Automated trading systems can be daunting to newcomers, but this in-depth guide has all the answers you need if you’re thinking about trying them yourself.
Imagine leaving your trading in the hands of a highly-intelligent robot and generating profits that were guaranteed. This sounds like an easy (almost ideal) way to make money through trading, and that’s why so many traders dream of stumbling upon the perfect automated trading system guaranteeing profits with almost no manual input required.
And yes, there are a lot of automated trading options available on the market, but you’re bound to have questions before you start using them. Such as:
What is an automated trading system anyway?
Can I find a system that actually brings me profits?
What are the pros and cons of leveraging a system?
These are just a few examples, but you probably have other questions in mind too. In this complete guide to automated trading, we aim to answer as many as we can and help you make an informed choice.
Automated trading systems are programs designed to let traders establish rules for trades they enter and exit. For example, Forex traders (and investors) can use systems to transform rules into automated Forex systems which allow a computer to conduct trades and keep monitoring them.
With rules programmed and in place, said computer may perform further trades in accordance with the user’s own rules. The entry and exit rules put in place may be based on fairly simplified conditions, such as an MA (Moving Average) crossover. Alternatively, the user might implement more complex strategies which require an in-depth grasp of the trading platform’s specific programming language.
For many people diving into the trading world, they have little knowledge of the trading process itself (beyond watching Wall Street or reading a couple of articles, in some cases). As a result, it’s no wonder automated trading systems have become so popular.
Another benefit is their accessibility: all you need is a computer and a connection to the internet. There’s no requirement for a large investment when you’re looking to get started, either.
With Forex automated trading systems, they’re typically separated into two groups: EAs (Expert Advisors) or Forex robots.
So, what are Expert Advisors? EAs are developed by visionary programmers creating algorithms built to conduct analysis on market trends, and ultimately conduct trading. Traders working with them typically make careful, informed decisions, based on their experience and prior achievements, to ensure total peace of mind.
While a Forex robot is similar, the two aren’t identical. Forex robots are programs developed to analyse markets and perform automated trades, which is where the main difference comes into play: EAs give traders trading signals which they then need to use in their choice to trade or not, while Forex robots are capable of handling the whole trading process independently.
Both novices and seasoned traders can take advantage of automated trading systems to facilitate real trading.
The most effective Forex trading systems have been put together to conduct analysis on market activities and currency pricing. These programs assist traders by identifying important trading signals (such as patterns of price instability, spread discrepancies, news with potential to disrupt transactions, etc.) and undertaking your trade activities.
At the same time, they’re designed to minimise your losses whenever possible.
A quality Forex automated trading system also pinpoints currency pairs with potential for profitability before putting trades on them. Any programs that allow for user-defined criteria aligning with predetermined parameters may assist in triggering buy or sell alerts, then handling the trade automatically. As a result, such programs can play a part in securing profitable transactions.
Certain automated trading software let traders make decisions from a selection of technical indicators, which allows them to create a set of distinct rules which can be traded automatically. As an example, a trader may choose to enter a long trade when the 40 day MA crosses over the 150 day MA, on a five-minute chart of a certain trading instrument.
Additionally, traders can enter the order type (limit or market, for example) and when the trade will be put in motion (a trigger may be when the next bar opens), though they could take advantage of the software’s standardised inputs instead.
But many traders choose to program custom trading strategies and indicators if they know how to, or they’ll work with an experienced programmer to build their automated system. This typically demands greater effort than relying on the platform’s native ‘wizard’, but it allows for more flexibility and a potentially more rewarding outcome.
Considering programming your own personal trading strategy? Remember that a lot of automated trading platforms need software linked to a direct access broker to be applied, and all rules should be coded in the software’s proprietary language. For example, both MetaTrader 4 and MetaTrader 5 (two of the biggest trading softwares out there) are based on MQL, while NinjaTrader relies on NinjaScript instead.
When rules have been put in place, your computer has what it needs to monitor trading markets to identify opportunities for buying or selling according to your strategy. It will perform auto trading, and when a trade has been entered, key orders (stop losses, trailing stops) are entered too.
Furthermore, immediate order entry may mean the difference between small and major losses in markets which move quickly, should a trade move against you.
Forex automated trading systems are a fantastic tool for many traders, but most robots only trade within a specific determined range. Robots will make a certain number of pips within the range during the Forex market’s slower periods, and establish a small number of pip targets regularly too.
