Introduction to Automated Forex Trading
Automated Trading is witnessing a tremendous growth nowadays as it is used by all types of traders: professionals, advanced and beginners. Automated trading is a method of trading Forex currencies using specialized software. This software is called an Expert Advisor (E.A.) and it is a set of programmed analysis and techniques including indicators, special filters and rules. Whenever all these tools agree upon forecasting the direction of a trend, a trading signal is generated and executed automatically. Signals may be either bullish or bearish aiming to trade any market direction. When we refer to an automated trading system we refer to the way that trading orders are actually executed. An automated trading system must be able to execute trades without human intervention by placing at the same time a target-profit and a stop-loss order.
Systems that are using automated trading analysis but involve manual execution can not be considered as automated trading systems. There are several types of trading systems that allow automatic order execution.
Different Types of Automated Forex Trading Systems
In general we may distinguish automated trading into semi-automatic trading and full-automatic trading systems. A semi-automatic system is able to execute automated orders while it is continuously re-adjusted by a human programmer / analyst. This is happening in order the system to fit the special conditions of any given market. For example in a day when the market is ranging with low volatility and limited liquidity, the controller reduces the risk ratio and the system becomes more risk-averse selecting only high-probable trades. From the other hand, a full automated system excludes any human intervention. In this category we can find many Forex Robots.
How an Expert Advisor Operates
Automated Trading Systems are designed to trade any Forex account automatically. These systems are able to manage any trading operation by sending and executing trades directly to your broker’s server. Trades are placed accompanied by a stop-loss and a target-profit price, while they can automatically re-adjust the target and the stop-loss at anytime.
The Advantages of an Automated Trading System
Theoretically, the great advantage of an automated trading system is that it is able to exclude human psychology out of the game (trading). The emotional character of our human nature is highly disturbing our decision making process when we trade in any financial market. Fear, hyper-optimism and other similar feelings deriving from our emotional brain are working against logic and finally against the odds of winning. Our emotional brain is the worst trader there is.
Furthermore, the classic type of trading has limitations regarding the stamina of our human nature. Automated Trading never gets tired. Using a VPS hosting service you can even turn-off your PC and continue to trade 24hours per day.
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The Disadvantage of a Full-Automated Trading System
The disadvantage of any full-automated trading system is that it can deal only the market conditions that it is programmed to deal with. That means that new market conditions deriving from major fundamental changes can not be interpreted and incorporated by a full-automated system. A major event, such is a country’s default to meet its payments, usually leads to extreme volatility in the market, and extreme volatility can change everything. Semi-automatic systems may adapt better to new market conditions, as they can be re-adjusted anytime.