Automated trading systems are becoming increasingly popular. With automated systems a trader can execute trades in a completely hands-free fashion.

The ultimate example of the use of automated strategies is in high-frequency trading. In this type of trading every fraction of a second counts as traders seek to take advantage of extremely short-term movements. Trades may only last for a few seconds or a few fractions of a second. In this type of trading time is definitely of the essence. In fact, high-frequency traders seek to locate their trading servers as close to the data source as possible so that they may have access to market data virtually instantaneously.

Individual traders have embraced automatic trading as well. As there really is not much need for automation in longer-term trading strategies, computerized trading is used largely by short-term traders such as day traders and scalpers. Trading automation has become so popular that many brokers have included varying levels of automation in their trading platforms.

Here’s a basic outline of how an automated system functions.

1 – Automated system software monitors prices
2 – When certain specific conditions are met the system places a trading order to enter the market
3 – Along with the market entry order the system can also place a stop loss order to limit risk
4 – When the trade is closer profit or loss the system will then monitor market prices in anticipation of the new trading opportunity

Naturally, this was an extremely oversimplified example of basic system automation.

Automation can be extremely useful for those who seek to make extremely short-term trades. System automation is also useful for those who may make longer-term trades, but who may trade so many different financial instruments that it would be impractical to monitor all markets and enter all trades manually.

The key to successful automated trading is the same as the key to any type of successful trading. That key, of course, is to have an effective trading strategy. It is not the automation that makes the system profitable is the strategy behind the automation.