Algorithm trading is a system of trading which facilitates transaction decision making in the financial markets using advanced automated mathematical tools.
In this type of a system, the need for a human trader's intervention is minimized and thus the decision making is very quick. This enables the system to take advantage of any profit making opportunities arising in the market much before a human trader can even spot them.

As the large institutional investors deal in a large amount of shares, they are the ones who make a large use of algorithmic trading. It is also popular by the terms of algo trading, black box trading, etc. and is highly technology-driven. It has become increasingly popular over the last decades. below are the Pros and cons of using algorithm trading

Advantages

1. Expert Advisor can trade for you 24 hrs per day without food or sleep.
Human traders have severe restraints on their time -- they have to eat and sleep and go to the restroom, not to mention other responsibilities such as work, family, and friends. It is next to impossible for a human to trade the entire 24 hour currency market. He is often forced to trade during certain times of his waking day, but in doing so he is missing out on both entry and exit opportunities offered by other time sessions. The EA does not sleep and rest and can work the entire 24 hour currency shift searching for trading opportunities.

2. Expert Advisor free up your time to do other stuff instead of looking at the computer screen all day.
When the EA trades, you can go have fun, work on other things, spend time with friends and family. You are no longer a prisoner to the computer screen and charts. If you want to be more involved, you can spend your time researching for (and coding) new and improved ideas for your EA, and then backtesting and optimizing these ideas. This would be using your time smartly in R& (Research and Development), instead of wasting it on planning, executing and monitoring of singular trades.

3. EAs operates on a set of rules without greed, fear, ego or bias.
Fear and greed are the biggest obstacles to successful trading. Fear becomes an irrational force when it prevents the trader from taking necessary trades or hesitating too long, particularly after having suffered a losing trade, or it prevents a trader from closing out a bad trade with a loss. Greed, its emotional opposite, can cause traders to make random trades, or hold on to positions longer than their trading system dictates. Humans are also plagued with ego and bias, seeing what they want to see from the chart and indicators, looking for confirmation for their hunches, and unable to see things critically and objectively. So long as there is real money at stake it is very difficult for a human to overcome these negative emotions and biases. EAs help combat emotions by getting you in and out of the market based on historically tested strategies.

4. Most EAs are developed with parameters that you can be backtested and optimized on quantifiable data.
The ability to backtest on quantifiable data is an epistemological paradigm shift in favor of the EA. Prior to that human traders either did not backtest their trading ideas, which is sheer idiocy, or they attempted to do so in a very awkward fashion. Often they had to resort to the very crude and time consuming task of printing out reams of historical charts and "eyeballing" the behavior of the rules related to their indicator(s), making notes of the gains and losses in a ledger. Due to the time consuming nature of such an activity, they often backtested only on higher time frame charts and preferred not to go back too far in time. Each change in the rule or paramater of the indicator would force a repeat process, making it exceedingly difficult to optimize. With the built-in backtesting and optimization engines, EAs conduct these necessary and formerly incredible tasks in minutes. To assist with back testing, metatrader servers store a huge quantity of downloadable AND free historical data, in intraday format from 1999 till present, and daily or greater from 1971 till present.

5. EAs are able to identify and react to opportunities faster.
You do not need to worry about missing a trading opportunity because you are not staring at the right chart closely enough, or wasting precious seconds entering an order manually while the market moves away from you. The EA uses the speed of the computer to monitor the markets, seek and identify trading opportunities based on coded rules, and execute based on these rules in fractions of seconds.

6. New traders can get their feet wet trading with EAs without having an in-depth knowledge of Forex.
With EAs, you do not need to start out being an expert trader and programmer. There are plenty of free and commercial EAs that you can run on your own computers. You have to properly backtest each one to see it matches your performance and risk criteria, and you should forward test each one on virtual money prior to trading live. You can then use the free time you now have because the EA is trading for you to learn more about forex, trading and programming so that you can develop your own EAs.

7. You can make your strategy far more sophisticated than you ever could trading manually.
EAs gives you the potential to trade with complex systems that can include multiple conditions for their entries and exits, profit targets, protective stops, trailing stops, and filters, and have them all automated simultaneously. The human brain is very powerful but it cannot consciously multitask dozens of simultaneous operations like a robot can.

8. EAs consistently carry out the trading plan.
Plenty of wise traders council on the importance of having a trading plan and sticking to it with utmost discipline. Most human traders have no trading plan or fail to stick to them. The EA is designed to stick to the plan without exceptions. It is the way to become a 100% disciplined trader overnight even if you are the most undisciplined person in your private or professional life.

9. EAs can monitor many currency pairs at the same time, giving you trading opportunities than otherwise.
You no longer have to be glued to the screen, trying to keep track of each of your favorite currencies. An EA gives you the power to monitor dozens of currencies at once and do it more efficiently and effortlessly than before.

10. EAs makes life easier.
A manual trader really has to work at being a good trader, doing his homework on the markets every day, watching the markets for an opportunity, carefully entering into a trade and then spending a good deal of time babysitting that trade. This arduous process is repeated for every trade, day after day. It is a lot of work and is very stressful. The EA takes over these tasks effortless and reliability, and you feel a great weight lifted off your shoulders in terms of work and stress.

