Automated trading has become a norm rather than the expectation due to the forex market’s ever-increasing speed and liquidity. It completely contrasts manual trading, which is prone to emotional biases. Automated trading systems have the ability to operate 24/7 and make trading decisions that are entirely based on market data. This makes them a great choice for trading professionals who may remain ahead of the curve and profit from market opportunities by utilising the most recent technologies. Let’s get into the details to learn more about this strategy!
What Is Automated Trading?
Automated forex trading is an intriguing technique to trade the forex markets as it allows traders to enter and exit trades without requiring physical participation. It involves using specialised software and tools to evaluate market trends and carry out trades following established parameters. Since automated platforms respond quickly to the opportunities, traders may gain a competitive edge in the market.
How Does Forex Automated Trading Work?
Algorithms lay the foundation of automated trading. These algorithms are a set of clearly-defined instructions or rules that govern the decision-making process for entering and exiting trades. To develop the right algorithm for your automated strategy, you need to have sound programming skills, but that’s not enough unless you have exceptional knowledge about the market and a solid strategy for placing trades. And once you have both, you can probably win the trading game. However, it doesn’t hurt to extensively test your forex bot to optimise its performance in live trading conditions.
If you are a novice trader who is far from programming, you can buy ready-made automated trading systems, as plenty of them are available for purchase.Read More
Whether you have built an expert advisor from scratch or bought one online, they all work the same way. They utilise advanced scanning technologies to analyse market patterns and then execute trades based on rules defined by the trader.
If you are wondering what kind of rules can be applied to the automated trading bot, then let us tell you that it can be as easy as telling your EA to enter or exit a trade based on some macroeconomic rules, such as interest rate changes or the government easing its monetary policy. The rules can also be set based on technical indicators like Moving averages. You can also specify the lot size and target profit to be earned before closing the position. And that’s it! Your automated bot will work per your instructions without even a slight deviation.
Pros & Cons Of Forex Auto Trading
There are various advantages and disadvantages of auto trading softwares. Let’s start with the positives first.
Prevents Human Error
As much as we humans like to think we’re capable of making rational decisions, we’re prone to making errors, and in trading, even the slightest mistake can have disastrous consequences. Fortunately, automated trading systems eliminate the risk of human error by following a set of predefined rules.
This means the possibility of unintentionally winning or losing trades due to a missed decimal point or a misplaced stop-loss order is completely out of the equation. Your automated software will do exactly what they’re told without deviating from those instructions. This level of precision ensures that trades are executed flawlessly every time.
Trading under stress is one of the biggest challenges that traders face. You have to agree with me on that! Emotions such as fear, greed, and hope can influence how you make your trading decision, leading to unpleasant outcomes as you may make irrational trade decisions. However, the good news is that automated trading systems don’t feel emotions. Instead, they strictly follow the rules and criteria programmed into them. This means you can trust them to be completely free of external biases. They provide traders with a level of discipline and consistency that’s hard to match.
Offers The Ability To Backtest
As a trader, testing and refining strategies is the key to success. However, manual backtesting can be a time-consuming and tedious process. Automated trading solves this problem by providing access to vast historical data to test automated strategies on past market movements. This opportunity is the cornerstone of automated trading, allowing traders to fine-tune their strategies and evaluate their profitability expectations before deploying them in live trading.
Allows For Quick Entry
Forex is a fast-paced market where every second counts. The speed at which a trade is executed can make the difference between winning and losing. Automated trading systems offer a significant advantage by improving entry speed.
While human reactions are subject to delays, forex robots can act instantaneously. This allows them to capitalise on market opportunities that manual traders might have otherwise missed.
Ability To Spot And Seize Limitless Opportunities
In the trading world, keeping an eye on several markets is crucial for spotting lucrative chances. Yet, when it comes to simultaneously monitoring several markets, individuals need more ability. By enabling traders to keep an eye on many markets at once, automated trading provides a solution to this issue.
Even while machines have hardware limits, they are still much more capable than the average trader. Automatic trading systems can monitor several markets and analyse enormous volumes of data in real-time, allowing them to spot successful trade setups and seize opportunities.
Even though auto trading forex offers so many benefits for traders, there is one drawback that one must consider before starting auto trading.
Needs Technical Knowledge To Set Up The Software
An in-depth knowledge of trading principles and programming skills are necessary for developing, testing, and setting up an automated forex trading system.
To create and apply a good trading algorithm, a person must have the relevant information unless they employ a black box system or trade copier. The erroneous programming that results from ignorance can cause large financial losses.
How Does Automated Trading Work In MT4 And MT5
MT4 and MT5 platforms have made automated trading more accessible than ever. These platforms offer a wide range of tools and features that enable traders to build, test and execute their own automated trading strategies.
The ability to benefit from market opportunities in real-time, even when traders cannot monitor the market, is one of the main benefits of automated trading on MT4 and MT5. Traders can maximise trading opportunities by using automated systems designed to assess market data and execute transactions following predetermined criteria.
Moreover, traders can better control risks while doing automated trading on MT4 and MT5. These platforms allow automated systems to be programmed to set stop-loss orders depending on the trader’s portfolio, which allows auto traders to make informed trading choices that are consistent with the trader’s trading strategy. This can assist traders in maintaining discipline and preventing irrational or biased choices that could result in losses.
Also, MT4 and MT5 platforms have access to a sizable pool of liquidity, which can make it simpler to carry out deals swiftly and at reasonable costs. This is particularly crucial for traders who depend on quick execution to profit from market fluctuations.
It goes without saying that having some knowledge and technical proficiency is necessary to build up an automated trading system on MT4 and MT5. In addition to having access to dependable technology and a steady internet connection, traders also require a firm grasp of programming and trading ideas.
Can there be mechanical failures in automated systems?
Automated trading systems are nevertheless susceptible to mechanical errors despite their many advantages. Software needs maintenance to function at its best. Therefore, automated trading systems must be periodically supervised to identify and resolve any technological flaws.
Do I need dedicated software for automated trading?
A specialised hardware setup is necessary for automated trading systems to operate well. Using these systems on a typical computer may cause latency problems, resulting in missed or lost transactions.
Can I use VPS for automated trading?
It’s quite useful to employ a dependable Virtual Private Server (VPS) to guarantee connection stability and quick execution around the clock.