A few decades ago, Forex trades were conducted manually over the telephone. The industry has evolved a lot over the years and now, people can make trades quickly over the computer or even on their mobile phones.
Forex trading has gotten even more sophisticated in recent years thanks to the introduction of the concept of Algorithmic trading. This advanced forex trading strategy involves automating trade execution using advanced bots. This allows faster and error-free trading. This post is a guide to automated forex trading. We will define key concepts like what is algorithmic trading, the benefits of algorithmic trades and how to use this strategy.
What is Algorithmic Trading in Forex?
Forex algorithmic trading is a strategy that involves using automated rules to make trades without human help. Trades happen automatically when certain conditions are met. Traders who do this use special software, like trading bots or expert advisors (EAs). These tools help make trading faster and more accurate while cutting down on effort.
Benefits of Algorithmic Trading for Forex Traders
Forex automated trading has changed how people trade in the Forex market. It uses bots and other tools to make trades easier. This removes emotions and mistakes from trading. Here are some key benefits of Forex algorithmic trading:
- Trading free from emotional bias: trading with an automated trading system is based on predetermined criteria. This eliminates indecision and human errors that may be caused by emotional reactions. The result is a more disciplined and consistent approach to trading.
- Time Efficiency: automated trading forex can save traders a considerable amount of time. Instead of constantly monitoring the market and tracking changes on charts, the bots are set to place trades as soon as a condition is met.
- Use your chances: Auto trading helps you avoid missing trades because of a busy life or lack of time. Fast-paced strategies like arbitrage will benefit considerably from using bots to trade
- Test plans: Another good thing about auto trading is testing plans before using them. This helps you see if your plan can make a profit before you take risks.
Best Algo Trading Strategies for Success
Most of the best trading algorithms are based on a simple price action strategy. For instance, buy currency A when they hit X price and sell when they hit Y. However, automated trading strategies can also be based on more technical indicators. Some of the best trading algo you may consider using include:
Moving average trading algorithms
This is arguably the most popular trading algorithm mainly because of how simple it is to implement. It is based on the premise that most markets rise and fall near an average price over a given period. A moving average algorithm takes advantage of small changes in respect to this line.
Arbitrage
Arbitrage is a strategy that involves exploiting price differences between the price of assets across two markets. This strategy requires speed and efficiency to identify and leverage such price imbalances. Traders often rely on automation to carry out such fast-paced trades.
Auto-hedging
Auto-hedging is a strategy that involves setting rules that automatically execute trades in order to reduce a trader’s exposure to risks caused by currency fluctuations.
Choosing the Right Forex Algo Trading Platform
Automated trading has become quite a popular trading strategy so much so that we now have several forex trading algorithm platforms. While it is possible to build one from scratch, most people use ‘off-the-shelf’ programs or tools with auto trading features.To pick the best forex auto trading platform, think about these key things:
- Ease-of-use: The best platforms work well for all skill levels, from new traders to experts.
- Changeable settings: Many platforms have ready-made templates, but it’s better if you can tweak them to fit your way of trading.
- Reliability and Performance: to execute trades effectively, the best forex algo trading platform should be stable and error-free regardless of the market conditions.
- Backtesting support: platforms with backtesting support allow you to test strategies and simulate possible outcomes before you go live.
How to Start Automated Forex Trading
If you have decided to start automated forex algo trading, getting started is relatively easy. Here are the steps to get started with Forex automated trading:
- Step one: create a trading plan: this serves as the blueprint for your trading activities and it helps to define the goals you aim to achieve with your automated system.
- Step two: Install trading platform with automation: Download and install the forex trading platform software that you would like to use.
- Step three: Design your system: once you have decided on the goals you hope to achieve, the next step is to work out how this will be done. This means defining how the automated system you want to build will identify trading opportunities and what it will do once it finds one. A good knowledge of technical analysis will be useful in this step.
- Step four: Choose your risk management tools: for this step, define the stop and limits that will minimize losses if the trade goes in a direction contrary to your pre-defined expectations.
- Step five: build your automated currency trading algorithm: Each platform uses different methods for building your algorithm. Some platforms have pre-set templates that you can simply modify to your preference.
- Step six: Backtest and refine your strategy.
Frequently Asked Questions About Algorithmic Trading
What is algorithmic trading?
Algorithmic trading is a trading strategy that involves using advanced computer algorithms such as trading bots and expert advisors to place trades and make decisions.
How does algorithmic trading work in Forex?
Algotrading in forex simply involves creating a set of rules that will automatically execute trades on one or more currency pairs once a condition is met. The algorithm can be built from scratch or with pre-made templates depending on the trading platform being used.
What are the best algorithmic trading strategies?
Some of the best algorithmic trading strategies include moving average trading, auto-hedging, arbitrage, and so on.m
How can I start Forex automated trading?
To start Forex automated trading, you need to define your trading strategy and goals. Next, install an automated trading platform and design your system for automation. You may also need to incorporate risk management tools.
What are the benefits of using trading algorithms?
Using trading algorithms helps to save time and improve efficiency. It also takes emotions out of the equation so you can make trading decisions with great accuracy and precision.
What platforms are best for Forex algo trading?
Some of the best algotrading platforms for forex trading include IC Markets, FXCM, Interactive Brokers, FXPro and FPMarkets
Can algorithmic trading work for currency trading?
Yes. Algorithmic trading works for currency trading.
