How to Choose Forex Automated Trading Strategies
Are you struggling to see real benefits in your Forex trading? You may not have considered the application of automated trading strategies. What makes automated Forex trading different? The answer lies in the crucial word - automated, which means that it is free from human influence and it is not affected by decisions based on human psychology.
As a matter of fact, Forex automated trading is a method of trading diverse foreign currencies with a computer program, which is based on a variety of analyses that help to define whether a trader should sell or buy a currency pair. The trader can advance this program by teaching it to make decisions based on a set of signals derived from technical analysis charting tools. The outcome of applying this method is enough to give grounds to utilising automated Forex trading strategies - and we are going to discuss this in more detail in this article.
Are you interested in practicing your trading skills under real and live market conditions, without putting your any of your funds at risk? Why not register for a free demo account and put your skills to the test before taking on the live markets! Click below for more:
Automated Forex: Four Key Items
We are going to provide you with an example of how four carefully chosen items can be decisive when attempting to choose successful automated trading strategies. Our checklist consists of the following:
However, we must stress that this list does not guarantee 100% success, nor does it guarantee a profitable strategy. We all know about the unpredictable nature of the markets and it would be unwise to ignore this.
The major goal of these four indispensable items is to identify and put into practice an automated Forex strategy, with the help of utilising appropriate performance and leverage expectations that should result in higher probability trading. Besides this, you will also learn how to minimise emotional involvement and stay disciplined in your trading. Furthermore, you will be more far-sighted, so you can plan your trades as effectively as possible. You must remember that things will not always go your way whilst trading and that making losses is highly probable.
The first thing you should look at when approaching Forex automated trading strategies is their description. Your task is to find out what the strategy stands for and to consider the main logic behind the strategy. It is useful to take into account the following words: profit target, risk and stop-loss, momentum, range, trend and breakout. You should be careful and attentive while reading the description of different strategies.
Also, never underestimate the importance of the type of market conditions that are intended to be used with each strategy. Often, strategies are created to work well only in certain environments, and it can be very complicated to find strategies that will work well in all market environments. In order to fulfil your expectations, you should recognise the type of environment where each strategy works best, and then apply the strategy to a market exhibiting these conditions.
Entry and Exit Signals
A large amount of traders spend a lot of their time worrying about the entry and exit signals within an automated Forex strategy. It is important to understand the general logic that the strategy implies, although we must not overestimate each trade the strategy makes.
Overall, this strategy is an inception for hundreds or even thousands of trades to come. It is more of a collection of trades that we are interested in, rather than every individual trade. Try to perceive the performance of your trading as a basket of many trades, rather than being based on any one trade. We have detailed some actions you can use while reviewing trades:
- You should place all of your winning and losing trades in separate baskets. Work out what the average winner or average loser is, and seek out strategies with higher average winners, rather than average losers.
- You should review the trade performance in baskets of at least 10 trades. Review your last 10 trades and answer the following question - did the net result add pips to your account or take them away? The conclusion is that you should seek strategies that add pips in a basket of X amount of trades without any problem.
We have previously mentioned the description and how to use it in order to define the market conditions where the Forex automated trading strategy is designed to work. As long as you indicate the correct market conditions, you can search for strategies that conform well to this characteristic. Unfortunately, traders often miss this step. Generally speaking, there are two different kinds of market conditions that may have several variations. We're going to define these conditions as trending and non-trending markets.
These two conditions are mutually exclusive. In the time when the market is in its trend, prices are steadily and in a confident way, making progress. You will see an uptrend and a whole amount of higher highs or higher lows, along with a downtrend series of lower highs and lower lows.
On the other hand, ranges form when the market is not progressing up or down - and instead, trade sideways. All that you need to be concerned about is which kind of condition brings your automated Forex trading strategy to a good level of prosperity, and then locate the market where this chosen strategy will work best.
This is another area commonly missed by automated FX traders. A lot of the time, traders expect too much from good automated trading strategies before utilising them, which can cause traders to apply too much leverage. This generally occurs due to the fact that traders tend to only look at the positives of a strategy, and ignore the potential losses. If you want to ensure that you are safe from such downfalls, you should be careful with how much leverage you apply.
We suggest utilising no more than 10 times effective leverage. If you are being especially careful, particularly if you are starting out, you may consider using less leverage at five times the amount or even smaller. The reason? The benefit of exploiting smaller amounts of leverage is that if your Forex strategy experiences a drawdown, you are just risking a small portion of your account, and consequently, you would have much more capital left to trade with, compared to using larger amounts of leverage.
We hope that this checklist will help you on your road to success in higher probability trading. Hopefully, you are on your way to start implementing the best automated Forex trading strategy properly by utilising the appropriate leverage, as well as performance expectations.
Automated Forex: Conclusion
Forex automated trading is more suited to advanced traders. The crucial skill needed is to wait and be attentive as long as possible. To some extent, the important task for you is to know what exactly you want, what you expect, and not to mislead yourself with entirely groundless imagination. It will be a huge advantage to your trading, and you will undoubtedly see the benefits.
Concerning the items we have discussed, always keeping them in mind can really prove useful. The description of strategies exists to define whether they are going to be suitable for you or not. By paying attention to it, you will most likely understand what different automated Forex strategies are about, and what goals they aim to reach.
Entry and exit signals indicate the conditions that are appropriate for traders to enter or exit a trade - and the ways of reviewing strategies. As for application, you get to find out whether strategies interact well with certain market environments. Determine what type of trader you are and then apply as much leverage as you see fit. Just be careful and make sure that any losses you could potentially suffer will not affect your basic assets.
We hope that the information here will help you in gaining profit and achieving success in the future, as well as finding the best automated trading strategy for you. If you are interested in learning more about how to automate trading strategies, you can check out the Automated Trading education section of our website.
Do you always want to stay up to date with the newest trends and strategies? Why not tune in to one of our free webinars and discover new tactics and hone your skills with our in house trading experts! Click below for more:
Other Articles Which May Interest You
- How to Use a Forex Hedging Strategy
- A Guide to Day Trading Strategies and Systems
- What is the best automated trading platform?
Frequently Asked Questions
What is automated forex trading?
Automated forex trading is a method of trading foreign currencies using computer algorithms and software programs. Instead of manually executing trades, automated trading systems can analyze market data, make trading decisions, and execute trades automatically on behalf of the trader.
How does automated Forex trading work?
Automated forex trading works by using pre-programmed algorithms that are designed to analyze market conditions, identify trading opportunities, and execute trades according to predefined rules. These algorithms can take into account various factors like technical indicators, price patterns, and news events to make trading decisions. Traders can set parameters and risk levels for the automated system, which will then execute trades based on those settings.
What are the advantages of automated forex trading?
Automated forex trading offers several advantages, including:
- Eliminating emotional bias: Automated systems trade without emotions, which can help avoid impulsive decisions.
- 24/5 trading: Automated trading can operate around the clock, even when the trader is not available.
- Backtesting and optimization: Traders can test and optimize their strategies using historical data to improve performance.
- Diversification: Automated systems can trade multiple currency pairs simultaneously, spreading risk.
INFORMATION ABOUT ANALYTICAL MATERIALS:
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admiral Markets investment firms operating under the Admiral Markets and Admirals trademarks (hereinafter “Admirals”). Before making any investment decisions please pay close attention to the following:
1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
4. The Analysis is prepared by an independent analyst (hereinafter “Author”) based on the NAME +(Position) personal estimations.
5. Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
6. Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
7. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.