Algorithmic trading holds a lot of appeal for forex traders who want to remove manual decision making and streamline and simplify their trading. But there are some myths and misconceptions surrounding algorithmic trading that it is important to be aware of before you get started with it. Some of these myths include:
1. Only institutions have access to algorithmic trading.
2. Algorithmic trading performs perfectly.
3. You do not need to monitor algorithmic trading.
4. Algorithmic trading is too expensive or complicated for novices and retail traders.
Let’s go over these in more detail, so you understand myths versus facts about algorithmic trading.
Myth: Only institutions have access to algorithmic trading.
Fact: Retail traders can use algorithmic trading methods.
One of the first big misconceptions about algorithmic trading is the idea that it is something that only institutions and institutional traders have access to.
In actuality, algorithmic trading technology can be accessed or even developed by regular retail traders.
The reason a lot of people believe the myth is because it used to be true. But the technology is more affordable than it used to be, and more advanced thanks to the development of AI.
You can even use free AI software like ChatGPT to help you create your own trading algorithms.
You can also purchase or build AI trading robots that respond to changes in the market in real-time, adapting and learning so that they can perform in a wide range of conditions.
Myth: Algorithmic trading performs perfectly.
Fact: Algorithms do not deliver perfect results. There is no such thing as a perfect system, algorithm or bot.
For whatever reason, there are a lot of traders who believe that somewhere out there, the perfect algorithm or AI robot exists. They think of they could just get their hands on this holy grail, they would never lose a trade again.
There is no such thing as a holy grail of trading. There never has been and never will be. No matter how reliable your algorithm is, no matter how smart your AI might be, there are just too many factors that influence the markets that cannot be predicted in advance.
That does not mean that you should not use algorithmic trading. It just means that you need to be realistic about what it can and cannot do for you. A trading algorithm can help you win consistently if it is a good one, but it cannot make you invincible. Trading always carries risk. Past performance does not guarantee future outcomes. Manage your money accordingly, with care.
Myth: You do not need to monitor algorithmic trading.
Fact: You have to keep an eye on your algorithmic trading, because how algorithms perform can change over time.
As we just discussed, even if a trading algorithm has been effective in the past, there is always the possibility that it will cease to bring in reliable wins in the future.
It is true that your algorithm can execute trades without you watching it, or even being near your device. While that is very convenient, think about how it could backfire if something goes wrong with the algorithm. Instead of wining trades without effort, you will find yourself losing trades without effort. The worst part is, you might not have any idea it is happening.
The remedy is simply to make sure that you do keep monitoring what is happening in your trading account. That does not mean you have to go back to staring at the charts all day. But it does mean you need to regularly check in and see how things are going.
Depending on the frequency of your trades, we suggest regularly scheduled check ins. For example, they could be every day, every week, or every month.
Log all your wins, losses, and amounts in your spreadsheet, along with any additional notes about each trade.
Then, check your statistics to see if you are still roughly on target in terms of your win/loss ratio, average win and loss sizes, net profit, and so forth.
If you notice your algorithm starting to underperform in a significant way, you should consider pausing live trading and figuring out what is going on. That way, you do not lose money unnecessarily
Myth: Algorithmic trading is too expensive or complicated for novices and retail traders.
Fact: It is easy and affordable to get started with algorithmic trading.
You do not need to spend an arm and a leg buying trading algorithms. You will discover that many of them are available to purchase at a relatively low cost, and that many more are entirely free. Buying an algorithm or getting a free one involves almost no effort. You just choose the one you want, download it, and connect it to your trading platform.
You also have the option of creating an algorithm. Even if you do not have any programming skills, you may be able to get this done by using an AI chat app to assist you. It involves effort, but not as much as you might have pictured if you imagined having to do it all manually.
Remember, many AI chat apps are available for free. So, that is another way you can get an algorithm at no cost. Plus, it is one that is fully personalized, which is another nice benefit.
Learn More About Algorithmic Forex Trading
You now know some facts about algorithmic trading. We have dispelled common myths, laying the foundation for an understanding of what you can and cannot achieve using trading algorithms.
Forex trading algorithms cannot guarantee you wins, but they are simple and straightforward for you to put to good use, even if you are a novice. If you choose reliable algorithms and you keep an eye on your trading, you can use algorithms and AI effectively to help bring in profits. Continue reading our posts to learn more about algorithmic forex trading.