They might not use a stop-loss, either. They may be considered successful as they typically achieve profits in each trade, even if only in modest amounts.
Small profits which have been made can be eliminated when an unexpected range breakout takes place. While certain robots advertised as the most effective Forex robots may gain profits in a positive trend, they could lose when markets are choppier. It’s essential to find a strong trend that can be followed.
Still, when the robot detects a danger of failure, a warning is presented to the user, requesting approval ahead of a transaction being completed. The biggest benefit of Forex automated trading platforms is that they’re consistent in their decision-making and free of emotions, unlike many traders.
Generally, Forex trading is viewed as one of the leading markets, and an automated system is a big help as it performs all Forex transactions instantly. A trader using this technology needs only to turn their computer on and sit back while the platform handles the trading process.
That’s simple enough, but let’s take a closer look at the benefits:
Trading can be an emotional experience, but as mentioned above, automated trading systems remove potentially negative emotions from the process, as all trades are conducted once specified criteria have been met only. You can take it easy while your platform of choice handles all of the hard work.
Traders may find following their plans and focusing easier without the emotions typically associated with trading. They won’t be able to hesitate, nor will they be able to overtrade either.
Anyone can try automated trading systems. Whether you’re a seasoned professional or you’re a total beginner, good platforms make trading far easier. You can pick up software that aligns with different budgets, with simpler and more advanced options available.
Free demo models may be included too, allowing you to get familiar before using the software for real.
Leveraging automated trading systems helps you maintain discipline, even in volatile markets, as trades are executed automatically. Emotions can interfere when trading and disrupt your discipline (related to fear of losing or excitement to increase profits), but automated trading retains your focus by following a trading plan accurately.
Furthermore, human error is less of an issue: if you wanted to buy 50 lots, you wouldn’t make a mistake and order 5,000 instead.
What is backtesting? It applies trading rules to older market data to identify an idea’s viability. Creating an automated trading system means rules need to be absolute, so the user’s computer does exactly what it has to without making a guess.
Traders can take advantage of these rules and try testing them with historical data before risking their own money. Effective backtesting lets you assess and tweak a trading idea and understand the average amount you can expect to win or lose, per unit of risk.
Automated trading platforms can create orders when trade criteria have been met, with your computer responding to fluctuating market conditions instantly. This means entering or exiting a trade seconds earlier may make a significant difference to the result.
All additional orders are made automatically when the position has been entered, such as profit targets or protective stop-losses.
Automated trading platforms let you take a more diversified approach to your trading, as they let you trade through a number of accounts or apply varied strategies at the same time. This can spread risks across multiple instruments and hedge against losses.
Platforms can perform scans to pinpoint opportunities for trading on multiple markets, create orders, and conduct monitoring on trades.
Anyone with experience of trading will agree that planning your next move can be incredibly difficult. Ignoring rules can disrupt a system’s expectancy and cause issues, even when the trading plan in question had potential to turn a profit.
It’s essential to recognise that no trading plan is good enough to generate wins in every single case. Losses are part and parcel of trading, though this can be hard to deal with. As a result, you may choose to skip one trade after losing a few before it, leaving you to miss out on a winner. The system’s expectancy has been ruined.
In contrast, automated systems let you achieve consistency by following rules and programming.
While automated trading systems have definite advantages, there are some disadvantages too. While the platforms allow for quick and easy setup, automation isn’t perfect.
While traders would love to switch their computer on and let the automated trading platform handle processes for the whole day without checking, it does need to be monitored. Why? There are potential technical failures to bear in mind (which can arise from crashes or internet-connectivity problems), and anomalies may occur which lead to missing or even duplicated orders.
But with proper monitoring, these mishaps can be avoided and issues can be solved quickly.
Over-optimisation is a very real drawback for automated trading systems. Traders using backtesting functions can end up creating systems which might appear like a terrific idea in writing, but which turn out unreliable in practice.
It’s possible to fine-tune a strategy expecting it to generate outstanding results based on backtesting, and traders can sometimes assume that a trading plan will bring nothing but profitable trades.
As a result, existing parameters may be tweaked again and again to develop a ‘perfect’ plan which can, sadly, turn out to be a failure in a live market.
In some cases, depending on your choice of software, trade orders might reside within a computer rather than a server. So, it follows that if the internet connection were to be disrupted or lost entirely, orders being processed at the time would not be sent to the relevant market.
