Not until recently have most people worldwide considered both futures and forex traders as iconic human beings with a knack for successfully interpreting market data and trading strategies. As much as there’s some truth to that, there’s been an increase in the number of people globally who have developed an interest in becoming forex traders.
Thanks to automated trading, which has gained popularity over recent years, many brooding traders have joined the forex trading industry with much success.
Automated trading, or the use of expert advisors (EAs), has immense benefits, like fast trade executions as well as the ability to generate profits 24/5 around the clock.
Nonetheless, novice traders can make some unforeseen mistakes when using auto trading expert advisors. In this write-up, I am going to delve deeper into some of the common mistakes that new traders make when using auto trading systems for the first time and how to avoid the common pitfalls.
– Inadequate Understanding of the Auto trading System
This tends to be a common problem for newbie forex traders who have not been in the game for too long and lack a thorough understanding of trading strategies. Most traders will get an auto trading system and, due to their lack of experience, will only rely on the EA’s default setting.
Like any other software, you need to take some time to learn all the auto trading algorithms and indicators; failure to do so may increase the probability of increased losses because of your ignorance.
Before setting up the expert advisor on your real-funded account, take time to test it on a demo account.
– Why Over-Optimizing the Auto trading System is Bad
The main reason you would choose to buy an automated trading system is so that you can relinquish control and lessen emotional trading. However, it’s easier said than done, especially for traders who love to actively monitor their charts.
Some forex traders will tend to tweak the auto trading system in a manner that adheres to past trading history, forgetting that the forex market is ever-dynamic.
Over-tweaking a system can lead to poor performance in a market that is constantly changing due to various market conditions. Instead of over-tweaking an auto trading system, focus on getting a system that is robust enough and accommodates all your forex trading preferences.
– Overlooking Risk Management
Arguably, risk management is one of, if not the most important, factors regarding futures or forex trading. You see, you might have a trading strategy or an expert advisor with a +70% accuracy rate, but if you have poor money management, the losses will eventually wipe out your account.
Forex and futures EAs can indeed execute trades at lightning-fast speeds, but they are not impervious to losses. It’s your obligation as a trader to choose your risk percentage wisely so that, in case of losses, you aren’t taken to the cleaners.
Before buying any automated trading system, confirm with the buyer whether the system accommodates risk parameters and aspects like stop-loss orders.
– Ignoring Fundamental Analysis
Most auto trading systems have been programmed to focus on technical analysis 80% of the time. But what of the 20% fundamental news? Does your expert advisor account for high- and medium-impact news related to central bank meetings, NFP, FOMC, etc.?
If you have an automated trading system that trades around the clock but doesn’t account for news, you might have to turn it off during periods when news is expected to be released.
– Blindly Trusting the Automated System
Most of us traders, including myself, started forex trading with the sole intention of escaping the rat race. However, just because you have an auto trading system to increase your edge doesn’t mean that you should be hands-free and assume everything will run as it should.
I know it seems like a burden to monitor the expert advisor after working a tight shift, but it’s worth keeping an eye out for the system’s performance to guarantee seamless performance.
Some auto trading systems have a notification system, which can allow traders to manage the system in case of emergencies manually.
Pick a day, which could be Saturday or Sunday, and evaluate the auto trading system’s performance since the time you got it. This will allow you to make the necessary adjustments, which will take you to the next level.
Conclusion: 5 Top Auto trading Mistakes Newbies Make and How to Avoid Them
Auto trading can offer traders immense benefits, like lightning-fast executions and the ability to make profits without having to be glued to a screen for extended periods.
However, to make the most of any automated trading system, you must take the time to read through and understand the system’s settings and risk management parameters.
It’s only by doing so that you will truly create an edge for yourself in the forex market.
