Automated Forex Trading Systems

Automated Forex Trading Systems

There are different opinions on the ability of automated forex trading systems to make you money on a regular basis. Winning trades are reliant on a complex set of factors and a system that is able to automate some of these needs to be based on sound trading principles.

If you think of the qualities of a successful trader and then start to compare these against automatic forex system trading you can begin to see where the relative strengths and weaknesses lie. Let’s take a look at four factors:

  • Emotion
  • A trading plan
  • Position sizing
  • Risk/reward ratio

The most common starting point is emotion. Most people agree that successful traders are able to manage their emotional state in a positive way and not get affected by their losses and not get too carried away with their winning trades.

They are also able to remain emotionally detached and resist the temptation to go and meddle with a position once it is in play. They are able to enter and exit at the best point based on their trading plan. This part is quite easy to replicate with automated forex trading systems. After all, they are generally computer systems and can be set to respond to predesigned signals.

One thing to remember, though, is that there is always a human who controls that system so the discipline to override the system needs to be resisted except in extreme situations. For example you would need to exit a losing trade if the market conditions changed dramatically before it gets out of control.

The next quality of a good trader is to have a plan for each trade – you need a compelling reason to enter the trade and it should provide a good reward against possible risk. Well, this part is pretty easy to replicate in automated forex trading systems. You need the signals you are looking for in a trade to be translated into rules to be followed by the system and with modern technology it is easy to get the latest data feeds in place.

The next concept to understand is one of Position Sizing – making the right amount of money available for each trade. This essentially means that you are placing an amount of money on a trade that fits within the amount of your overall trading budget. Let’s say that your trading “pot” is $10,000. A typical trade should not risk more than about 3% of that meaning you would want to make $300 available for that trade.

Making $300 available for the trade does not mean you are placing $300 per pip. It means that if the trade were to turn against you and your stop loss was hit then the most you would lose would be $300.

The next factor is the risk/reward ratio – your return should be at least two times what your possible loss could be. Simply put – if you are going to place a trade that could lose you $300 then it has got to make you at least $600 if the trade goes to plan. Potentially much more if the upside is good.

If you get your risk/reward ratio right and your position sizing correct you can actually have more losing trades than winning trades and still make money. How is that possible? Well, if those two parts of the system are in place your winning trades will make far more than your than you lose on your losing trades – makes sense?

With these few points considered you can begin to see that automated forex system trading can be a successful approach to take if you are able to choose the right system in the first place. There is no shortage of systems available – you just need to pick one that meets your needs.

One key factor to bear in mind is that automatic forex system trading is not a complete replacement for any knowledge on the subject at all. Good advise would be to gain an understanding of the forex market and the factors that move the currencies before you start auto forex trading.

It’s also important to make sure you get a system that supports your particular trading style . If you want to focus on intraday trading then you will find that some systems are more adept at working in those conditions. You may prefer

You may wonder why there is not just one system that suits everybody. Well, it’s a bit like the fact that people drive different cars – you choose one that suits your needs and means.  There’s no point in having a system that requires hours a day to support when you work a full time job and only have a small amount of time each evening to set aside with your forex business.

The same applies to cost. There are systems out there in the thousands of dollars that are out of reach of many people. They may offer great returns and used carefully can make you serious amounts of money and perhaps that is automated forex trading systems to aspire to.

So in principle a good system can be a great tool to employ to manage your trading. There still needs to be some strong controls around your trading activity and that is an area that many people forget. The idea of a “set it and forget it” system just does not exist. There is no way it can be programmed to react to changing Market conditions and economic news that influences the currency pairs you are trading in.

Understand what moves the market, stick to sound principles and use automated forex trading systems as tools to support your overall strategy and you won’t go far wrong.

Forex Trading Systems