We look at why you would invest in blackbox trading (also known as automated trading) compared with discretionary or manual trading.
Before the advent of computers, people would manually draw charts of share prices and decide when to trade. As computers became more sophisticated, we got computerized charts which would automatically update. We are now at the era where computers can open and close trades and the amazing thing is that this is now available to the retail trader.
We are now at the era where computers can open and close trades and the amazing thing is that this is now available to the retail trader.
This has blown the trading landscape wide open, you no longer need to learn to trade which would take years to learn and only then, only 5% of people were successful. The reason is that trading goes against human psychology.. everything the human evolved to be goes against that of trading. To be successful at trading therefore, you had to reprogram your brain.. no easy when it's evolved this way over millions of years.
Blackbox trading or automated trading offers significant benefits to those who want to trade the financial markets. The blackbox essentially is software designed by the trader to mimic the traders winning strategy. This means that the trader no longer has to manually open and close his trades.. the trading software will do all this. Being software, it will follow the system to a tee, opening and closing trades as it's programmed to do and does suffer the problems that affect us humans and cause us to make mistakes. So a massive benefit is that it's not going to let human psychology get in the way.
Trading software also doesn't get tired, it doesn't need to sleep or eat. It can trade as long as the markets are open and you can program in sophisticated algorithms which open and close many trades in minutes... a human is unable to achieve this unless he or she has 8 arms!
Another massive benefit to blackbox trading is that with the tools available to the retail trader, he or she doesn't need to learn to trade. There are algorithm market places where you can test them out before you purchase them. Backtest them as much as you like in various settings, scenarios with real historical data. If it's profitable and suits your goals, simply purchase and apply to your trading account.
It seems so old school now that automated trading is available to the masses. However, automated trading is not for everyone and one should also understand the risks when doing so. The number one fear that people have with regards to blackbox trading is that they don't know what the trading system is doing.. however, if you think about it rationally, do you really care so long as it turns a profit?
In the workplace we all have an IT helpdesk because technology can fail. And yes, your technology hosting your trading system which is connected to your brokerage account having your money, can fail. However, there are only a few 'moving parts' so a reset of the system can easily be done. Most people who are serious about automated trading will check their systems daily to ensure everything is working correctly.
With all heard of a fat finger trade where a huge mistake is made in trading.. this is usually buying or selling at extreme levels. These mistakes are usually done by human operators and although an automated system could go wrong, it's very unlikely it would make a fat finger trade. Should a system go wrong, the most likely thing that would happen is that it would stop working and this would result in opportunity loss.
In summary, automated or blackbox trading offers many benefits for those who are open to it. The cons are few and the benefits are huge and can really revolutionize your trading. This is the next level in trading, do not miss this opportunity