Four main advantages of a mechanical trading system



Mechanical trading system (Algo Trading / System trading / Automated trading) is catching up in India and we have lot of traders who rely on this for day to day trading. Following are four important reasons why System trading has become popular. Please note that we assume that a mechanical trading system has been thoroughly back tested, programmed correctly, proper money management criteria is followed and all generated signals are taken.

1. Lack of emotion during trade management.

A trader might have very good entry and exit criteria and still not make money and one of the main reason for this is trader's emotion. He may not enter the trade thinking that stock has already gone up too high, book profit prematurely, keep loss making trades open etc. Good Mechanical trading system eliminates the negative aspects of emotions to great extent as computer generates trades automatically based on predefined rules.

2. Confidence in your trading strategy due to back-testing

Once you have a trading strategy finalized, you can back test this strategy on historical data and check how well it has performed before. If the back testing result is satisfying then the trader will have confidence to stick on to his trading plan even during drawdowns. Multiple trading strategies can be back tested very easily and this would give an opportunity to pick the best system available for a particular market condition

3. Ability to track and trade multiple securities and market

In manual trading Its difficult to track multiple scripts and markets and you might miss out on trading opportunities. Once a trading strategy is finalized you can test this and run against any number of scripts or markets. This would help to capitalize on various opportunities available across markets and helps in diversification

4. No need to be present in front of computer with an integrated order management system

Some traders use algo trading just to generate entry and exit alerts and then they would manually place order in their trading system. If you integrate order management system with your algo trading software then there is no need for you to be physically present while trading. This would help capture trading opportunities while you are sleeping or away doing some other work.

In India you might require a dealer license to fully automate the order management system. Please talk to your broker on this for more details


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