Automated Forex Trading

There are two primary reasons to utilize automated trading systems for participating in the Foreign Exchange Currency Market (FOREX).

The first is that it permits someone whose schedule and other obligations prohibit active trading during prime trading session hours. Whether this is due to employment obligations or the need to provide care for children, or any of the many and varied other time demands, an automated trading system permits someone who otherwise couldn’t to trade at the most opportune time.

Zulutrade

One automated trading provider that has been experiencing rapid, sustained growth among proponents of auto trading is ZuluTrade. The main idea behind ZuluTrade is to match Forex signal providers with traders who want to invest in Forex, but don’t have the time or temperament to do their own trading. One nice feature of ZuluTrade is that it is server-based, so a trader’s main trading computer does not even have to be turned on.

Also, people who live in time zones considerably removed from those of the major FOREX centers can use an automated system to enter, manage and exit trades while they sleep.

Even though Forex markets trade essentially 24 hours a day, five days a week, the market has peak activity during the hours when trading sessions from one major FOREX zone overlap those of another. When trading activity is greatest represents the best potential for active price swings that make trading worthwhile.

Automated trading allows someone who lives in Australia, for example, to trade during the peak hours of the London and New York sessions when someone in Australia would typically be sleeping.

The other important reason for using automated systems is psychological in nature.

Many people, even in the process of simulated trading, where no actual money is at stake, find their emotions and bodily responses to currency price changes are too strong to provide for rational, well thought-out trading decisions. This is known as fear.

Everyone wants and likes to win. Even losing pretend money can be stressful to many. Some will also get caught up in a Forex transaction that is profitable and neglect to take profits when all objective indications point to it being time to quit while ahead. This is known as greed.

There are other emotions and physical conditions to be taken into consideration as well. Sadness over a trading loss produces a state of mind is counterproductive to good trading. Physical fatigue, such as that produced by poor night’s sleep, affects the brain’s rational decision-making abilities.

Just because you experience any of these or similar conditions doesn’t mean you can’t or shouldn’t trade, or that you’re a bad person, it just means you’re human. Using an automated trading system could be an ideal solution to permit you to trade while maintaining your mental and physical equilibrium.

A third argument for automated systems is that they can react and respond to the often rapid price changes that sometimes occur in Forex markets much faster than human reflexes ever could.

One final justification for automating your trading is this: If a lack of capital sufficient to qualify for an account with an Electronic Clearing Network (ECN) broker, or a simple desire to explore Forex trading with very little risk mandates a Market Maker broker, you can use an automated system to set entry, exit, stoploss and take profit target prices without revealing them to the broker.

As you are, or should be aware, a market maker, acting as the counterparty to your position, has enough an advantage without tipping your hand by making your intentions known ahead of time.

That’s the case for using an automated trading system exclusively or in conjunction with a discretionary system where the trader executes all instructions.

Now, let’s examine some sources of automated systems.

Purchased, Free, Self-Developed Automated Trading Systems

If you want to purchase anything, be extremely diligent and wary regarding performance claims. If you yourself developed an automated trading system that was infallible, would you sell it?

That is not to say all automated systems for sale are scams. Just be realistic with your expectations. An automated system that can keep losses minimal, acceptable and manageable while achieving the most from any particular trade is a very worthwhile tool to have at your disposal. At the minimum, look for one that gives you the opportunity to test it under historical and live price conditions prior to purchase.

There are many automated systems available for free. True, these are offered in the hopes of inducing you to purchase something, but in many instances you have the opportunity to learn and experiment with different automated systems that will tell you a lot about these systems’ suitability for your needs.

Developing an automated system of your own is not as complex as it might seem. You can start with one of the free ones and modify it to your preferences.

Once you have some experience modifying a system, you can develop your own based on the currencies you like and how they typically trade. You will quickly observe the differences in the amount of price change and the rate of price change of, for example, the EUR/USD, USD/JPY, AUD/USD or EUR/GBP, and can adjust your system to conform to these differences.

Most automated trading systems are heavily dependent on technical indicators such as moving averages, Bollinger bands, Fibonacci retracements, stochastics and other mathematical formula-based indicators, so having some familiarity with these will allow you to use them to tweak your system.

Conclusion

Using an automated trading system does not imply total surrender of control over trading decisions. Rather, it enables decisions to be explored outside the pressure and chaos of the trading session.

Using them also frees your time to focus on other, more immediate tasks or responsibilities.

Automated systems alleviate the necessity of being glued to the computer screen the entire time a trade is running or an entry or exit order is about to be filled, which is a substantially more relaxed way to trade.

Finally, don’t let anyone deceive you. Even the most experienced, successful traders, those with nerves of steel, if being honest, will freely admit that some of their best trades happened without their involvement beyond instructing their automated system, walking away, and coming back later to count their money.

Regardless of how much or how little control over trading decisions you permit an automated trading system to have, you will definitely discover that trading plans formed outside the heat of battle are much more logical and free of emotional irrationality.

You will also find that an automated system completely and unquestionably follows the toughest yet most true trading wisdom ever spoken: Cut your losers short and let your winners run.