Automatic Trading has become a trend in Forex trading as it minimizes the amount of time a person has to spend making financial investments thanks to advanced algorithms provided by Brokers when trading in the Forex market. But one must be careful when leaving investments and operations in automatic because if one does not study the market well it can lead to the Trader to have significant losses of money.
Contenidos del post:
- What is automatic trading fundamentally?
- Know the benefits of automatic trading when making investments
- Types of Automatic Trading Systems
- Chartist Guidelines Systems:
- Trend Trading Systems:
- Anti-trend Trading Systems:
- How to set up an automatic trading system and implement a good usage strategy?
- Meet some of the Brokers that offer Automatic Trading platforms to trade Forex
What is automatic trading fundamentally?
Automatic Trading is the execution of financial operations, investments with currency pairs, raw materials and other financial instruments in a totally automatic way thanks to a script which is based on an algorithm that contains a set of orders previously programmed to be executed in a certain moment either by the increase or decrease of the value of a specific asset, in other words the operations are executed by what is known as computer robots to save time to the person and this one does not have to be making calculations and analyzing graphs all the time. One of the points in favor of this type of trading is that it eliminates errors in the manual and graphical analysis made by human beings to make decisions at the time of making trades and being able to monitor the market 24 hours a day, Monday through Friday.
Automatic systems can analyze and execute trades on all types of listed assets, among the most prominent assets are: currencies, oil, indices and stocks of multiple companies worldwide. Whether for automatic or manual trading it must be taken into account that the market is only in trend twenty-five percent of the time so the trend to high or low is subjective on the part of the Trader, in theory this trend is based on personal experience and its own interpretation in a given period of time so you must develop an optimal strategy if you want to perform operations on automatic pilot taking into account the risks that exist when trading in Forex. A trading strategy is considered good or profitable when at least seventy percent of the investments are successful in shortening the losses that can be made on the basis of one hundred percent of the operations.
Know the benefits of automatic trading when making investments
- Allows a person to trade without limit of orders: For many investors not having a limit on the orders they can execute means generating a greater amount of money that goes based on the strategy used, not having limits on executions these can be done at any time of day, to trade automatically Brokers ask that their platform be installed on a computer or a server and thus their algorithms (robots) can operate and make executions on orders all day based on what has been left programmed. It is recommended that if you intend to operate on autopilot the Broker’s Trading platform is installed on a server because these can be left operating 24/5 Monday to Friday as opposed to a desktop or laptop pc because you do not usually have these computers turned on all day because they can be damaged and slow their operations.
- Before starting to operate you can perform a test and check if the algorithm works correctly: If you start to make your investments automatically you must first check that the algorithm that provided you the Broker functions correctly because the minimum error in a trade can lead to a net loss, as the markets constantly change the fact of having made a profit in a past period does not mean that it will be made in the future so it is advisable to make a test once a month and verify that everything goes according to plan, the best way to perform the analysis is by making comparisons of results using the MetaTrader 4 platform, obviously the results will never be the same but if you can check the basis of the percentage of hits if the algorithm works correctly, in the event that you do not get the desired results then you must raise a new strategy by modifying the parameters of operation of the robot.
- Eliminates the psychological pressure on the investor: This factor is one of the most important when trading Forex because the mood can be involved
in the results of the trades that are made, if a trader is very anxious in most cases tends to lose control quickly along with his money so if you use an automatic system which has already been tested and estimated good results, the investor reduces his level of anxiety which allows him to keep a greater control of the situation even if he does nothing during the trades, in other words the automatic Trading eliminates the psychological pressure because the orders are executed by means of predefined algorithms without Trader’s mediation.
- Time saving: To make more money a Trader usually operates in several markets at the same time with the objective of obtaining a greater profit, to operate in several at the same time requires to follow the economic tendencies that are presented in this market during hours and hours reason why if it is made use of automatic systems these will act directly on the selected assets avoiding that the investor wastes the time following the tendencies.
- It is possible to have greater diversity to operate the several markets: This is one of the best advantages since to operate of simultaneous form in several markets with which a greater utility can be generated diminishing the risks that can be had by the taking of multiple decisions by several tendencies; when having all pre-established the algorithm will take the best decision based on the parameters that have been configured.
Types of Automatic Trading Systems
Chartist Guidelines Systems:
This type of systems are used to make an identification in the economic graphs, generally work making estimates of results based on the graphs you have from previous periods, as such using the chartist system is simple because it does not present much complexity at the time of establishing the execution parameters to be performed.
Trend Trading Systems:
As previously mentioned, the market is only in trend 25% of the time, but in the same way during the entire operation period, it is intended to detect upward or downward trends seeking to perceive some benefit. The problem that arises with trend systems is the volatility of the values presented for a given asset, for which reason sometimes the estimates that are made generate false signals, However, what makes this type of system attractive for investors is that the risk return ratios used are very high and this translates into greater utility since the potential of the profits perceived by operations are higher than the risk of capital losses, in other words, successfully completing a small percentage of the operations would be obtaining profits greater than any loss.
Anti-trend Trading Systems:
This other type of system, as its name implies, is not based on upward or downward trends in the market, it points in the opposite direction to trends and focuses on cycle indicators, looking for small movements, either of increase or decrease in the values of an asset in order to take advantage of the smallest profit, however small it may be. Originally, these movements derive from the main trends but follow an opposite pattern which is based on market indicators and not on volatile trends in values.
How to set up an automatic trading system and implement a good usage strategy?
- Configure the entry and exit rules: You must define the rules for entering and leaving the market when it is most convenient to increase losses and decrease profits based on the values of the financial instruments with which you are trading.
- Perform backtesting: Once the rules are previously established, a test should be done to evaluate the effectiveness of the operation of the system based on the functions that have been implemented and how the robot should react to changes in the market. It should be observed if the system that was defined is applied in an optimal way, determining if the profits exceed the losses in the operations that are carried out, ideally this test should be performed with a demo account of the Broker through which the operation is going to be carried out. The test should be performed over an extended period of time of about seven to fifteen days watching the algorithm unfold in various scenarios during that time evaluating its effectiveness.
- Optimize the system based on risk management by operations: Here you must define the risk parameters that are willing to accept, in other words the losses that will be accepted by the investments that are made, among this we have: choose the appropriate leverage to trade, establish whether to trade with lots, minilotes or microlots, etc..
- To trade with real money: Finally you must begin to make operations in automatic pilot with real money to find out if the configuration of the algorithm is the indicated one and to know if the desired benefits are obtained, it is advisable to begin with amounts of low money and if the test gives good results it is possible to trade with more money to maximize the gains, but as it was said before at least a monthly check of the robot must be made because the market changes constantly due to its high volatility.
Meet some of the Brokers that offer Automatic Trading platforms to trade Forex
- IC Markets
These are some of the Brokers that offer automatic trading platforms to trade Forex, there are others but the list is too long to mention them all. Automatic trading is not mandatory to make investments in the forex market, if the Trader wishes he can make his investments manually however 65% of the operations that are carried out come from robots that execute the processes and it is not necessary to automate the operations to save a great amount of time and invest in several markets at the same time.