What is auto forex trading?
Forex Trading has evolved quite a bit over the history of mankind. It started from primitive hand to hand exchanging of bills, to telephone deals and to the instant online forex trading nowadays. I’ve seen people marking prices on blackboards with chalk and drawing simple “XO” charts. In contrary, now trend lines, MACD, RSI and countless other technical analysis tools appear on the screen with a click. Undoubtedly, computer is a very important changing force behind that shaped the trading and analysis of the forex market.
Automatic forex trading system is a complete trading system that is capable of recognizing the market, carrying out trades and deciding the entry and exit points of a transaction.
In May 1997, Deep Blue Supercomupter triumphed over the reigning World Chess Chmapion, Garry Kasparov. In 1991, The US army won the Gulf War by using large amount of computer simulations on strategies and tactics. Auto trading systems are of the same essence.
It sounds too good to be true for a software to exist that actually earn money automatically for you. Everyone like you and me wants to ask one question: Do forex automatic trading robots really work?
How does forex auto trading work?
Forex automatic trading systems can be categorized into two big groups: Arbitrage and Nonarbitrage. Arbitrage means capturing profit by manipulating the difference between two brokers. For me, I’m more interested in Nonarbitrage autotrade forex systems which require higher level of technical knowledge.
Nonarbitrage programs normally use historical data to analyze the market and identify technical indicators to determine buy sell decisions. For example, a trader who believes in moving average index can write a program that send out buying signals whenever the ten day moving average intercept with the twenty day one. The program must also take care of the data and variables after opening a position, like stop loss and stop win. Of course, in reality, it is much more complicated because the trader would have to consider many more technical indicators and combine the effects to make a decision. Here is problem: the number of technical indicators together with their combinations is more the number of stars in the sky. And I have not mention fine tuning all their parameters yet!
What are the adventages of forex automated trading?
The biggest adantage of forex automatic trading is probably discipline. The trading system make clear buy sell decisions all by itself mechanically. There is no human judgment and, hence, not affected by subjective emotions or other unstable psychological factors. And most systems consist of a stop loss algorithm which can effectively control the risk within tolerable range. This kind of auto trading can also be applied on different currencies and even other financial vehicles like stocks and futures.
The disadventages of using automated forex system trading robots
Robot is robot. Although it can do mechanical works for human, it can never do it one hundred percent like a man does it. Forex system trading robots cannot ensure one hundred percent accuracy either. When wrong decisions are made, the only option left is to stop the loss. There are so many possible technical indicators and combinations; it is an enormous task to find an efficient program that works for long term. Besides technical analysis, there are many other factors that affect foreign exchange market like wars and natural disasters. There is no way for computers to forecast these factors and take them all into consideration. Even if you can find an effective program that works for long term, you have to keep updating it and fine turning it continuously because of the changes that will always happen and change the environment of the market.
Final Thoughts on obtaining forex trading success
After all, computer auto trading system is a computer program. In the center of a computer program is an algorithm which are produced by the logical thinking of the programmer. Before a perfect auto forex trading system exists, there must be a perfect forex trading strategy in the first place. Therefore, the key is still in the head of the trader and not the program. Do not think that you can succeed in the forex market using a robot without a thorough understanding of forex trading strategies. It’s a good idea to read more forex trading systems blog where people share their experience using the systems.