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  1. Beginner Trading Fundamentals: Introduction
  2. Beginning Trader Fundamentals: What is Fundamental Analysis?
  3. Fundamental Analysis: Quantitative
  4. Fundamental Analysis: Qualitative
  5. Beginner Trading Fundamentals: Charting
  6. Beginner Trading Fundamentals: Leverage And Margin
  7. Beginner Trading Fundamentals: Popular Trading Instruments
  8. Beginner Trading Fundamentals: Limiting Risk
  9. Beginner Trading Fundamentals: Strategy Automation
  10. Beginner Trading Fundamentals: Record Keeping And Taxes
  11. Beginner Trading Fundamentals: Conclusion
With an automated trading system, you can define specific rules for trade entries and exits that can be automatically executed by a computer. Once the rules have been established and programmed (by you or a qualified programmer), the computer can monitor the markets to find buy or sell opportunities based on the trading strategy specifications. Depending on the specific rules, as soon as a trade is entered, any orders for protective stop losses, trailing stops and profit targets will automatically be generated. In fast moving markets, this immediate order entry can mean the difference between a winning and losing trade.
Advantages of Automated Trading Systems
Many traders enjoy various advantages when having a computer monitor the markets for trading opportunities and execute the trades. For example, automated trading systems can:
Minimize Emotions
Automated trading systems can help minimize emotions throughout the trading process. Because automated trading allows you to keep your emotions in check, you may have an easier time sticking to your plan. Also, since trade orders are executed automatically as soon as the trade rules have been met, you won't be able to hesitate or question the trade. In addition to helping traders who are afraid to "pull the trigger," automated trading can rein in those who have a tendency to overtrade.
Be Tested Objectively
Backtesting applies trading rules to historical market data to determine the efficiency of a trading idea. When designing a system for automated trading, the rules have to be absolute, with no room for interpretation (your computer can't make guesses - it has to be told exactly what to do). You can take these precise sets of rules and test them on historical data before risking money in live trading. Careful backtesting allows traders to evaluate and fine-tune a trading idea, and to determine the system's expectancy - the average amount that you can expect to win (or lose) per trade.
Preserve Discipline
Because the trade rules are established and trade execution is performed automatically, discipline is preserved even in volatile markets. Discipline can be lost due to emotional factors such as fear of taking a loss, or wanting to eke out a little more profit before closing a trade. Automated trading helps ensure that discipline is maintained because the trading plan will be followed exactly. 
Achieve Consistency
One of the biggest challenges in trading is to "plan the trade and trade the plan." Even if a trading plan has the potential to be profitable, traders who ignore the rules are altering any expectancy the system should have had. Automated trading systems allow you to achieve consistency because they will always trade the plan. In addition, automation allows order-entry mistakes ("pilot error") to be eliminated.
Improve Order Entry Speed
Since computers respond immediately to changing market conditions, automated systems are able to generate orders as soon as specifications are met. Getting in or out of a trade a few seconds earlier can make a big difference in the trade's outcome. As soon as a position is entered, all other orders are automatically generated, including protective stop losses and profit targets.
Diversify Trading
Automated trading systems make it easy to trade multiple accounts or various strategies at one time. This has the potential to spread risk over various instruments while creating a hedge against losing positions. What would be incredibly challenging for you to accomplish is efficiently executed by a computer in a matter of milliseconds. The computer is able to scan for trading opportunities across a range of markets, generate orders and monitor trades.
Disadvantages (and Realities)
Automated trading systems boast many advantages, but there are also some downfalls and realities that you should be aware of:
Mechanical Failures
The theory behind automated trading makes it seem simple: set up the software, program the rules and watch it trade. In reality, however, automated trading is a sophisticated method of trading that relies on multiple levels of technology. Depending on the trading platform, a trade order could reside on a computer - and not a server. What that means is that if an Internet connection is lost, an order might not be sent to the market. There could also be a discrepancy between the "theoretical trades" generated by the strategy and the order entry platform component that turns them into real trades. You can expect a steep learning curve when using automated trading systems, and it is a good idea to start with very small trade sizes (such as one contract or 100 shares) while you refine the process.
In line with mechanical failures is the need to monitor automated systems. Although it would be great to turn on the computer and leave for the day, automated trading systems do require monitoring because of the potential for mechanical failures, such as connectivity issues, power losses or computer crashes, and system quirks. An automated trading system can experience anomalies that could potentially result in unintended, missing or duplicate orders. If the system is monitored, these events can be identified and resolved quickly.
Though not specific to automated trading systems, traders who employ backtesting techniques can create systems that look great on paper and perform terribly in a live market. "Over-optimization" refers to excessive curve-fitting that produces a trading plan that is unreliable in live trading. Some traders incorrectly believe that profitable trading plans should have close to 100% profitable trades and should never experience drawdowns. As such, those same traders may over-optimize to create a "near perfect" plan - which completely fails as soon as it is applied to a live market.

Beginner Trading Fundamentals: Record Keeping And Taxes
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