Guide to Automated Forex Trading
What is Automated Forex Trading?
An automated forex trading system is a piece of software designed specifically for executing a trader’s strategy. Any good trader knows they need to have a game-plan to have any chance of being successful in any market.
A good forex trading strategy looks for signals to enter and exit positions. Trading signals get identified by utilising technical and fundamental analysis. A good plan must also encompass risk management principles. Any trader can predetermine their strategy and write a script to define all desired variables and what the program should do in each situation.
Just like any software program, what it does and how it works is predefined. How well an automated trading system performs depends entirely on the foresight and knowledge of the trader designing it and the quality of the code written by the developer.
Who Uses Automated Trading Systems
Traders use automated trading strategies in different markets around the world. Bots are actively trading on stock exchanges and crypto exchanges. The most popular market where trading bots are most used is forex. Contrary to what you might think, automated trading is used by many thousands of independent retail traders all over the world, not just major players. Banks, hedge-funds and prop-shops all indeed use advanced technology to give themselves an edge against the competition. It’s also true that you might not be able to deploy a server next door to the New York Stock Exchange, but that doesn’t mean that automated trading is inaccessible.
The barrier to building an automated forex trading strategy is incredibly low that millions of traders are doing it. Most modern trading platforms have support for algorithmic trading built-in.
Automated Trading Platforms
The most popular trading platforms today support automatic trading functionality and boast large and active communities of traders and developers. These communities give life to a thriving ecosystem of users who support one another with the development of their bots.
MetaTrader 4 is the most popular forex trading platform in the world and is responsible for making automated trading accessible to anyone. MT4 has its proprietary programing language called MQL4, which stands for MetaQuotes Language version 4. This language is for developing Expert Advisors, the term for automated trading bots in the MetaTrader community.
MetaTrader 5 is the successor of MetaTrader 4. Forex brokers are slowly adopting MT5 as a replacement of the now obsolete MT4 platform. One of the problems with this adoption is that MT5 uses a different programing language, known as MQL5. This issue has caused a lot of pain for the MetaTrader community.
Many consider cTrader as the main competitor to MetaTrader 4; however, cTrader has several advantages over MT4. As opposed to using a custom programming language cTrader uses c# for building automated forex trading strategies. Microsoft created c#, which is used by millions of developers around the world.
NinjaTrader is better known for trading Futures and Options in the United States as opposed to forex trading. NinjaTrader is another excellent example of how accessible automated trading systems are to your average investor.
Besides the four platforms listed above, there are many more platforms available for a variety of different niches in online trading.
7 Reasons to Automate your Trading Strategy
Automation is widespread across industries around the world; that’s because we humans make mistakes all the time. Automated trading systems are appealing to different people for different reasons. A hedge-fund might want to process information as fast as possible, and a private self-trader might want to reduce the amount of time they need to spend staring at a screen. In general, automated trading offers benefits that everyone wants.
Remove Human Emotions
Trading mentors and celebrity investors can’t get enough of talking about managing your emotions. Trading requires discipline and a game plan. No matter how prepared you are for your trading session and how certain you are that your trade will play out, once you are in the market, your mind can convince you to deviate from the plan. Drawdown is too painful for most traders to watch, and it’s far too easy to justify closing a profitable position too early. A trading bot won’t deviate from the plan and doesn’t make bad decisions based on fear and biases.
Enter and Exit Positions Faster
Trading bots can consume and process information faster than humans. If a price crosses over a resistance level, it can take you a moment or two to notice it. Following this, you would need time to review, double-check it, consider if it crossed far enough, wait to see if the price retracts and then finally enter the position. If you were using an automated forex trading strategy, this order would be submitted the moment the price crossed the horizontal line, no questions asked.
Trade for Longer
Computers don’t have the same needs as we do. All a computer needs a stable power and internet supply, then nothing much can interrupt them. Traders, however, are limited to how much screen time we can handle. We need to sleep, rest, eat, socialise and take care of other responsibilities. An automated trading strategy won’t get tired towards the end of the day like we do.
Analyse More Data
As a trader, you only have one set of eyes and can only monitor so many charts. Automated trading programs are only limited by the resources available to them on the computer or VPS which they are running on. A trading bot can analyse and process far more data than a human ever could. The advantages of this include; finding more opportunities by analysing more instruments and more timeframes, trade on multiple symbols and accounts, run different strategies simultaneously and obtain additional validations before entering and exiting positions.
Ability to Backtest and Optimize
You can test trading bots against historical data at a scale that would be impossible for any human to complete. Based on the results of the backtesting, traders can go back, make tweaks and run the backtest all over again. Backtesting can be run on many different trading pairs and various brokers too. Backtesting also enables traders to discover any miscalculations or bugs in code of their automated trading strategy before they start live trading.
How to Automate your Forex Strategy
There are tens of thousands of traders running bots to automate their trading strategy. Buying an Expert Advisor or cBot online is one way to start, but it’s a controversial idea. To begin using an automated trading strategy, you don’t need to be an expert computer programmer and quantitative analyst. Still, you do need to have a good understanding of forex trading and a rough idea of what you want to automate.
The best way to automate your trading strategy is to engage with a consultant specialised in programming trading systems. Consultants like Emet Trading Systems can help you to define your trading strategy and build scripts for a variety of trading platforms, cTrader included.