans tend to deviate from the plan. Sticking to the plan is very important, for example when three conxecutive trades resulted in a loss and the trader does not execute a winning fourth trade leading to an alteration of the expectancy of the plan. Automated trading helps ensure that discipline is maintained because the trading plan will be followed exactly.

* [Large Data Processing] Humans easilier make decisions when the underlying information set is extensive. A computer is scarcely constrained in the amount of data it is able to process compared to humans. In this way automated trading can be based on the most comprehensive dataset...