The crossroads of choice
Many of our traders have often asked me a question – “What should I do, should I trade by myself, should I buy an EA or should I follow a trader in some of the social trading platforms?”
This is a very difficult question to answer carte blanche, as each person’s situation is different, so I thought I would answer this by stating some of the benefits and drawbacks of each style of trading. That way you can make up your own mind, depending on which suits your personal needs.
Let’s start with Expert Advisors or EA’s as they are commonly called or even referred to as trading robots.
EA’s are generally programmed by keeping certain market conditions in mind. So, while they may work one day or even for a couple of months, the moment the market conditions change may be the right time to change your EA.
Quite often they are sold through aggressive marketing, and by the time you buy them or subscribe to them, their underlying logic may be outdated. One thing to remember with EA’s is that you can back test, you can even forward test on a demo account, but the results are likely to be different on a live account.
Let me give you an example, in one of the brokerage firms where I worked, we ran a demo contest where someone decided to test their EA. The person made over 200K in profit from a 5K demo account in less than 48 hours. Then some news came out, there was a change in trading conditions and the next day, his account was wiped out.
However, this said, they are generally available at a fairly low cost and with good money management and research, it could be worth the test if you have no time to trade manually or analyse the market.
You could program one yourself or get help from a programmer, but you have to remember, once the robot is live, it takes over unless you override it. The aim of programming is to not let your emotions get in the way and allow your strategy to work.
Let us consider Social Trading or following a trader. With a number of brokers and service providers out there, you will find that this is a growing trend. The good news is that the person you are following is an actual trader. You can see their past performance and share their gain and their pain. Just remember that past performance is not an indicator of future performance, but it can give you some level of understanding as to who this person may be and what trading style they use.
A way to look at these is like at your fund managers and you pay them a management fee for following them. The issue with most fund managers is that often they are in it for themselves, so your interest may not be aligned with theirs. However, there are some good ones.
With both EA’s and Social Trading, it takes time and effort to find the right one, as there are thousands to select from and then, if there is a change in the market condition or if the trader you are following has a bad patch, the process starts all over again.
If you are going with any of the above, make sure you have a shortlist of a few backup options and spread your risk, so that you are not putting all your eggs in one basket.
The last thing left to do is the traditional way of self-directed trading. This involves time and commitment from you as a trader to develop a strategy, develop a trading plan, follow the trading plan, use proper risk management and psychology management tools and then get the personal thrill of making money or finding out what went wrong when you lost. This is a process of constant evolution and personal development and can be very fun along the way. You may reach a stage where placing trades is just a function of your trading plan and trading becomes boring. It is important to keep in mind, however, that if your strategy is right, you are probably making money and almost working like a robot, who is intelligent enough to intervene when there are changes to the market conditions.
This, however is not for everyone as it requires time to analyse and trade, if you don’t have that, you may consider one of the first two options.
I hope this article has helped you in your decision making process as to which style of trading is suited to your personal needs and motivation to get involved in the art and science of online trading.
If you feel this has helped you or can help someone you know, please feel free to forward.