What Are Automated Forex Trading? Want to trade currencies without having to spend a lot of time and effort? This is exactly what you can do when you take advantage of automated Forex trading software. Instead of going in and out of transactions manually, a robot or computer does the job on your behalf.
You need to do due diligence before transferring your transactions to a Forex expert advisor (EA) or robot. While the concept may seem simple, there is more to the process than simple automation.
In this article, we will examine various aspects of automated forex trading and how you can use the system to your advantage.
What Are Automated Forex Trading?
Automated trading uses a pre-programmed algorithm that decides what to buy and sell assets when, depending on the instructions written in the code. Unlike manual trading, the decision to buy or sell is not made by the investor, but by bots or software.
For example, an intraday Forex trader trading manually will analyze a list of different currency pairs and use indicators and other tools to determine their next move. On the other hand, an intraday Forex trader who automates trading strategies will rely on robots to act on a trade based on predetermined instructions.
You use a structured system to analyze currency price charts and market activity. When it identifies important trading signals, such as unstable price models, trading is carried out automatically.
Using automated trading software, you can set criteria that will determine the entry and exit points of your trade. Basically, you tell the system to carry out a trade when certain entry and exit points are met and realized.
For example, if the 25-day MA (moving average) passes within a 5-minute period; below 100-day MA, you configure the system to open a short trade.
An automated trading system can be categorized as Expert Advisors (EA’s) and Forex robots. Programming languages can be simple or complex depending on your knowledge. Obviously, more complex systems require a good grasp of the language used by your trading platform.
If you are trading using MT4 or MT5, the programming language used is mql4 or mql5, respectively. Automated trading system is also called algorithmic trading, system trading or mechanical trading systems.
What are the advantages and disadvantages of automated trading?
Not only does it reduce the difficulties and stress of Forex trading, it also has many other advantages for you.
Advantages of automated trading
Takes emotions out of the equation
Emotional trading is the downfall of every trader, regardless of the instruments invested. When you allow your personal emotions to influence your trading decisions, the result can have a huge impact on your portfolio and peace of mind.
However, if you use robots or EA’s, transactions are executed without any input from you or any decision by you. You do not need to experience greed or fear of kidnapping, only pure logical movements performed by automated trading software.
Develops discipline and confidence in your trading plan
Most of the time, transactions fail because you don’t trust your transaction. Even if a trading plan is available, you look at the chart once and then deviate. But once that decision is taken away, you will learn to trust the system you set out.
It allows you to fully and consistently follow your trading strategy and protects you from over-trading or trading outside of your plan.
Provides accessibility and flexibility
Automated trading software is used by both beginners and professional traders. The former uses it as a guide, while the latter is used as an aid in decision-making. But both are used to test the system for a trading platform.
Depending on the broker, you can sign up for a demo account to test the offered robots or EA’s. If the system proves useful and profitable, then you can switch to a live trading account.
Benefits from retrospective testing
If you want a profitable automated Forex trading system, you will need to do background testing to determine the appropriate criteria based on historical price data. It is very important that the conditions you set are absolute.
Since computers do not have the ability to make predictions, it is your responsibility to tell them exactly what to do. A careful retrospective test will help you establish precise trading rules.
Increases Order Entry Speed
Forex EAS can respond instantly to fast movements of the financial market. As soon as the pre-determined criteria are met, the software will place orders immediately.
In Forex Trading, how quickly you enter and exit a transaction can make a big difference. Robots or EA’s ensure you don’t miss the best price or opportunity.
Helps diversify your transactions
With an automated trading system, you can trade on multiple accounts or use various strategies simultaneously. You can also manually trade with robots simultaneously if you want. This allows for diversified trading activities.
Possible risks are also reduced and protection against losing positions is applied. Moreover, robots not only screen Trading Opportunities in markets, but also monitor trades.
Reduces time commitment
Thanks to robots that trade on your behalf, you don’t need to stay connected to your computer.
Technical analysis and fundamental analysis are also kept to a minimum, as you do most of them when developing pre-programmed / predetermined instructions for Forex bots.
Instead, you can spend the time you need to spend on graphics and analysis with friends and family. If you have a full-time job, you can also focus on it and let robots perform your operations.
Losses Of Automated Operations
Despite the convenience and convenience that an automated trading system offers, they come with some drawbacks you should be aware of.
Unlike a plug-and-play system, you need to monitor your EA’s or bots to make sure they are up and running. Technical failures, such as a failure to connect to the Internet or a weak one, can cause the system to fail. The software itself can also deteriorate, resulting in missed transactions or duplicate orders. Automated systems are not perfect. Therefore, you need to monitor decidedly to avoid inconsistencies and problems.
Higher risk of over-optimization
This happens when the strategies you implement look good on paper but underperform in a vibrant market. Retrospective testing may have this effect.
Because you see your past mistakes when doing retrospective testing, you can develop a trading plan that you think will work perfectly but will not work when implemented.
Expert Advisors and Forex robots
As mentioned earlier, automated Forex trading systems are categorized as EA’s and robots. Both are designed to analyze market trends and determine entry and exit points. However, the former only provides you with trading signals, while the latter automatically executes the entire trading process.
It is important to understand that automated trading systems are not completely risk-free and that you can still lose money, especially during uncertain periods. So are the disadvantages. Most robots are also limited to trading a certain amount of pips or during a positive trend.
How to choose between Forex robots and Expert Advisors?
This depends on whether you want to receive transaction signals that you can use to perform your transactions or leave all the work to the robots.
Most newcomers will probably rely on Forex bots when they get started. On the other hand, some professional traders will want to use short cuts and allow EA to conduct the analysis for themselves, or identify strong and weak currencies, but retain full control of their trading decisions.
Either way, you will benefit from the benefits provided by both automated trading systems.
How to choose the best automated trading platform?
Check whether the automation system is server-based
Computer-based automated software is at higher risk of technical failure. A sudden disconnection of the Internet connection can cause orders to not be sent to the market. And that can mean a loss of profit. Instead, register with a server-based automation provider.
Evaluate the provider thoroughly
Doing so is the best way to avoid scams. Be wary of platforms / software sold at a lower price, but promise high profits. Check out testimonials and reviews from third-party websites.
Search for trial offers
Most fraud sites do not allow you to test the system for free within a certain period of time. How else can they make money if they do?
For comfort, use automated trading software that other Forex traders trust and recommend.
What do you need for automated processes?
You can buy or create your own automated Forex trading system. If you prefer to customize your own, you will need the following:
A detailed trading plan that outlines the strategy you will use, the risk-reward ratio, and the rules of practice.
Tools and indicators that determine how transactions are placed.
Risk management tools such as a follow-up stop or basic loss stop to protect your equity.
Automatic forex trading is the appropriate coding language for programming your system.
After you design and run your trading system, make sure that you perform retrospective testing for efficiency and effectiveness and improve it as needed.
Are you ready to automate your operations?
Before you do this, make sure that this is the strategy you want to explore or for you. Installing the system takes time and does not always guarantee profitable operations. You can be better than doing manual operation.
But if automated forex trading matches your ultimate goal, take advantage of it. Remember to minimize the drawbacks by choosing a safe and legitimate provider; and constantly educate yourself about automated trading.