Automated Trading
The trading industry has long focused on providing their customers with strategies. Take any major trading software and you will find a slew of “plug-ins” and “add-ons,” with the names of Elliot Waves, Bollinger Bands, Candlestick Patterns, and many others. These add-ons will display signals and sometimes recommendations on the end user’s charts.
An investor still has to pull the trigger, though. The program only goes as far as telling you what to trade and what stop-loss and profit target to use, but never actually executes the trade. In the last few months, far more attention has been given to automated trading. Only a handful of trading platforms currently offer this technology.
What is Automated Trading?
– Automated Trading is the ability to let your computer place trades based on your trading strategy. In Interbank FX Trader 4, automated trading is done through what we call an “Expert Advisor,” which is the program you attach to a chart that executes trades for you. The machine isn’t infallible; there are a few limitations.
– The Expert Advisor relies on your computer to be running and connected to the Internet.
– You should also take measures to prevent power failures, disconnects, and other computer-related problems. Don’t worry too much; just take some basic precautions with a few simple fail-safes.
– First and foremost, your Expert Advisor has to be programmed. If you are not a programmer, do not despair. Many are available for hire. Whether you have some basic programming knowledge or not, I highly recommend that you do take some time and try to learn the language. Many tutorials and sample codes are available all over the Internet.
Why Use Automated Trading?
No matter how you first learned about trading, you will come across the same, overworked idioms:
1- Do not use emotions in your trading, namely greed and fear.
2- Always set a stop loss and a profit target.
3- Execute trades quickly.
Bear all these in mind, take some time, and think through your trading system carefully. Then, think through the system again. Carefully considering all the possible outcomes is key to the best possible system. Your Expert won’t make adjustments for market volatility, nor will it take every eventuality into consideration unless you have already thought every scenario through and made decisions about what you would like your Expert to do. On the other hand, an Expert Advisor will not modify a stop-loss because it believes the market will turn around and try to give its trade one last chance (subsequently breaking the bank). Nor will it modify the profit target of a trade because suddenly it thinks it can make more money. The execution is done within seconds; the program won’t second-guess itself. It sees a signal and it places the trade.
There are other interesting facets to automated trading. It is not just about eliminating counter-productive emotions. If you have been in the Forex game for any length of time, you know as well as I do that some nights you have a hard time sleeping. You have placed that one trade that
can bring you riches or kill your account and are up fretting and watching charts in a cold house with scratchy eyes. With an Expert Advisor attached to your chart, you sleep without a care knowing that your program can identify trading opportunities and set trailing stops and profit targets. No more late nights spent worrying about your trades.
This brings up yet another advantage. You are trading while sleeping, yet your strategy could trigger many signals and make a profit during times you could not trade before. You are no longer limited by that pesky need to eat, sleep, and socialize with the family.
Another interesting benefit of employing a computer in your trading is that you can program your Expert to scan for opportunities on any and all available currency pairs and periodicities. You will no longer need to open 15 charts to make sure you don’t miss out on a good trade; an Expert Advisor can make sure you see any available opportunity and trade them for you.
Automated Trading has brought to light new strategies that would never have worked in the past, due to human limitations. Trading is often compared to gambling at a casino, except in trading you can improve your odds by using technical analysis. Well, in the same vein, let’s use the saying “the house always wins.” It always wins because it is always playing; all the losses are outdone by the wins. In theory, if you had a strategy with 51% accuracy, you traded for small profits/losses (a few Pips, and I’m not referring to scalping here), and traded very often (hundreds of trades a day), then you would (in theory) make money every day. Only a computer program could execute and manage these hundreds of trades for you every day.
