How to Automate Your Trading With Forex Robots

An automated trading system is a method of trading forex using a computer programme. It might also be known as an algorithmic trading system, EA (expert adviser) or a forex robot.

An automated system uses technical analysis and a set of predetermined rules and parameters to decide whether to buy or sell currency pairs throughout the day. Some automated trading systems will do the trading on your behalf, while others will send trading signals to let you know about opportunities.

Automated trading systems are available to all forex traders, from beginners to the most experienced, and there are a range of reasons why you might consider using a computer programme to trade. They can help you to trade more consistently and with more discipline, and also free you from hours in front of the screen trading manually.

In this article, we explore the types of automated trading systems available, what they do and how you can design a system for yourself.

What Types of Automation Are Available?

There are two types of automated trading systems available:

1. Fully Automated

A fully automated trading system scans the market for trading opportunities and carries out trades electronically on behalf of its user, based on a set of predetermined rules.

It automatically generates stop-loss orders, trailing stops and profit targets as soon as a trade has been entered.

There are several benefits that you might consider when choosing to use a fully automated system. These include:

• Speed – A computer can spot and act on market opportunities much faster than a human
• Discipline – Emotions can cloud a trader's judgement; computers do not fall prey to panic or anxiety and will always stick to the plan
• Time – Using a fully automated system takes much of the work out of trading, leaving you free to do other things

If you do not have much time to devote to forex trading, or if you find it difficult to stick to a trading strategy, then a fully automated system may be a good option.

However, you should be aware that you cannot simply set it up and then sit back as the money rolls in. It will need monitoring to spot and resolve any issues.

Even the best automated systems do not offer a 100% success rate and cannot replicate many of the human qualities that make a good trader.

2. Semi Automated

A semi-automated system uses a computer programme to analyse the forex markets and look for trading opportunities, again based on a pre-programmed trading strategy. It then sends the user trading signals with entry prices, stop-loss orders and profit targets, and it's up to the trader to decide whether to act on these and then enter the trade manually.

As with full automation, this system frees up the trader’s time by doing much of the preliminary work for them. It is capable of scanning and analysing the markets much quicker than a human can, and it helps to reduce emotional trading by sending alerts based only on the strategy.

This system might be better suited to a trader who has more time to spend on forex but wants to automate their activity to a certain extent. Using a semi-automated system allows the trader to retain more control over their account and to apply their own skills, experience and knowledge before deciding whether to make a trade.

What Is an Automated Trading Strategy?

A forex trading strategy is a set of rules a trader uses to buy and sell currency pairs. You would normally create a trading strategy and follow it manually, but many use computer programmes to implement an automated trading strategy.

This could be an off-the-peg forex robot with its own built-in trading rules, or it could be a system the trader has designed themselves to follow their personal trading strategy.

Buying a commercial automated trading system is much easier and quicker than creating one yourself, and if you have limited experience of forex trading then you are probably better off buying one off the shelf.

There are a number of forex robots on the market. Some of them are well respected systems but others may be below par or even scams, so it is important to do your research before making a purchase and make sure you buy from a reputable source.

You should also make sure you have a full understanding of the robot you choose and are sure that it will operate in a way that aligns with your own trading goals. Things to consider include:

• Backtesting – The robot should have been backtested in different market conditions and on a range of currency pairs
• Order size – Some robots perform best with a particular order size, so things may go wrong when the order size changes
• Live trading results – Check that the results promised are based on trading in the live markets and not just simulations
• Drawdown – This refers to the difference between high and low points during a specific period. Traders have their own personal preferences when it comes to drawdown, so should choose a robot that fits your own
• Credibility – Look for positive user reviews and testimonials

While some forex robots are customisable to a certain extent, traders may struggle to find a commercial system that exactly fits their own strategy and goals. And many robots fail to deliver the results they promise.

So, some traders choose to design their own automated trading system instead. This allows for a much greater degree of flexibility as your only limitations will be your own creativity and capabilities, and what it is possible to code. And, if you build a successful system, you may be able to sell it to other traders.

To design a system for yourself, you will need a thorough understanding of the forex market and technical analysis. If you are not able to code yourself, you will need to hire a developer to do it for you.

It generally takes about six months to design, build and test an automated trading system, so you should be prepared to put in the time and effort required.

How to Design an Automated Trading Strategy

If you decide that you are able to design an automated trading strategy yourself, there are several steps that you will need to take:

Decide on a Trading Plan

Before designing an automated system, you need to have a detailed plan for how you are going to trade.

Clearly defining your trading aims and how your automated system will help you achieve them is crucial for creating a robot that works. You will need to consider aspects such as when you want your automated system to trade and the risk/reward ratio.

The best way to come up with an effective plan is to trade manually on the live market over a number of months. Try to keep your plan as simple as possible or it will become very difficult to programme your forex robot.

Define Your Trading Rules

Trading rules will be at the core of your automated system, so you must make sure you have considered all those that may apply.

If you are using a developer to code your system you will also need to be able to explain these to them in detail. Rules to think about include:

• Lot size
• Trade entries
• Which indicators to use
• Indicators
• Trading hours

Choose Your Risk Settings

Again, you must be very specific about the risk management tools you will use. If you decide to sell your automated system, buyers will look at its risk settings before its profits.

Things to consider include:

• Stop losses
• Maximum leverage
• Maximum drawdown

Code Your System

Once you have worked out your system on paper, you will need to convert it into code.

Different platforms use different coding languages, so you will need to consider that when designing.

While it would be helpful to have some understanding of coding yourself, if you’re not an expert, you can hire someone to do it for you. In this case, you will need to be able to explain your strategy and design to them very clearly.

Backtest Your System

Once your automated trading system is complete, you should backtest it using historical data. This should give you a good idea of how well your system will perform and allow you to make any refinements.

Free backtesting software can be found online.

Forward Test Your System

While backtesting is very useful, it does not take into account all the variables of a live trading situation. So, once you are happy with your backtesting, you should try your automated strategy out on the live market.

You could do this on a demo account, or a real account using small amounts of money.

Monitor and Analyse

When you have tested your system thoroughly, you are ready to put your automated trading strategy into action.

However, even now you cannot simply sit back and let it do all the work for you. You will need to stay on top of any unforeseen problems or changing market conditions and keep tweaking your system accordingly.

Final Thoughts

Advances in technology have transformed the way that people trade forex, with computer programmes speeding up trades and making the market more accessible to everyone.

If you are trading forex, it is likely that, at some point, you will decide to automate your trading strategy to a certain extent, whether that’s through using a commercial forex robot or EA, or by creating an automated trading strategy for yourself.

Whichever system you decide to use, you should always remember that there is no ‘get rich quick’ scheme when it comes to forex. Computers cannot completely replace human traders and, as with any automated system, you will need to constantly review its performance.

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