This may result in discrepancies between hypothetical trades a strategy creates and the order-entry element transforming them into ‘real’ trades. Most traders typically encounter a steep learning curve when adapting to automated trading systems. It makes sense to get started with smaller trades when learning the proverbial ropes.
This is obviously a major question all traders considering automation are likely to ask. While Forex automated trading doesn’t guarantee a steady stream of profits in every trade, they can help you benefit most from current market movements. They function with great coherence and articulation.
Expert Advisors are essentially programs incorporating specific modules which analyse data (figures, charts, etc.) and move between Forex brokers and traders.
Such programs are accessible to newcomers and easy to use, with no need for training to utilise them properly. All you have to do is download and install the software, before tweaking computer settings as required. The automated system will launch and start creating results.
Traders might not always get what they expect from Forex robots. While they’re capable of scanning millions of charts in a matter of moments, most will provide inaccurate information.
Why? Because they’re robots. And even though they have the capacity to conduct sophisticated tasks instantly, they still lack their own ability to think creatively. They can’t imagine what might happen in the future — they’re stuck with their programming and prior performance for the long-term.
Traders utilising robots shouldn’t come to depend on them exclusively or expect them to handle all trading activities. Trading still requires a significant amount of human-led research and monitoring. As people, we can keep an eye on different financial developments and economic shifts in relation to trading.
Forex robots can track trends and identify trading signals, but their functionality may be adversely affected by false information.
Achieving success with Forex trading depends on skill, knowledge, analytical thinking, and visual resources. Forex robots may be amazing, but they can’t work in the same way. Only a seasoned Forex trader can discern when it’s the right time to enter a market or avoid it altogether.
There are a number of Forex automated trading systems available for free, but they have their own faults. Sadly, many of these are connected with scams, but the most high-quality automated systems are safe to use, provided that the privacy settings are checked for reliability.
It’s hard to identify the best EA, as profitable ones can be hard to access in a lot of cases. While many robots can be used to turn a profit, some aren’t relevant to the latest market conditions, and so the best systems are those used for manual trading instead. If you have the system coded in MQL, you’ll be able to switch your own attempts with the standard script.
The best type of EA system is designed to do the exact same things that you would in an automated way. This would save you time and let you concentrate on your trading strategy’s cultivation with no need to execute it yourself.
When trading on the MT4 platform, you would be required to put your own robot into action with MQL language. While you might be an accomplished trader, you could have very little programming awareness (or none at all). That doesn’t have to be a deal-breaker, though, as there are plenty of MQL programmers willing to put strategies into code.
Let’s be honest: the prospect of letting a piece of software perform your trading and generate profits sounds way too good to be real. That’s why it’s common for people to assume it’s all just a big scam, and also why some governments think the same.
Furthermore, online sellers dealing in robots promote their own by accusing competitors of pedalling scams. Some are marketed using falsified stories of people who got lucky and made big money from their automated trading systems.
Sadly, though, there have been cases in which traders and investors lose out when using Forex robots, with entire accounts getting wiped out too.
So, yes, there are some scams out there in the world of automated trading systems. You’re sure to encounter websites offering EAs achieving complete returns on a daily basis. Some may be incredibly cheap while others seem disproportionately expensive, and there are platforms guaranteeing you massive profits. They are, sadly, likely to be scams.
It’s important to remember that, if you had a trading system capable of creating huge profits, would you be willing to sell it on to someone else for a quick gain? Or would you keep it for yourself for long-term returns?
The teams behind these systems can earn a lot of money by preying on people’s longing to earn fast cash through successful trades, and exploit it shamelessly. They might sell accompanying materials and guides to cash-in further. Again, think carefully when you see a robot purported to earn millions in trades if it’s being sold for $20. Does that seem likely?
It’s vital to watch out for scams. It’s generally best to avoid software you need to pay for, as you could lose out on that immediate cost as well as your trading balance in the long run.
Thank you for reading this guide. We hope we’ve answered some key questions for you and given you a clear insight into Forex automated trading systems. While they might seem incredibly exciting and valuable, don’t think of them as a guaranteed substitute for the sort of informed, careful trading that’s worked so well for many in the past.
Technical issues can strike and leave systems unsuitable to perform as required. While server-based solutions can work for traders looking to avoid technical failures, the best approach may be to consider a ‘hybrid’ setup. This is a combination of automated and manual trading, with regular monitoring to avoid oversights or technical errors.