What is Robot Trading and Should You Be Worried?

Have you ever wondered why a share price suddenly rises or falls, even when no news seems to explain the move? Sometimes, automated trading systems drive the activity.

Robot trading has changed how financial markets operate. Computer algorithms can analyse market information, identify trading opportunities and execute thousands of trades per second.

But does that mean trading robots have an unfair advantage, or that ordinary traders are being left behind?

In this article, we'll take a closer look at how robot trading, also known as algorithmic trading or automated trading, works and what you can do to beat the power of automation. Read on to learn why you should stay aware of what's happening in the market so you can protect your money.

What is robot trading?

Robot trading (also known as algorithmic trading, auto trading or automated trading) is the use of computer algorithms and predefined rules to automatically execute trades in the financial markets. These systems follow a specific trading strategy without ongoing human intervention.

A trading robot, also known as a forex robot or expert advisor, uses software to place buy and sell orders. These automated systems analyse market data, detect trading signals, and make decisions based on a set of rules, all within fractions of a second.

This technology is now common across multiple markets, including forex trading, share trading, and high-frequency trading environments. Algorithms now execute more than 70% of all U.S. stock trades, and forex trading robots dominate forex markets, executing trades faster than any human trader ever could.

How do trading robots work?

Trading robots use advanced technology and computer programs that combine historical market data, real-time trends, and technical indicators to guide trading decisions.

Depending on the trading software or platform used, these robots can be either:

1. Pre-built trading systems: where traders select from a list of strategies, timeframes, and indicators.
2. Custom-built robots: developed using a scripting language such as MQL, allowing users to create their own tailored approach based on trading preferences, objectives, and styles.

Once configured, the system can continuously analyse market conditions and scan for market opportunities that align with a trader's parameters. When a setup meets its predefined rules, the system can automatically execute trades across multiple markets simultaneously, all without hesitation or emotional bias.

This ability to execute trades faster, capture opportunities, and instantly adapt to changing conditions gives auto trading a clear speed advantage over traditional manual trading.

Advantages of robot trading

When implemented carefully, auto trading systems offer several benefits that can enhance consistency and discipline.

1. Eliminates emotional bias

Unlike human traders, robots follow logic, not feelings. This helps avoid fear-based selling or impulsive buying: two of the most common emotional pitfalls in manual trading.

2. Faster execution and confirmation

An auto trading system can execute trades faster and more efficiently than a person, reducing delays from indecision or slow reactions to market trends.

3. Reduces human error

By automating execution, trading robots minimise mistakes caused by typing, order entry, or timing errors.

4. Consistent discipline

Because these systems trade according to a predefined set of rules, they maintain consistent behaviour even when market volatility spikes.

5. Data-driven decisions

These systems can track and process vast amounts of market data, identifying patterns and trading signals across forex, shares, and other asset classes.

Disadvantages and risks of robot trading

Of course, auto trading has downsides. While it can provide efficiency, it also introduces new risks that traders must fully understand.

1. Technical failures

Even the best automated systems are only as reliable as their coding and internet connection. Software bugs, connectivity issues, or server outages can lead to unintended trades or losses.

2. Lack of human judgement

Robots can now analyse data and interpret market sentiment, including sudden shifts caused by company announcements or geopolitical events. However, they can still miss subtle cues or misinterpret misleading information, potentially triggering unnecessary selling or exaggerated market reactions.

Experienced human traders may be better equipped to recognise these nuances, assess the broader context and determine whether the market's reaction is justified.

3. Increased market volatility

High-frequency trading robots can amplify short-term price movements, particularly during periods of market uncertainty. However, they can also improve market liquidity by placing buy and sell orders that make it easier for traders to transact at competitive prices. They can also help share prices adjust more quickly to new information, a process known as price discovery.

While these benefits can improve market efficiency, they may diminish during periods of extreme volatility when automated systems withdraw orders or react aggressively to market events.

4. Over-optimisation

Many developers fine-tune their trading systems for historical data (backtesting), producing strong past performance but poor future results once market conditions change.

5. Regulatory and ethical concerns

Without oversight, automated activity can distort true market value. Traders should work with a regulated broker and be aware of Australian Financial Services Licence (AFSL) requirements before using algorithmic or forex trading bots.

How these systems impact the share market

While these systems affect all asset classes, they impact share and forex trading most. These platforms often experience large volumes of fake bids, also known as spoofing, that can distort market sentiment.

Some brokers have responded by moving transactions into "dark pools", which are private systems that limit transparency. Although auto trading advocates claim this increases liquidity, it often reduces visibility for human traders and fragments market data.

In the long term, this trend could erode confidence among traditional investors who rely on open exchanges to ensure fairness and transparency.

Is auto trading taking your money?

In a 2012 article Share Wars: How the Robots are Robbing You, David Potts discusses how the influx of computer-generated trading has built a potentially dangerous environment for investors.

These computer algorithms can tap directly into exchange servers like the ASX, submitting or cancelling orders within milliseconds, a time frame no human could match.

This high-speed trading environment can push market prices in directions disconnected from fundamental market trends. Everyday investors may interpret these artificial moves as real signals, only to be caught out when algorithms reverse course just as quickly.

As Dale Gillham explains, this creates a "survival of the fastest" situation rather than a traditional market of value.

