The Magic of Automated Investing and Why It’s Taking Over

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Say you need to dig a hole. What are the steps that you would take to dig that hole?

Do you look at the ground and get started scraping layer after layer of dirt away with your bare hands until they are worn and bloody? No, of course you don’t, because that hurts and it’s inefficient. A normal person would opt for a shovel or even a motorised excavator to dig their holes and why do they do that? Because those tools were invented to make the process of digging less painful and more practical – they are there to make our lives easier.

This is a common theme throughout history. We take processes which are arduous and time consuming and if possible, we take the arduousness and time-consumption away. This is visible in almost every aspect of our lives: alarm clocks to wake us up in the morning, coffee machines that grind, filter and add milk to our coffee or even public transport without the need for drivers.

So why are people still investing manually? Why is it that millions of private investors are trying (and failing) to trade using nothing but gut feelings and intuition? In fact, it’s gotten so bad that an estimated 80% of private investors actually lose money when day trading. That’s right, 80%. Yet droves of inexperienced people still flock to the markets in a seemingly masochistic attempt to turn a profit.

Conversely, more than 60% of the world’s top-performing hedge funds made use of automated trading (bots) in 2020 to maximize their profits and you better believe that it worked for them. For example, take a look at Chase Coleman, hedge fund manager at Tiger Global, who was able to make a total of $3 billion and bring back 48% in returns. Such a stark contrast between private and institutional gains almost seems unfair but in reality, it’s just the institutions being clever.

Remember in the first sentence when we talked about digging a hole? Well, think about it like this: the private investors are digging away with their hands while the institutions just rolled in with a 35-tonne excavator and finished the job before you got started.

What is so great about automated investing?

So far, I have spent the better portion of this article going on about how ineffective manual trading is and how it pales in comparison to the might of automated trading bots so you might be wondering why this is the case. Let me wind back a little bit and offer a primer course in trading bots, what they are, how they work and why they are superior.

In essence, a trading bot buys and sells assets for you on an exchange automatically. You build your own bot and you program it to follow certain rules that you come up with. E.g. Buy this asset when this happens or sell this asset when this happens. Normally, these bots will follow rules based on technical indicatorsand the bot will make its decisions based on factors such as Relative Strength or price candles. The idea is to predict when a price change will occur and to buy or sell before it does in order to turn a profit – then do it again and again.

But you can do that by yourself, right? It’s not so hard to look at technical indicators on a chart and make orders, right? Well if it were that easy then 80% of private investors wouldn’t be failing miserably. The truth of the matter is that bots will always be better and here’s why.

They don’t freak out

Trading is stressful and trading notoriously-volatile cryptocurrencies will often leave one pulling out large tufts of hair. It’s emotionally exhausting and emotionally exhausted traders tend to make errors in judgement leading to poor, irrational trades. Whether you throw in all of your money due to FOMO (fear of missing out) or sell early thanks to good old FUD (fear, uncertainty and doubt), trading on emotion has been a recipe for disaster since the conception of the practice.

They’re quicker than you’ll ever be

This advantage should come as no surprise to anyone who understands what a robot is. A trading bot can execute infinitely more transactions than any human is physically capable of. Millions of computations and transactions running 24/7 regardless of which timezone you are in. This is another major factor in Wall Street’s historical use of this technology.




Since you began reading this paragraph, a trading bot could have already made a number of profitable trades on your behalf.

You can train your bot

Practice makes perfect and once you are finished building your first bot, you could deploy it into the wild west of cryptocurrency trading blindly but what you should do is backtest and refine it. Backtesting is the process of testing your algorithm on historical exchange data to glean how it would have performed in that environment. I frequently dub this the sharpest weapon in any trader’s arsenal and when done properly — it certainly is.

Furthermore, bots can be tested with walk-forward testing (otherwise known as paper trading or virtual trading) which is where you deploy your bot to a virtual live market seeing how it would perform right now. The unbridled ability to thoroughly test your automated strategies and refine them to the point of perfection is another reason why this method of trading is objectively superior.

More disciplined than a zen master

Being disciplined is the key to being successful in whatever it is you set your mind to and trading is no different. The best part about investing via bots is, however, that you don’t need to be disciplined at all. Your bot will do that for you. It doesn’t matter if the market is flatlining, if it’s bouncing up and down, dropping or going to the moon, bots don’t bat an eyelid.

If trading bots are so great, then why aren’t more people using them?

*Time machine whirrs up.*  Let’s go back to 1999  – “Amazon is by far the best way to buy books”.

“If Amazon is so great, then why are people still going to bookstores!?”

This is a conversation that you would have seen over and over at the beginning of this millennium. See what I am getting at here? Just because a practice is still popular, does not mean it is the most efficient way to do things. The reason why many people were not yet using Amazon in the year 2000 is two-pronged. 1) They hadn’t learned of it yet and 2) There was a high technical barrier as many folk hadn’t even experienced the internet yet.

Both of these reasons can be applied to automated bot trading today. Even though the number of peopleaware of bot trading is growing, there  are still many who have not been exposed to it and those who have/may encounter a high technical barrier.

The future of bot trading

So where does that leave us? Well. Automation is ever-increasingly present in our lives and it’s only getting more prevalent. It slowly takes over industries one step at ,a time removing the need for manual interference and the financial world, specifically the world of investing, will not be spared the same fate.

Every single day that goes by, solutions for everyday people like you and me crop up. Wall Steet is no longer gatekeeping this advanced technology  and anyone who wants to do so can automate their strategies to have bots do their work for them. There are plenty of companies doing their best to highlight automated trading and bring it to the masses.

Trality for example, a company founded in Vienna, has goals to bring bot trading to everyone who needs it with an environment peppered with powerful tools and educational content. The company has been getting a lot of attention and funding for its efforts and is growing rapidly. If, after reading this article, you want to do a little bit more of a deep dive into the subject and experience a well-rounded ‘Trading bots 101’ then check out this beginner’s guide they have prepared.

The magic

After reading this article it should no longer be a wonder why mega-institutions have been employing the use of this revolutionary technology to line their pockets for years. The fact of the matter is that the magic of automated trading is not magic at all.

Hard data, rules and mathematics lead your bot to make quicker decisions of when to buy and sell with zero emotion. At this point, if you’re still manually trading – you should be fearful because that is what you’re competing against in the marketplace. If you think you can take on an ever-growing army of bots then good luck to you but as for me? I’ll be quietly building my next trading bot and preparing it to go live.

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