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The Do’s and Dont’s of Autotrading | Series, Part 3 of 3
At stockbrokers.com we are currently doing a three-part series on autotrading. In the first post we looked at exactly what autotrading is and how it continues to grow in popularity. In the second part of the series, we looked at which online brokers offer autotrading programs and then examined some of the specifics of each brokers autotrading system. In this final installment of the series, it is time to take a look at the do’s and dont’s of autotrading. Clearly, autotrading isn’t for everyone, but for those who wish to use autotrading they must be do so wisely. As with any investment program, an investor should never use it until there is a full understanding of the risks involved. Let’s take a look at three do’s and three dont’s of autotrading.
Three Do’s of Autotrading
1. Do Have a Set System That You Stick To- When investing it is a rarely a good idea to simply change the rules constantly, and autotrading is definitely an area where you’ll want to have a specific system that you continually use. Know what your trading strategy is and don’t bend the rules for any reason. Autotrading is typically used by active investors, but you don’t want to make anymore trades than you must.
2. Do Thoroughly Research Newsletters- The average investor uses the autotrading feature to allow newsletters to trade inside his or her brokerage account. Before you ever sign any kind of agreement you must do thorough research on these investment newsletter. Not all investment newsletters are created equally and you’ll want to make sure you are allowing one of the top newsletters in the industry to access your account. There is plenty of data around the web regarding newsletter performance so do your due diligence!
3. Cut Costs of Autotrading- The bottom line is there aren’t that many differences in the autotrading programs offered by the online brokers. They all have very similar features. This means you should highly consider going with the cheapest online broker to significantly cut your costs. Commission fees can add up quickly when autotrading if you aren’t careful. Be conscious of the costs associated with frequent trading.
Three Dont’s of Autotrading
1. Don’t Get Too Ambitious- While allowing a small number of high quality investment newsletter publishers to trade inside your account can be a profitable idea, opening up your account to numerous newsletters isn’t likely to be a good choice. Different publishers will have different strategies and allowing too many to work in your portfolio at one time is likely to cause some dueling philisophies.
2. Don’t Pull the Plug Too Quickly- While it is certainly a good idea to track the results of your autotrading program, pulling the plug on an under performing publisher too quickly isn’t the best idea. If a newsletter publisher has proven over time to be one of the best at what they do, make sure you allow them plenty of time to help build up your portfolio.
3. Don’t Put Too Much Stock in “Testimonials”- When looking for a good investment publisher, do not simply look at promotional materials from that particular newsletter publisher. Some newsletters publish testimonials and promotional statistics, but you would be wise to seek out independent research rather than taking the word of someone who has a vested interest. There are plenty of independent websites online that will help you separate the winners from the losers, so take advantage of the resources at your fingertips and find a true winner for your portfolio!
Learn more about the brokers that support autrotading in our online broker reviews. Several select brokerages were also acknowledged in our 2011 Online Broker Review for Autotrading as a Most Unique Tool for the year.
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