Do Automated Trading Systems Work?

If you have a day job and still want to make some profitable investment in your free time, it is a good idea to use an automated trading system. These systems perform fast analysis of market data and make decisions based on this analysis.

As with any investment tool, the only way they can succeed is to know how they work and apply them correctly.

You may have known someone who bought this system and made money with it, or maybe you’ve heard about some recommended software that can help your trading career. Yet, there are many traders out there who claim that automated systems do not work at all. So what is true?

What is Automated Trading System?

Automated trading systems are algorithms that analyze markets without human intervention. They may be very simple, like moving averages crossover alert (which tells you when two averages cross over), or complex like neural networks (a model loosely inspired by the nervous system of animals that learns from examples).

Their purpose is to find patterns in market data and make trading decisions based on this information.

Do they work or not? The short answer is yes, these trading systems work. However, they do not always follow your specific rules 100% of the time. Sometimes they will act on their own to make buy/sell decisions if certain conditions are met (described as “if-then” scenarios).

For instance, you might set up an automated trading system to sell if the price of an underlying stock falls below $20, but what happens when you input a wrong stop-loss point (which is entirely possible)?

The critical thing to remember here is that you should not rely on your software 100% of the time. It would be best if you double-checked everything before fully committing yourself. This will help you to get better results in the long run.

Establishing Trading “Rules”

There are many different automated systems out there today. Some use neural networks, while others use artificial intelligence or statistical/mathematical formulas. Before buying any system, it’s recommended that you test it first so that you can see exactly how well it works under actual market conditions.

This will help you to determine how much better the system works compared with your manual trading.

This goal is to produce profits in the future, but this cannot be achieved by random luck.

To deliver results in the future, they must work under present conditions. This means that you should take some time to think about what kind of market action would let your strategy work best and what reaction it will have if a particular thing happens at a specific moment.

These questions define your strategy’s rules or if-then statements. For example:

  • If the price reaches 200 SMA, then go long until RSI goes below the 50% curve.
  • If the price falls 80 pips from the support level, then short until the trend reverses.

The next step is to find a way of coding these rules so that the system can begin making trading decisions.

Advantages of Automated Systems

One significant advantage of this have over human traders is consistency and discipline. The system must follow the rules no matter what, and it should be programmed not to deviate from them even when presented with exceptional opportunities for quick gains.

This is because your goal isn’t necessarily to make lots of money but rather to stay in control of risk. If using manual strategies, you will probably make trades based on how things are going at specific points in time rather than according to some previously defined rule or plan.

When this happens, your decision may be wrong simply because it wasn’t based on sound rules.

You need to adopt a “Diversified Strategy” paradigm.This paradigm uses tested strategies combined with precise, fast, and reliable technology to deconstruct the market and pounce on profit opportunities. With a Diversified Strategy you can trade in any currency market, with any currency pair, at any time. You can dramatically boost your profit potential because you can select the right strategy for any situation.


  • They can reduce emotional responses in decision-making, thereby increasing potential profit.
  • You don’t need to watch the market all day long. The software will do it instead (if appropriately programmed).
  • The system doesn’t get tired or sick. This means that it can place orders after hours and on weekends.
  • There is no excuse not to test everything ahead of time with automated systems before committing real money into the mix.

Drawbacks of Automated Systems

Manual strategies only require human intelligence and interpretation to work, but this will never outperform a manual strategy unless the right person programs it. So you cannot simply use someone else’s automated trading system and hope for the best results.

Your efforts still depend on how well-designed and effective the system is. If you don’t understand how it works and what kind of market conditions make it perform poorly, you can quickly lose money.


  • The system may not follow your rules 100% of the time.
  • You will need to subscribe to a trading service to use an automated system (which can be expensive). Some systems require you to pay for live data feeds as well.
  • These generally only work with long-term positions. This means that no matter how much money you make, there is always a chance that you’ll eventually lose all of it if you do not exit properly (or at all) before expiration.

Automated Trading System Scams

There are many scams out there today, including software programs or services that claim to predict which stocks are set to go up or down. Such services are illegal and should be avoided at all costs. They can lead to real legal consequences if you get caught using them.

Because there are no barriers to entry in electronic trading, anyone can set this up with relative ease without having to spend long hours or lots of making all those calculations that were once necessary for manual strategies.

So it should be no surprise that automated systems are being offered online by people who have little or no track record to prove their claims of success.

Once you start receiving signals from them, these systems usually ask you to deposit some money into a foreign account so that you can be given access to the trading platform where your automated system is placed.

This is just an attempt to get hold of your money, and contacting the broker’s technical support team will not help because they probably don’t even know about these back-door deals.

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Server-Based Automation

The only way to ensure that this does what it is supposed to do is through server automation. You connect directly with the primary server where your strategy is located, and you are given access to all the necessary information for its calculations.

This will enable you to keep an eye on what is happening with your account at any time, and it will let you monitor how effective your system is becoming over time. You can make adjustments if it doesn’t seem to be doing well under current market conditions, but this means additional work on your part.

Before You Automate

New traders might find it difficult to create automated systems because they lack the experience needed to decipher market action. However, experienced traders can take advantage of that by using their skills in programming rules into the system’s logic.

The only way around this problem is to learn programming languages like C++ or Java. It certainly isn’t easy to get started, but once you know how your system works, it will become easier to follow its progress and make adjustments if necessary.


  • How many trades per day do you plan on making?
  • How much money have you invested in the current market? Is it a significant portion of your portfolio or just a tiny fraction? Answering these questions will help you calculate how different your situation is compared with the average trader. In other words, they will help your decision about whether or not it is suitable for you.

The Bottom Line: Do Automated Trading Systems Work?

Automated trading systems are very similar in concept to manual strategies because they involve the same kinds of calculations. However, there is one crucial difference between them: an automated system does everything for you, while manual strategies require human intelligence and interpretation of market action.

So if you are looking for a way of implementing these calculations into an actual strategy that can be used to trade on your behalf, then these systems are precisely what you need. Their advantages include consistency and discipline, while their drawbacks lie in requiring programming skills before working effectively.

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