Forex trading has always been seen as a highly stressful and highly intense industry. People picture men in suits anxiously staring at charts, loosening their ties with sweaty palms as they hope the numbers will go in their favour. But what if it doesn’t have to be? What if traders could replace that anxiety with a precise algorithm that follows parameters rather than feelings? Automated trading can do just that.
As the technological world continues advancing at an unprecedented rate, people are finding more ways for mechanical learning to replace human error. Thanks to forex automation technology, traders can rest assured that their shares are in good hands. By introducing automated systems into forex markets, people can eliminate the risk of losses caused by impulsive, emotionally-driven decisions.
What is Automated Forex Trading?
Automated Forex Trading is a method of conducting currency trades using Expert Advisors, also known as “trading bots”. These computer algorithms, used in conjunction with reputable trading platforms like tiomarkets, are set to automatically buy and sell based on preset parameters and technical analysis. This completely eliminates emotional bias by removing fear and greed from trading decisions.
Trading bots are programmed to:
- Monitor the movements of currency prices in real time,
- Apply the necessary technical indicators or statistical models
- Identify entry and exit points
- Automatically execute trades
- Manage risks by the use of stop losses and position sizing
Once it has been initally setup, the system adheres to the rules precisely. Basically, the software is able to analyse the market, identify opportunities and place trades without the need for constant human input.
Understanding Automated Forex Trading Software
Automated forex trading software runs on a program that’s able to analyse currency price charts and other market activity over multiple time frames. It finds spread discrepancies, price trends and any news that may impact the market. It then uses these insights to locate any potentially profitable currency pair trades.
This means that if the software locates a currency pair that fits the criteria you’ve set and falls within the predetermined parameters of profitability, it’s able to automatically make the trade on your behalf.
There are several types of automated forex trading software:
- Expert Advisors (EA) are trading algorithms that run on popular trading platforms. You are able to either select prebuilt strategies or customise your own.
- Algorithmic trading bots are stand-alone or cloud-based systems that can implement strategies across one or multiple currency pairs.
- Semi-automated systems give you trade signals or suggestions, allowing you to manually approve their implementation.
How Automation Reduces Manual Trading Errors
Given the volatility of the market, it’s no surprise that many forex traders have been prone to making mistakes based on emotional decision-making. They may have suffered from losses due to either holding onto a losing position for too long or letting go of a winning position too soon. The truth is that even highly experienced traders may at times make a trade based on some psychological trigger that defies the logic of the current market conditions.
Automated trading is a more disciplined approach than manual trading because it operates according to preset rules based on specific market conditions. There is also a marked increase in overall success rates in comparison to manual techniques because the preset rules can be tailored by each person to suit their individual preferences.
Unlike people, robots don’t need to sleep. This means that the automated systems are able to run 24/7 and are constantly analysing data and monitoring currency pairs, which enables them to trade during unexpected market movements.
Automation also eliminates manual input errors like entering the wrong lot size. Their execution is consistent, and they’re able to conduct trade at a speed of mere milliseconds once the predetermined criteria have been met.
Rigorous backtesting also allows you the opportunity to test your strategies against historical data in order to refine them. This helps you ensure your systems are strong before you go live, reducing the risks of relying on flawed, untested or impulsive strategies.
Automated software makes your trading decisions unemotional and consistent, using the parameters you’ve pre-established or the settings you’ve pre-installed.
Types of Automated Forex Trading Strategies
There are a vast number of trading strategies that you can use when trading through sites like tiomarkets, each of them offering its own unique approach to the market and allowing you to capitalise on various market conditions. Through understanding and implementing these trading strategies, you can develop a diverse trading portfolio that aligns with your specific needs and risk tolerance.
Trend-Following Strategies
Trend-following strategies involve using technical indicators like moving averages and support/resistance to recognise and adhere to market trends, giving you valuable insights into the market’s direction. Following the trend enables you to maximise your profits while minimising risks.
Arbitrage Opportunities
Arbitrage opportunities involve exploiting price discrepancies by simultaneously buying at a low price and selling at a higher price. Automated forex trading allows you to leverage arbitrage opportunities in price discrepancies across different markets. This involves simultaneously buying at a lower price from one market and selling at a higher price on another market.
Mean Reversion Strategies
Mean reversion strategies presume that asset prices will inevitably revert to their average levels, despite any highs or lows that they may experience. Traders who implement this strategy aim to capitalise on this assumption by buying when prices are below average and then selling when prices are above average.
Mean reversion strategies can be used to take advantage of short-term price fluctuations. They also decrease risk by reducing your exposure to volatile markets.
The Impact of Tech on Forex Trading
With estimates suggesting that between 60-70% of trades are now conducted using automated software, it’s safe to say that forex automation technology is slowly becoming the new standard.
No matter what your expertise level is in forex trading, automated trading software can help you be successful. By eliminating human bias and error, it ensures that your trades are consistent and accurate. Being able to operate 24/7 means you’ll never miss out on an opportunity, and rigorous backtesting allows you to test your strategies without risking money. The future of forex is definitely changing, one automated algorithm at a time.