“Investor Jim, I have heard about these so-called “stock trading robots” before. I found out that these are actually automated stock trading programs. Do these programs actually work?”
--Robert

Robert,
The issue on the effectiveness of stock trading programs is actually the subject of one of the largest debates about the stock market these days. So-called stock trading “robots” because basically they work by helping traders make decisions; automated stock trading software can be disquieting to some investors. Who can blame them anyway? After all, is it really wise to put in a huge sum of money on a stock and entrust the future of this investment to a computer program? There are a number of individuals on both sides of the dispute, and a lot of them in between. While some are faithful to trading programs, others would not even bother to consider one at all. Still, we are left with the big question: do these programs work?

To answer this question, we must first identify the things these programs claim they are capable of doing. These programs provide numerous options for analyzing data, evaluating price movements and interpreting trends. These can also allow you to examine the stock market and supply data which can advise which stocks are beginning to fluctuate and which of your stocks are deteriorating to give you an idea of which stocks to purchase before the stock movements take place and which to begin selling to prevent a substantial loss of investment.

In general, these automated software concentrated on analysis of market data and trends mixed with programmed “signals” that decide what the program should advise established upon the gathered information.
   

This fact draws attention to one of the principal controversies regarding automated trading programs. For many traders who have been in the industry for a long time, these programs that do away with the element of human judgment and rely solely on raw numbers hinder traders to learn what they must learn best: analyzing the market. By using these programs, traders become dependent on them and follow them blindly, no longer considering their own judgments. They lose the ability to make competent decisions on their own. These longtime traders believe that every trader would gain from human reasoning and personal judgment and analysis.
   

Of course, majority of the supporters of these stock trading programs reason that the best way of using them is in union with the personal judgment, knowledge and expertise of the traders, and not as a means of trading stocks on “autopilot”. It is very easy to admit that stock trading software can be of help. In fact, they can be of tremendous help. They can provide you with the constantly updated information about the stock market that can make the biggest difference in your investment success. However, they will be of help if and only if, you incorporate them into your personal know-how and strategic skills instead of following them blindly.

So, the answer to your question is yes. Automated stock trading programs work, but not for all. Its effectiveness depends on the trader’s ability to use the data provided by the program combined with his own knowledge of the stock market to make competent decisions.