4 reasons why you would want to automate your investments now!
What exactly is automated investing?
Have you tried baking a cake during your vacations? In earlier times, bakers would use clay ovens that would be heated using wood. The heat from wood is variable and so the time to bake a cake would largely depend on how the heat is reaching it. So the baker would have to occasionally bring out the cake and check if it is baked properly. Same is the case with pizzas, even today! However, with electronic ovens, the bakers just have to research on what time and heat are optimum and set the timer and heat emitted by the oven accordingly and the cake is baked perfectly while the bakers get to focus on the cookies!
Automated investing gives an investor the flexibility to set up rules regarding when to buy, what to buy, and how much to buy of a particular asset by programming these rules and have them executed. In India, the share of automated trading is somewhere around 50%.
These programmed set of rules can specifically use technical indicators such as Bollinger Bands and MACD or they can have a several step execution process defined by the programmer and also the duration for which the program will be run depending on the market conditions that need to be taken into account. Don’t worry if these terms seem unfamiliar. We just want to make you aware of all that takes place behind the scenes and later on in the blog you will understand why it’s not completely necessary to know these terms.
There are a lot of positive impacts that automation could have on your trades and the following are 4 reasons why we think you should seriously consider having your trades automated.
- Restricting the role of emotions
Emotions can really sabotage an investor’s performance and affect their returns as they might be tempted to deviate from the decided course of execution of investment strategy. When trades are automated, once the automated strategy is executed, there is no scope of interference from the investor and this eliminates emotions from affecting the execution of the strategy.
2. Backtesting
When you program a set of rules for trading, you can have it applied to the data that is historically available such as the daily quotes from the BSE and NSE. You have your automated investment strategy run across datasets and across different time periods and have it verified if it really follows the rules you have programmed.
3. Speed of Execution
If you are an investor you must have experienced this, but even if you are not, it will be easy to visualize what exactly happens in manual trading. So suppose I want to buy a stock of company XYZ that deals in the real estate sector. I buy a stock from the BSE of XYZ at Rs. 200. It is a busy market day and trades are being placed fast and the quotes are moving rapidly. The stock rises to 201 and news arrives that the government has decided to temporarily reduce its budget allocation to real estate. This being negative news for XYZ, the price drops to 180 within no time and I am just waiting at the terminal for the price to rise back to 200 at least. So what happened here was, I missed tapping the 201 level due to rapidly fluctuating markets. Had I automated this trade, I would have exited as soon as the price hit 201 and this would be done efficiently without any waste of time.
4. Ability to evaluate the performance
Trading in the markets without automation brings in the emotions not only while trading but after you have traded. Whatever the case, profit or loss, your analysis could potentially be clouded with your perceptions and emotions thus hampering the whole purpose of analysis that is improving your performance with constructive criticism. With automation, there are solid facts and numbers in front of you and there is no distortion in perception and evaluation of your performance.
Now, the next question you might have is how do you incorporate automation in your trading? Automated investing requires technical support for high performance such as a backtesting framework, large volumes of data, and API. There are several brokers that allow you to program your strategies and execute them. There are firms as well, that have these programs and support already in place. The benefit here is that even though you do not know to program and you can just read about what the program does and if it suits your investing goals, you choose it. For example, at AlgoKart we have a pool of strategies that we have programmed and all you have to do is choose one and invest in that programmed strategy. Voila! You have executed your automated trading strategy without an inch of programming! You do not have to worry about the data, backtesting, or the API. We have got you covered! The team at AlgoKart have done all the necessary and important steps to make sure we have a good investment strategy.
There are several reports that suggest the global algorithmic trading community is going to become larger between 2019 to 2026 and more and more companies in India are investing in technologies that will help them hop on to the bandwagon.
Remember we emphasized the fact that you need not know all the jargons related to trading and investing that there exist. The following blogs to come will also take care of this as well. Thanks to the internet, you need not be enrolled in Hogwarts to understand the charm of Algo-trading. Moreover, AlgoKart is built without any expectations that our investors would have any prior knowledge of any technical terms.
So! If we did motivate you through this article to automate your investments and you loved what you read, do share this with your friends and family.
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