Semi-automated vs fully automated trading – what could be better for you

In today’s article, I will focus on automation as a critical factor for long-term sustainable profitability when investing in financial markets.

Victor Tomov | 01:19, 2019/06/07

Dear aspiring investors,

No matter how significant your trading experience is, you may reach a stage where you start looking for ways to make your investment journey much more manageable and smoother when it comes to the following points:

  • analysing charts to identify trading signals (entry/exit levels) for your positions
  • following up with the latest market trends shaping the financial industry
  • monitoring the news and events driving the market prices
  • selecting the appropriate trading strategy for specific market conditions
  • defining the trading style that fits your personality
  • fighting with the stress of holding an open position for longer than expected
  • composing an optimum portfolio of financial instruments in which to invest
  • reducing the impact of emotions in your decision-making
  • managing the risk by defining the order size, trading volume and the maximum exposure across different markets
  • monitoring the performance of a selected trading strategy for ongoing optimisation
  • setting realistic expectations towards potential profits and acceptable losses
  • defining the size of the initial investment capital

The list got long, but it is not exhaustive as every one of us faces individual challenges. Improving your efficiency in any of the points above could significantly reduce the time spent in front of the screens for trading. But “how” is the question you may be asking?

The evolution of modern technology has brought artificial intelligence into our lives. Carefully engineered algorithms are automating more and more daunting human tasks. The financial investment process is not an exception. In trading, automation comes in different forms:

  • simple charting tools and widgets
  • add-ons for enhanced functionality of the trading terminals
  • trading robots autonomously executing a single trading strategy
  • copy trading setups for individual orders or entire portfolios of investment strategies

The extent of human intervention applied in their usage divides them into two categories:

  • fully automated – no human touch during their normal functioning on your trading account
  • semi-automated – automatic execution under continuous monitoring and fine-tuning by an expert

By “human intervention”, I mean actions taken either by yourself (the trader) or by the developer (the portfolio manager).

When you look at things from this perspective, you will realise that every automatic tool or system could be easily transformed into a semi-automatic one while the opposite is not always possible. For example, you may use a trading robot to help you by opening new trades on your account, but you may step in and decide when to close them. You may adjust the predefined settings of an add-on or an expert advisor to suit your needs and preferences over time. However, you may not be able to modify the trading strategies used by a portfolio management expert in a copy trading system connected to your account, nor define the funds' allocation in the portfolio of the master account submitting trading signals to your account.

There is no right or wrong answer which option to choose as what could be better for you depends on multiple factors such as:

  • Your personality – do you expect a system you pay for to always work flawlessly for you without taking any of your time, or you prefer to be involved in the process providing input to the system that trades with your money.
  • You risk affinity – are you tempted by the significant profits expected from taking higher risks or you like to keep it calm and conservative trying to be on the safe side.
  • Your investment knowledge and skills – are you new to investing in financial markets or have learnt the rules of the game by self-trading or formal education.
  • Your investment experience – were you successful when trading on your own or using some form of automation or your trading results were mostly negative.
  • Your investment capital – higher returns come with higher risk and trading volumes, which means that your investment budget limits your access to different automated systems. The bigger your starting capital, the more comprehensive is your choice of available options.

To make things easier, you may go for a packaged solution that involves no intervention from your side at all no matter of the trading automation category. Both such semi- and fully automated investment solutions have their advantages and pitfalls.

By selecting a fully automated trading system (e.g. an Expert Advisor or the so-called “trading robot”), you embark on an autopilot flight entirely relying on the stability of the used algorithm to act upon existing market conditions in your favour. You will need to evaluate the available alternatives in terms of volatility filters carefully, portfolio diversification, the trading strategy applied, risk management settings, maximum drawdown and other performance indicators. Do your homework to get realistic expectations and feel comfortable using the system for longer. Beware though that there is no single strategy or trading logic that is right 100% of the time, which means that your account equity could go up and down and evolve cyclically. You risk more, but the rewards could also be quite significant, especially in market phases that are suitable for the trading robot’s logic. You get order execution with no emotion but pure math.

By selecting a semi-automated trading system (e.g. a copy trading setup), you delegate to a human expert (not a programmed robot) the composition of your portfolio and the selection of trading strategies that correspond to specific profit targets and market conditions – this is the manual component of the system. On the other hand, all trades that are opened by the account of the system (called master account) are automatically resized to fit your account balance and placed on your trading account for execution. In other words, you can still enjoy the autopilot flight, but you are backed up with manual landing and departure as well as intervention by the human pilot if the market conditions require it. An essential feature of a semi-automated investment system is the expert optimisation of the strategic portfolio and the trading frequency according to the achieved performance results. Your equity may grow sustainably without substantial deviations and significant drawdowns.

Neither of the systems can predict the future. Once you have an open position, it stays in the market for as long as the applied logic requires. It may end up in profit or loss.

Full automation is excellent when you make your first steps in trading and like to achieve results fast while learning how the markets work and defining your trading approach. You will need to find a reliable solution that fits your expectations. The semi-automation may take your investment journey into to a new level with the right mix of human expertise and automatic order execution for sustainable results. Both could solve most, if not all, of the pain points listed at the beginning of the article. It’s up to you to decide which one to use.

With TradeRobo EA (a fully automated MT4 trading robot that you could adjust according to your preferences) and Quanti-Hybrid Ultra (a hybrid semi-automated digital portfolio management system driven by the German quantitative scientist Stefan Friedrichowski, PhD), my company Findilao gives you freedom of choice and peace of mind (in terms of quality and reliability) for the growth of your investment capital.

Warning:

Disclaimer: This article presents the personal opinion of the author based on individual experience and past results. None of its content shall be considered investment advice. Past performance does not indicate future results. It is your sole responsibility to decide whether to follow any presented techniques or approaches and neither the author nor Findilao Ltd can be held liable for an outcome from your actions.

Risk Warning: Trading Foreign Exchange and Contracts for Difference (CFDs) is highly speculative and may not be suitable for all investors. The leverage created by trading on margin can work against you as well as for you. Only invest with money you can afford to lose and ensure that you fully understand the risks involved. You should be aware that your investment may go down as well as up and you may not get back the full amount invested. Seek independent advice if necessary, before buying a subscription to use our services.

Victor Tomov has more than six years of extensive hands-on experience in the financial industry gained in different management roles. Passionate about marketing ethics and confident in the success of any customer-driven organisation, Victor leads Findilao's business operations since the company's establishment in early 2018 offering diverse solutions for sustainable investment growth that help investors make wise decisions and monetise financial expertise. He has a Masters in Corporate Marketing from the University of Economics in Varna, Bulgaria. Victor's strong analytical skills proved to be instrumental in the development of his views on trading.

Victor Tomov has more than six years of extensive hands-on experience in the financial industry gained in different management roles. Passionate about marketing ethics and confident in the success of any customer-driven organisation, Victor leads Findilao's business operations since the company's establishment in early 2018 offering diverse solutions for sustainable investment growth that help investors make wise decisions and monetise financial expertise. He has a Masters in Corporate Marketing from the University of Economics in Varna, Bulgaria. Victor's strong analytical skills proved to be instrumental in the development of his views on trading.