Trading in the Forex markets can be quite difficult for beginners and inexperienced traders. Many people just jump into the market and trade at random without any underlying strategy which means that they may be lucky in the short term but they are unlikely to make money in the longer term. One of the solutions to these problems is to use automated Forex trading which also goes by the names of autopilot trading, black box trading and so on. In this form of trading, the trader relies on a piece of software for a computer trading program which automatically executes buy and sell orders when predetermined criteria are met. The underlying software or computer programs are also known as Forex robots or expert assistants.
Automated trading is popular on newbies
Fully automated or robotic forex trading is much the same as algorithmic trading or black-box trading in which a computer algorithm determines various aspects of the order such as timing, price and the size of the trade and places the order automatically. Manual intervention is not required to accept if users wish to tweak the technical parameters of the software to adjust to their trading style. On the other hand, signal-based forex autotrading relies on the manual execution of trading orders based on the signals generated by the system. For example some methods are based on a service in which traders everywhere detail their strategies to interested parties by way of signals and traders may then choose to execute signals which they like in the form of buy and sell orders. The signal based approach means that inexperienced traders without the knowledge or the capability to define their own strategies can use strategies that have worked in the past provided by the signal services in the hope that it works out. This enlarges the market so that many more retail traders can be accommodated.
Pros and cons of automated trading
The judicious use of technology can provide traders with many advantages. Trades can be automatically placed in your account with the broker which means that people do not have to be around all the time in order to trade actively. Moreover, because your presence is not required, you can use the software to trade 24 hours a day 5 days a week and create many more opportunities for you to potentially profit. It is easy to back test strategies in dummy trading accounts before you actually risk money on your trading positions. One of the biggest advantages of automated trading is that it completely eliminates the emotions and feelings from your strategy and the execution of your trades and the resulting discipline will greatly improve your chances of success. The biggest problem with automated trading systems is quite simply that there are so many of them to choose from at different price points. Many of them are accompanied by unrealistic claims of profitability which may lead you to believe that all you have to do is to install one of these software packages and you can then put up your feet and watch the money roll in. If only this were true, every person with a few bucks to spare to buy the package would be a millionaire. Obviously, it is not as simple as this. If you were planning to acquire a system, do lots of homework and back test the system exhaustively and put in as much risk management as you can before actually using the system.
Categories of automated trading programs
Automated trading -Learn about the strategies first
Most of these programs can be run on any trading platform including Metatrader which is one of the best known and most popular. If you like to be extra cautious, use an automated trading system as a secondary trading system and an alternative to your primary trading system. This way, you can minimize your reliance and the resulting damage until your automated trading system has proved itself. You have several alternatives when it comes to choice. You can choose a readymade system developed by somebody else and this is easily the most convenient and least complicated. Though the system is ready made, it can be profitable to use if you exercise caution. Ideally, you would want as much information as possible on the strategy that it uses so that you are not completely at the mercy of the system.
The second alternative is to tweak an existing strategy that you find promising and this will suit people who enjoy playing around with strategies in the belief that they can improve them. For example, you may find a strategy where the stop loss settings is not to your satisfaction or the moving average that is used requires to be replaced with a moving average that you are comfortable with. Obviously, this is not as straightforward as buying a readymade system but you will have the consolation that it is better suited to your trading style. Once again, you should ensure that your test your amended strategy on a trading account before you decide to risk trading capital.
The final and most difficult alternative is to create a automated trading program from scratch even though this is going to be much more complicated and time consuming. However, it may be worth the extra effort especially if you are automating the manual strategy that has worked well for you. Hopefully, the extra returns on your investment should compensate you for the additional expense and effort.