Disadvantages

1. An EA needs to run on a decent computer at home with reliable internet, or on an affordable Virtual Private Server (VPS)
, 24 hrs a day, in order for it to behave properly and take all the trades it was designed to take. The good news is that most internet connections are up 99% of the time, and there are plenty of low-priced and reliable VPS providers out there.
2. Many commercial EAs are designed to work best on brokers with a tight spread
, particularly so if it is a scalping EA. If it is a scalping EA, you will have to investigate the spreads of your broker to see if they are low enough for the pairs your EA trades, in addition to asking your broker if it allows scalping.
3.Most EAs are coded for one pair only, although some work on multi-pairs.
Reason is, different formulas and conditions work differently across different pairs, despite the >80% daily correlation between many of them.
4.Manual intervention of the EA is not advisable: usually the creator of the EA has a better understanding of its inner workings and has hopefully done all the appriopriate back testing and optimizations. Traders who want to fiddle with exiting trades according to their own whims or rules invariably end up degrading the EA's full potential.
5.Most EAs are mathematically and technically based, and work best on trending markets, so they are vulnerable when the markets become sideways. When the markets enter into low pip range, sideways activity, EAs tends to get chopped up.
6. It is very difficult to get an EA to read and decipher fundamental data, such as economic and political events.
Hopefully the result of the event is impeded in the price action, and then the EA can read it. But a sudden extreme event that quickly reverses the market direction can cause an EA to get stopped out, and/or enter too late in the new direction.
7. It is difficult for any EA strategy developer to plan and design a robust EA as there are few very good examples (or design methodologies) of such. Most do not have a proper method and criteria, and there are numerous coding and optimization pitfalls, such as over-optimization and curve-fitting.
8. It helps if the EA developer is both an excellent coder and an experienced trader with the humility to feel one knows hardly anything at all about both.
This is a hard juggle. Too often one finds excellent coders who have little experience in trading, or experienced traders who cannot code. Even when finds a combination of both, the experienced trader who can code well, there is still the ego factor to deal with. Pride and ego, while good motivators for craftmanship, are dead end allies to learning and growth. It helps to be humble coder and trader with a passion to learn and renew and grow one's ideas about the markets and how to code for them.
9. It is sad fact that 95% of EAs end up failing, either losing a bunch or just barely staying alive. Interestingly enough, about 95% of manual traders fail as well. The EA has a number of potential edge factors over a manual trader, without all the emotional and physical limitations of a human, and yet in the end, the markets are so exceedingly difficult most EAs cannot win against it.

Conclusion
In summary, EAs can trade 24 hrs per day with greater consistency of one's trading plan, acting on predefined entry/exit conditions. Metatrader 4 (MT4) is such a popular platform that you spend a lifetime investigating and researching (sharing and purchasing) thousands of EAs in numerous online forums. And there is an endless supply of education out there to code your own EA. Whether you borrow or create your own EA, it is imperative that you test it on plenty of historical and forward data. MT4 allows you to perform EA back tests to see how they work in the past, and if the back tests prove promising, one can test the EA in forward market conditions, preferably in non-expiring demo accounts until enough confidence and understanding of the EA is acquired to test it on real accounts. Contrast this approach with borrowing or creating a manual system. The manual system would be very difficult to back test properly other than the eyeball method that is itself besot with bias. Furthermore, the manual system would require the human trader to sit in front of the computer for countless hours looking for the trade setups and exit opportunities. The EA, in contrast, frees up the trader to do other things. The trader does not need to be physically around, and so can be free to focus on his day job (most day jobs are far more reliable methods of earning money than trading), hobbies and relationships. Also, the free time can be spent improving trading and coding skills.

Beware: Trading with EAs is not in itself going to make you rich and more than you likely they will make you poor if you trade them in real accounts. I would estimate that 95% or more of the EAs one finds or purchases or creates will turn out to be unprofitable over time. That is a unfortunate fact. An EA can reduce a large number of problems that beset human traders (such as limitations of time and speed, greed, fear, ego, diligence, consistency to trading plan, etc.), but it is very hard to construct a robust EA that has not been curve-fitted, and the markets are brutally tough, with a high degree of unpredictable volatility and randomness that degrade the performance of the best conceived robots. But despite this horrible reality, I still like the quest of finding and/or creating promising EAs to test in unexpiring demo accounts until I find or create that pearl in the pile. If the markets were not so terribly tough, we might all be able to find or develop a bunch of EAs to make us richer, but at the same time the trading world would be perhaps more dull, as there would be less challenge, less propensity to dream the impossible dream and fight the unbeatable foe.