"Robot trading makes markets more volatile and unpredictable. It's like a marathon race; someone sprints ahead for a bit, but eventually the pack catches up. The goal for everyday traders is to step back and focus on the bigger picture"

My advice is to avoid reactive trading or copying other traders who chase short-term price fluctuations fuelled by trading bots. Instead, adopt a sustainable trading strategy focused on analysing market trends over weeks and months, not minutes.

How automated trading can influence a breakout

Imagine a share trading between $18 and $20 for several weeks, with sellers repeatedly entering the market as the price approaches $20. This establishes $20 as a resistance level.

Support and resistance levels are the most common levels traders and investors use to buy and sell. Robo trading systems know this and use it to their advantage. As a result, some systems may be programmed to buy or sell when the share price breaks above or below a level, while others may place orders to buy or sell once certain price targets are reached.

Let's look at what could happen when a breakout fails.

As the illustration below shows, price breaks above the $20 resistance level. This may trigger a buy order by automated systems with breakout rules. Stop-loss orders from traders holding short positions may also be triggered, adding to buying pressure.

Additional buying accelerates the rise as traders see the breakout as an opportunity, with price rising to $20.50.

Selling pressure may increase as automated systems take quick profits around $20.50. If buying demand can't absorb these orders, price may fall back below $20.

Traders who bought the initial breakout may now be holding losing positions, which means the move above the $20 resistance level has failed, at least temporarily.

Robo trading systems execute buy and sell orders to gain very short-term profits, creating short-term volatility, but they do not change the trend direction. As such, it is best not to get drawn into these situations, since mainly the companies that use these tactics benefit.

Example of a failed share price breakout above $20 resistance, with price rising to $20.50 before reversing

What should traders consider?

The important lesson isn't that trading robots cause false breakouts. They can contribute to buying or selling pressure, but the breakout could fail for several other reasons.

Traders should consider the broader market trend, the strength of the price move, trading volume, and whether the price can stay above resistance.

For example, an experienced trader might wait for the price to close above $20 and demonstrate that buyers are maintaining control, rather than entering simply because the price briefly exceeds resistance. Even this confirmation cannot guarantee that the breakout will succeed.

A trading plan should also set your entry and exit strategy, and the amount of capital you're willing to risk before opening a position.

The key takeaway: Algorithmic trading can accelerate price movements around key technical levels, but traders still need to analyse whether genuine buying or selling pressure supports those moves. A sound trading strategy matters far more than trying to compete with robots on speed.

Manual trading vs algorithmic trading

Manual trading relies on experience and human judgement, while algorithmic trading systems offer speed, consistency, and reduced fatigue. Experienced traders combine both, using automation to scan and execute orders while relying on human insight for trading decisions.

The key is to strike a balance that suits your risk tolerance, financial situation, and overall trading objectives.

The table below outlines the key differences between manual trading and auto trading.

How to protect yourself from the risks of robot trading

While these robot systems will keep expanding, you're not powerless. Here are steps every investor can take to maintain control and reduce exposure to mechanised trading activity:

1. Invest for the long term: Avoid day trading or relying on short-term trading signals. Focus on solid companies and quality shares that perform well despite daily fluctuations.
2. Understand what you're using: If your broker or platform uses these systems, ensure you know the set of rules guiding the trades automatically executed on your behalf.
3. Monitor your orders: Always verify trade confirmations, especially with platforms that use auto-execution models.
4. Stay updated: Keep learning about market conditions, new technologies, and the potential risks involved.
5. Work with a regulated broker: Check that the broker holds an Australian Financial Services Licence. You can look this up on ASIC's professional registers.

The future of auto trading

As technology evolves, automated trading is becoming increasingly sophisticated, with AI, machine learning, and real-time analytics helping some systems respond faster to changing market conditions. These technologies can analyse trading performance, identify patterns and refine strategies based on new information.

We can also expect greater integration of advanced technology, more sophisticated use of technical indicators and improved controls for traders who want to combine automation with human oversight.

However, even the most advanced trading robots have limitations. Market conditions can change unexpectedly, and strategies that have performed well in the past may not deliver the same results in the future. No automated trading system can guarantee profitability, particularly during periods of extreme market volatility.

Should you be worried about algorithmic trading?

Robot trading is here to stay, and while it has changed the way financial markets operate, it doesn't mean ordinary traders are at a disadvantage.

Automated trading systems can execute trades at incredible speeds, identify opportunities and remove emotion from trading decisions. However, they are not infallible. They can misinterpret market information, amplify short-term price movements and struggle when market conditions change unexpectedly.

At Wealth Within, we believe the best way to approach these changes is to develop the knowledge and skills to understand what the market is telling you. Learning to analyse price movements, identify trends, manage risk, and follow a proven trading strategy helps you make informed decisions instead of reacting to every sudden market move.

You don't need to trade faster than a robot. You need to know when to trade, when to stay out of the market and how to manage your risk.

Learn more with wealth within

If you’d like a deeper understanding of how trading robots and automated systems are shaping today’s financial markets, explore our related resources:

• Listen to the Robot Trading War: Part 1 and Robot Trading War: Part 2 podcasts from Wealth Within. Uncover how forex robots influence human traders and how to protect your portfolio.
• Trading courses – designed to help you start trading confidently and profitably with well‑researched strategies and proper risk management.
• Contact Our Team – call 1300 858 272 or learn how Wealth Within can support you to achieve your trading goals.

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