To Automate or Not to Automate My Investments

I’m fairly new to investing and would like an informed second opinion. I’ve been investing a small fraction of my discretionary income into penny stocks trading with only moderate success. My dad cautioned me about the risks versus rewards when it comes to penny stocks, but it seemed like a good place to begin. Now that I’m about a year into trading without too much to show for it, I’d like to consider other options. I have a friend who swears by automated trading, but I have my reservations as a technology skeptic. My main concern is how effective they are, but I’m also trying to understand how they even work. Should someone in my position seriously consider automated trading software, or is it overkill?

A healthy dose of skepticism when it comes to the promise of technology is almost always a sound strategy. Far too often are otherwise well-educated and well-intentioned people blindly convinced that technology can solve their problems. Unfortunately, that’s rarely the case.

You might begin by dispelling some of the most common investing myths. While some might seem rather obvious, you’d be surprised just how frequently people mistakenly align their decisions based on them. It’s essential that you know these principles apply universally to any kind of investing. Another prudent move is reviewing the five most common misconceptions, which are no less pervasive than the most common myths.  

Most of the takeaways revolve around thoughtful consideration and an appropriate perspective. The same is certainly true with automated trading. There’s a whole slew of pros and cons you’ll have to balance in order to make a confident decision. Fortunately, automation software is now ubiquitous enough that much has been written on the subject. Don’t underestimate reviewing what’s already been published to gain your bearings.

You could begin by perusing what this author at The Balance wrote, which should help you frame whether or not to use automated day trading software. Pay close attention to exactly what is and what isn’t automated. The name itself can be very misleading to many aspiring investors. Despite all the advancements in automated software, only certain aspects of trading actually lend themselves to automation. This is crucial to understand, because that inherently means that you’ll need to remain actively involved in some parts of trading.

Suffice it to say that having realistic expectations will make a world of difference. Let’s say, for instance, that you’re very confident in your current trading knowledge and have a set of proven strategies. The one drawback might be how time-intensive and disruptive these activities are throughout your day. This could be an ideal scenario, assuming your tactics aren’t too complex. Utilizing software would eliminate much of the overhead administrative burden and free you to spend more time conducting due diligence into your investment portfolio.

Only you can know if your existing strategies make sense to automate. And don’t forget to familiarize yourself with the official guidance published by the US Securities and Exchange Commission.

“The most important investment you can make is in yourself.” -- Warren Buffett