Thank you so much for this article but those DISADVANTAGES are just the misconceptions of EAs. I will try to explain and enlighten readers.
For example the use of VPS, before a forex trader can trade manually, he or she needs a terminaleg MT4 that is connected to a steady internet and power …. so it’s no surprise that since an EA is replacing a human it needs to have steady internet and power also one can turn his PC to a vps or use FXVM i recommend them cos they charge as low as 19.5$ for a vps monthly that can accommodate two terminals.
The second misconception is that most programmers don’t know that they can implement a spread filter, the EA will make sure that the spread are within this range b4 entering a trade but I recommend on asking the broker weather they accept scalping first.
The third part about “most EA working on a single pair is not true” because the programmer can code it to work on as many pairs(charts) as the terminal can accommodate but it is advised to run EA on just a few chart for funds protection issues.
The fourth part is quite true but there are semi-automated EA that requires the aid of a human examples like drawing trend line, S/R lines etc. the reason is that the EA will use this lines to determine its trade.
The fifth part is a general law in trading that “never trade against a trend” so robots and human always respect this law but remember that depends entirely on the strategy being automated.
Number six Is quite true but the level technology and programming is going now, there will soon be robots that will be able to learn maybe in the nearest future MQL7 will be able to implement that in the future.
The seventh misconception is based on the skill and knowledge of the programmer I know of a programmer that code using MqL4/5, c++, python and MySQL combining this programming language together you can create a machine not robot hahahahahaha ….terminator in the making
Number 8 is definitely true and helpful but when it’s not possible and you can find a patience programmer that can sit down and listen to you, do months of trial and errors then anything can be possible it even took me months of planning to develop my perfect robot.

In conclusion , most trader see robots as there savior from losing trade but that’s not true because a human has to code this EA with a predefined strategy and ideally as the programmer is coding, he or she can logically transfer emotions to this EA for example the SL level might be significantly large or he might decide not to use an SL because of his fear in loosing while using a Tight TP to lock any profit we experience trader can for see that this EA can only live for a short period of time, soon or later it will meet its water woo along with the traders funds.
Also due to the limited skills or knowledge of the programmer some important function might not be used, remember we are trying to make this EA to be like a human but without emotion and as such we need to give this EA all the arsenals we have and all functions like when to stop trading, how many profit to acquire in day, how many loss to take be4 it stop trading, how to identify a trade, when to use break even or Trailing Stop when to stop riding a trend etc.
Next, the number of indicators used, especially newbies believe that’s it’s the indicator that gives them the profit and early entry as such they will want to use as many indicator as possible but the ugly truth is that 90% of all indicator calculate the same thing in the chart. An EA that used so many indicators might end up becoming much lagging and enter a trade late and such loss will be acquired.
There are so many things to consider when building and using an EA I just gave few examples.

Thanks OP for bring this topic to the mind of people, the ugly truth about EA is that nobody sell a profitable EA they all keep it for personal use.

wamiikechukwu:
In conclusion , most trader see robots as there savior from losing trade but that’s not true because a human has to code this EA with a predefined strategy and ideally as the programmer is coding, he or she can logically transfer emotions to this EA for example the SL level might be significantly large or he might decide not to use an SL because of his fear in loosing while using a Tight TP to lock any profit we experience trader can for see that this EA can only live for a short period of time, soon or later it will meet its water woo along with the traders funds.
Also due to the limited skills or knowledge of the programmer some important function might not be used, remember we are trying to make this EA to be like a human but without emotion and as such we need to give this EA all the arsenals we have and all functions like when to stop trading, how many profit to acquire in day, how many loss to take be4 it stop trading, how to identify a trade, when to use break even or Trailing Stop when to stop riding a trend etc.
Next, the number of indicators used, especially newbies believe that’s it’s the indicator that gives them the profit and early entry as such they will want to use as many indicator as possible but the ugly truth is that 90% of all indicator calculate the same thing in the chart. An EA that used so many indicators might end up becoming much lagging and enter a trade late and such loss will be acquired.
There are so many things to consider when building and using an EA I just gave few examples.

Thanks OP for bring this topic to the mind of people, the ugly truth about EA is that nobody sell a profitable EA they all keep it for personal use.

Yes, Wami, as for me, it is a savior from both stress of reading market data ,and human error that results in losing trade.... I noticed you now have passion for android....Have you been able to successfully automate your trading strategies?, nice to meet you again

drpips1:


Yes, Wami, as for me, it is a savior from both stress of reading market data ,and human error that results in losing trade.... I noticed you now have passion for android....Have you been able to successfully automate your trading strategies?, nice to meet you again

As a programmer, we try to find the next trend in tech and jump into it; android today, backend tomorrow... Lol

I did try but gave up in the process, had a lot to do then with my free time.

Were you that guy on Facebook?

wamiikechukwu:


As a programmer, we try to find the next trend in tech and jump into it; android today, backend tomorrow... Lol

I did try but gave up in the process, had a lot to do then with my free time.

Were you that guy on Facebook?

You really tried oo, not many even have the time for stuffs like this cos it looks tedious from afar, Yes.. I am. I will suggest a book titled expert advisor programming by Andrew r young, that book helped me alot on the whole

drpips1:



You really tried oo, not many even have the time for stuffs like this cos it looks tedious from afar, Yes.. I am. I will suggest a book titled expert advisor programming by Andrew r young, that book helped me alot on the whole

Yes, I used the book then, was really helpful.

Looked like you ventured into Android as well

wamiikechukwu:


Yes, I used the book then, was really helpful.

Looked like you ventured into Android as well

Yess, currently doing an Android Developer course