Automating Your Forex Trading
Updated: May 16, 2013 at 7:43 AM
As the forex market moves enthusiastically into the electronic age, individual currency traders are increasingly turning to software products that help them watch the market and even assist them in performing the actual mechanics of trading without human intervention.
This process of automating trading activities still has quite some way to go before such software can replace the flexibility of the experienced human trader. Nevertheless, it can be worth exploring for the curious forex trader who wishes to see if automation may eventually make their lives easier.
Perhaps the most popular forex software products currently offered on the retail market are automated forex trading software packages or forex robots. Much of the attention is focused on commercially available robots, although a number of independent developers have also written such programs and made them freely available online.
These robots often operate as Expert Advisor or EA software within popular forex trading platforms like MetaTrader4. Such programs have attracted considerable attention from both new and seasoned forex traders alike.
However, suspicion has arisen about these products because they tend to be marketed by extreme sales pitches that often seem to considerably overstate the potential for profit when using the system.
Accordingly, if you do decide to purchase any such software, you will very probably want to test it thoroughly before you allow it to take charge of any significant portion of your trading portfolio.
Initial Trading Robot Evaluation Steps
To evaluate a commercial forex robot, the first thing you will want to do is to purchase and download the software. You will then need to install it immediately into the trading platform you will be using. At this point, you can be evaluating the software's ease of use and the quality of the vendor's customer service.
Once you have finished these initial set up steps, you will then want to run some basic tests that can also apply to evaluating non-commercial automated forex trading software.
In addition, if you think you might want to return the software if it does not meet your minimum expectations, then you will want to take these testing steps for the software within its trial period which many software vendors stipulate with their money-back guarantee. This trial period is typically sixty days for products purchased online via Clickbank.
The Robot Testing Stage
A typical set of testing steps for forex robots would include the following:
The first step would be to back-test the software (more on this later in this article series). This involves testing the robot's performance over one or more time frames using historical price data for the currency pairs you will want to use it on. This can often be done using the trading platform that the robot operates with. Of course, you need to keep firmly in mind that any robot's past performance is not necessarily indicative of its future performance.
The second step would involve running the robot on a demo account in order to evaluate if the robot has comparable results in real-time trading situations. This should help give you a better sense of how the robot is currently trading than its historical performance.
If the robot has passed both the first and second tests satisfactorily, then the third test involves trading the robot in a micro account to make sure that it performs sufficiently well in a live trading environment. You can open a micro account with one of these forex brokers. This step gives you a chance to make sure that dealing spreads, order slippage and unfilled orders that are often seen in real trading will still produce acceptable returns.
If any forex trading robot you purchased fails one or more of these evaluation steps then do not hesitate to return it immediately for your refund within the specified return period. Also, be aware that for software products purchased via Clickbank, you will usually need to request your refund from Clickbank and not from the product vendor.
Customized Trading Algorithms
Many forex traders eventually find themselves tiring of the stresses involved in trading, especially after the initial fun of trading has worn off. If they have developed a successful trading system in the meantime, then they often wish to automate it by creating their own customized trading algorithm.
Doing so will allow them to set their trading algorithm running as it watches and automatically enters trades in the forex market for them while they take a back seat in the overall trading process. We'll look deeper into how to construct your trading system in the next step of this article series.
Choice of Broker for Automatic Trading
Picking a supportive online retail forex broker for the kind of automation you have in mind can be very important to the overall success of your trading robot.
Depending on your needs, you will want to make sure that the broker you select supports either the trading platform your commercial robot functions with or an API interface that you can learn how to automate your own trading algorithm with.
Also, choosing a broker with competitive spreads can make a particularly strong difference in trading performance when using scalping robots that often trade frequently and for just a few pips per trade. Such robots often require the best possible pricing in terms of dealing spread to show a consistent profit.
Accordingly, if you will be using a scalping robot, you will not only want to find an online forex broker that supports the automated forex software you have purchased, but you will also want to find one that has especially tight dealing spreads and either no or very low commissions per trade.
Other key considerations when it comes to forex brokers are the quality of the broker's deal execution; the broker's dealing commissions and rollover fees; and whether or not orders are subject to slippage in fast markets.
Next >> How to construct a forex trading system >>
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.