Investment bots are automated trading systems with designs based on machine learning algorithms. An investment bot allows you to establish rules and regulations for trade entries and exits. After programming or owning an investment bot, the computer will execute entries and exits automatically.
According to Alan Safahi, a San Francisco-based entrepreneur and founder of 6X Startup, over 80% of shares traded on stock exchanges come from investment or trading bots. The question is: should you own an investment bot? We will answer this question in today’s post. Read on!
Advantages of Owning an Investment Bot
Safahi has conducted substantial research on investment bots and trading systems. Alan Safahi says investors and traders can use investment bots or systems to turn precise entry, exit, and financial management rules, allowing computer systems to execute, monitor, and analyze the trades. Here are a few advantages of owning an investment bot.
The biggest advantage of investment bots is emotion minimization during the process of trading. You can easily stick to the plan when you keep your emotions in check. Because the system automatically executes trade orders after it meets specific trading criteria, you can save time, effort, and avoid questioning the trade.
Backtesting is a crucial concept that focuses on applying trading rules to previous market data. As a result, it helps you figure out the viability and feasibility of your investment. Because an investment bot can’t make guesses, you need to program it and set specific rules.
Next, you have to test the system based on historical market data before investing your money in live trading. Backtesting via an investment bot enables you to assess and fine-tune your trading idea, analyze risks, and determine profitability.
Enhanced Order Entry Speed
Safahi states that an investment bot responds quickly and efficiently to stock market changes. Owning such a trading system means automatically generating orders immediately after the bot confirms meeting the trade criteria. An investment bot gets in or out of the trade efficiently and on time, making a massive difference in outcomes.
Diversified Investment and Trading
An investment bot allows you to trade multiple accounts simultaneously, which creates a strong hedge against losing positions. Because you can’t execute or trade multiple accounts manually, a programmed bot can perform the execution within milliseconds. The bot can scan for investment opportunities in diverse markets, generate orders, and analyze trades to keep you updated.
Disadvantages of Owning an Investment Bot
Although there are various advantages of owning an investment bot, Alan Safahi’s thorough research shows several downsides of such investment systems. Continue reading!
A trade order usually resides on a computer system and not a server. However, this depends on the trading platform. If your investment bot loses connection to the internet, it won’t send the order to the market, causing discrepancies between theoretical trades and real trades. That’s why Alan Safahi suggests investors must expect a learning curve when operating investment bots.
Over Optimized Programming
Over-optimization can lead to unsophisticated operations in live trading. Because the bot is programmed or trained and tested based on the historical market data, it may not predict the future trading parameters. In such a situation, you can readjust your bot and focus on other parameters to create a viable plan. However, Alan Safahi says an investment bot is sometimes prone to failure when applied to a live market.
Investment bots are automated systems that offer various benefits to investors and traders. Alan Safahi argues that investors must not consider bots as substitutes for careful trade executions. Although server-based bots can reduce mechanical or networking failure risk, one must not completely rely on them.