How Automated Forex Trading Systems Works
Automated Forex trading is a method of using a computer program to manage the daily buying and selling in your currency account. These trading systems use state-of-the-art neural network artificial intelligence technology to analyze Forex market trading conditions and automatically place trades in your Forex account.
These automated Forex trading systems are programmed to perform many mathematical and statistical calculations per second, exceeding the capacities of even the most seasoned human trader.
Automated Forex trading systems are designed by their programmers to analyze a variety of technical indicators simultaneously. Some of the common built-in technical analyses include Fibonacci re-tracements, pivot points, volume analysis, statistical correlation, and volatility analysis.
Once automated systems are set up and installed properly, they will run with a “human-hands-off” method of control. Forex market data will be input into the system live. The system will then continually analyze that data for the best trading opportunities.
There are usually different levels of risk associated with each automated Forex trading system. Most programmers of these systems have built in a level of win-rate.
This win-rate is determined by programming the automated trading system to analyze the market data at all times, yet only place trades with a mathematical probability of winning that trade of a certain percentage or more. If the automated trading system has a pre-programmed win-rate set at 95%, the amounts of trades made per month may be limited to a smaller number, usually to between 20 and 50 automatic trades per month.
In addition to the benefit of the built-in market data analysis, some automated trading systems allow the trader to add additional technical data to be analyzed for trading opportunities. This allows for the set-up of a semi-custom automatic trading system that is best suited for the trader.
Around the Clock Automated Trading
While Forex automated trading systems can be single- or multiple-currency pair based, they are all designed to perform their technical analysis and search for high-winning-probability trades on a 24-hour/6-day-a-week schedule.
This means that once the automated system is installed, it will run during the entire Forex trading week. In this way, these powerful mathematical artificial intelligence systems will be looking for trading opportunities during all Forex market hours and peak trading center trading times.
Some systems can be set to offer e-mail and SMS notifications in order to let the trader know when the trading system has determined a trading opportunity and has placed a trade. Once the trade has been closed out, a second e-mail or SMS notification will be sent informing the trader that the closing trade has been made, along with the profit made on that trade.
In order to ensure that the Forex automated trading system will work in future market conditions, the systems are back-tested during product development. This back-testing is the process of taking the system and running it through years of actual historical market data. While in back-test mode, corrections and fine tuning to the system’s ability to analyze and detect winning trades are made.
The result of proper and thorough back-testing is a solid, sound system that has been tested under real market conditions. Other testing methods include real-time testing, which is the running of a current system alongside a Beta-version, allowing for continuous improvements to the programming.
With this in mind, it is best to seek out an automated trading system that has been thoroughly back-tested with real data and continues to undergo an improvement process. Additionally, keep in mind that a provider of automated trading systems should offer access to software updates for the life of the product.
Semi-Automated Trading Systems
In addition to the fully automated approach to trading, some automated Forex trading system providers will offer a semi-automatic version. These semi automatic versions will use the same artificial intelligence programming to perform mathematically based technical analysis of the Forex market.
While the fully automatic versions will take control when it comes time to place an FX trade, the semi-automatic version will send an e-mail, SMS, or on-screen notification that an optimal condition is present to make a statistically significant winning trade. After the notification goes out, it is then up to the trader to place the suggested trade or not.
Some traders find these semi-automatic Forex trading systems more suited to their needs. Benefits include the added flexibility of using more Forex major and cross pairs (some systems offering up to 20 FX pairs), as some fully automatic systems are programmed for only one pair, such as the EUR/USD. As with the fully automatic versions, semi-automatic Forex trading systems will suggest profit and stop-loss orders, as well as when to exit a trade and take profits.
While most fully automatic Forex trading systems have only one-time frame built into their programming, some semi-automatic Forex trading systems offer the flexibility of switching time frames between short, medium, and long. This also adds to traders’ flexibility when searching for profit opportunities.
Mathematics Based Trading, Free of Emotion
The usage of a well-designed and programmed automated Forex trading system can greatly add to the profitability of currency trading. These automated systems use a rules-based approach and mathematics to determine the best time to place a trade with the best chance of winning. Users of these systems can trade using mathematical logic, free of emotional ties to the Forex market, 24 hours a day.
So what does it take to know how to best manage your Forex portfolio, plain and simple? It takes knowing how to diversify your Forex trading portfolio and how to buy and sell Forex positions in smaller parts, among other things. If you don’t get it now, keep reading. We’ll go over it again and again throughout the book.