Lately I have noticed a few posts regarding the use of trading bots and I thought it would be useful to write this for the benefit of those who are not familiar with the technology. So what is a trading bot? Firstly a trading bot is a piece of software which is built to execute certain command/s when specific criteria?s are met. Bots can execute a buy bid at a specific price, or a sell bid at a specific volume. There are many variables that may be programmed into the bot. The reason it is used, is to automate a specific task that may otherwise become repetitive for a human. Why use a Bot? There are many uses for a trading bot. They can be used to buy/sell a parcel of shares at a certain price limit, volume based, VWAP based (Volume Weighted Average Price) or any other criteria that the programmer wants to achieve. It is also possible to use a bot to sustain a specific price range. In order to do this the bot may be programmed to continuously buy a specific parcel of shares when a specific price is reached, hence continuously maintaining a consistent share price. This is viewed as a means of accumulation at a specific price range. Advantages of using Trading Bots. The most obvious advantage is emotions. A bot does not think as it is a piece of software. It does not trade shares based on emotions, it uses mathematical calculation and when a certain criteria is met, the bot executes the specific requested trade. The second advantage is speed. A bot's reaction is measured in milliseconds compared to a human who could take at best a few seconds to complete a trade execution. When dealing with certain criteria?s, these may be met by the Bot 100 in a fraction of time frame, and all will be executed, where a human could take 1 hour to execute 100 trades. Another advantage is a Bot operates 24 hours if required. It does not eat nor sleep! Apart from the initial cost to program and setup the Bot, it operates free of charge.
Disadvantages of using Trading Bots The main disadvantage of a Bot is it does not react to announcements! Now as mentioned earlier, Bots are very useful and quick in their execution, but what if a sensitive news announcement was released and the Bot was programmed to sell while the stock was in a downtrend at the time? That would be disastrous for the programmer, as all shares would have been dumped on open after the news release. I believe this particular disadvantage in some cases outweighs any benefit using a Bot, of course only if left unattended! I have recently discovered another reason for using a Bot from my broker as I queried certain peculiar trades in the course of sales. I was advised that certain brokers use Bots to act on behalf of a large investor wishing to accumulate a larger than normal parcel of shares. In order to achieve this without spooking the market a Bot is setup to continuously buy smallish parcel at a certain limit in price while following VWAP to speed the process. The market in general would be unaware of the accumulation as only small parcels are bought. I hope you found this insight into Trading Bots useful.
Ps: on a personal, don't let the institutional take you ccc babies
CCC Price at posting:
79.0¢ Sentiment: Hold Disclosure: Held
