Forex Automatic Trading

In simplistic terms, an automatic or mechanical trading system is a set of specific rules which when applied to the markets, signal entry and exit points automatically. The rules can consist of instructions with regard to the position of say moving averages, oscillators, or some other technical indicator, or maybe specific price patterns, or a markets proximity to certain key price levels, etc. Most often several of the above are combined in order to create a full set of rules. As a simple example, if a 20 period moving average crosses over a 50 period moving average and the stochastic indicator is less than 20, then buy.

Once your list of rules is coded into a full system, you instruct your trading platform to trade the system on an automatic basis. The system will from this point on, automatically place all of the buy / sell orders into the markets.

Forex automatic trading systems take all of the guesswork, personal interpretation, gut feeling, instinct and emotions out of trading, thus eliminating many of the knee jerk reactions traders might find themselves making due to the fear and greed emotions that are part and parcel of non-automatic trading. Most Systems fall into one of three categories, either they are designed to trade with the trend, against the trend, or on a breakout.

In forex automatic trading, Trend Following means that if the forex market is moving strongly in a particular direction, then you look for a good place to enter, in the direction of the current strong movement. Counter Trend or Fading means that if the forex market is moving in a particular direction, then you look for a good place to enter, as you predict that the strong move is about to end, i.e. the market could be overbought or approaching strong resistance. Breakout trades look for prices to move out beyond a certain range, i.e. if the forex market trades above the highest high of the last 20 bars, then buy. Or positions are taken if prices are breaking out of a particular chart formation, like a triangle for instance.

They can be designed to day trade, say on 1, 3, 5 or 15 minute charts, swing trade on say 60 minute or daily based charts, or trade long term on say daily or weekly based charts.

Day Trading is where traders look to make quick profits from the small market moves that occur during the day. They never hold positions overnight. Swing or Short Term Trading is where traders take a position in the market and look to hold this position for several days in order to make a profit from short term market movements. Long Term Trading is where traders take a position in the market and look to hold it for weeks, months or maybe even years.

Other aspects that are included in the development of a forex automatic trading system should be risk management, i.e. using a stop loss, trade management, i.e. using a profit target or trailing stop and money management, i.e. how many contracts to trade in relation to the account size.

A person who wishes to trade the markets with a forex automatic trading system has 3 choices: either to develop a trading system themselves, have an expert code the forex automatic system for them, or purchase an existing trading system. Developing a profitable forex automatic trading system yourself is by no means an easy task. It requires a great deal of understanding with regard to the indicators, the various parameters and how they all interact with each other.

A second option is to write out your desired trading rules and then have a professional code those rules into a fully automated trading system. This can be a very expensive exercise. One way to reduce the costs of this is to use a specialist broker, such as http://www.thetradingsystemsbroker.com, who has a panel of trading system coding experts. They will send out your requirements and then inform you as to the lowest quote for the coding of your unique forex automatic trading system to be completed.

The third option is to purchase a forex automatic trading system. However, with every system developer out there claiming that their system is most definitely the greatest system available, how do you filter through all of the hype, promises, clever marketing and sometimes downright misleading information in order to find genuine, proven, profitable trading systems that are right for you? Fortunately there is a company that can solve this dilemma for you. ‘Which Trading System’ specialises in fully impartial testing, monitoring, and publishing performance ranking tables for hundreds of futures, stock, options and forex trading systems. Not only this, but they also publish detailed individual system performance reports for every forex automatic trading system in their database. You can access a free detailed individual system performance report for the best performing trading system in their database by visiting their website.

Why Is Automation Of Particular Use In Forex Trading?

Do you want to work hard or work smart? That's the real question. Developing a forex automatic trading system is expensive and hard work, but it's a hard work with a payoff. Manual trading may work for stocks and futures, but it won't cut it in forex for most traders.

Forex is unlike any market in the world. It's open for trading 6 days a week, 24 hours per day. It's dominated by multinational corporate treasuries, massive investment funds, and national banking and economic agencies. There are daily price swings that would make most fund manager's yearly quota. It all adds up to a lot of risk for the average investor, but there are ways to minimize the risk and take advantage of the huge opportunity.
When the average trader first learns of forex trading, it's all dollar signs and big dreams. The daily volume and profit potential lead many to believe that huge success is just a few pips away. While it's true that forex presents a large and unique opportunity for traders, it's also true that most traders are overwhelmed not long after their first few trades. Why?

There are too many chances to make money. Without the discipline to really hold to a system, most traders experience a wide array of events that eventually lead to account liquidation. The temptation to jump back in after a loss or gain, the misuse of leverage, the total absence of money management techniques, and many other ills befall the trader who sees one opportunity after another. Soon, physical fatigue sets in, then mental fatigue, and in the end trading becomes a vicious circle of what-ifs and could-have-been's.

Emotion is the true culprit – whether it's the ethereal highs we experience after gains or the remorseful lows we feel after losses. The trader needs to optimize moments of clear-headedness and objectivity to build systems free of the stress of trading. Once the system is built, the trader has to have the discipline to trade it EXACTLY as it was built. For a variety of reasons, that ability seems to be lacking among all but the top 1% of traders. The rest of us need automation.

What Are The Major Components Of A Forex Automatic Trading System?

Every forex automatic trading platform should have 4 major components:

• Signals – Signals are the events that trigger market entry and exit. The platform you choose should have sufficient breadth and customisability of signals to meet your forex automatic trading system's needs.

• Systems – Signals are combined in a script for trade entry, trade management, and trade exit, also known as a trading system or trading engine.

• Test Trading – Completely formed engines are tested historically using tick data, and then on a forward-looking basis using a live market price feed.

• Live Trading – Tested engines are elevated to live trading status, where a reputable forex dealer executes trades in a real money account.

Many platforms claim to be a complete solution, but close scrutiny can usually reveal one or more flaws. Decide if you can live with those flaws and if not, move on.

What Does The Ideal Forex Automatic Trading System Look Like?

Automation, in its best implementation:

• Provides exact execution of a trader's system. The ideal forex automatic trading platform allows a trader to work in a test environment with the exact same set of tools that will be used live. It allows the trader to build systems, test them, and implement them live in such a way that the trader knows that the live system will execute trades exactly as the test system did, and similar performance should result.

• Frees the trader from the majority of physical and emotional demands that are particularly forceful in the 24 hour, large player dominated world of forex trading.

• Makes money for the trader!

All traders have different levels of programmatic skill and different needs for customisation. There is an automation option for most traders, and the most important factor in determining which to use is trust.

The first step in automation is platform selection. Here are the points to consider:

• Do you need automation? The answer is yes for most traders. The answer is no if you've consistently made money trading forex.

• Is your automation platform hosted? If not, then your trading success relies on your home or office computer. Redundantly hosted platforms will inspire the most confidence among traders.

• In your platform tick-driven? If not, your live trades are not likely to perform as well as your historical tests.

• Is your platform partnered with excellence? Look at the dealers and other partners chosen by your platform. Are they the best in their field? If not, be wary.

• Does your platform require up-front payment? This is always a red flag. A platform confident in its ability to make you money will share the risk of getting you started.

• Does your platform support your need for customisation, or is it programming-reliant? Ease of use is a big deal – forex is tough enough as it is!

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