Starting by identifying trading styles and risk profiles. Afterward, tips for selecting trading platforms and Forex brokers. Ending with trading tips regarding how to manage your portfolio of Forex trades (Forex Money Management).
The Forex Automatic Trading Tips
Forex Tip-(1): Define your Forex Trading Style
Each and every trading style is characterized by the time horizon and risk profile:
(i) Time Horizon (Trading Timeframe)
The selected timeframe defines the frequency of trading. The higher the frequency of trading, the higher the transaction cost, and consequently, the overall risk of your portfolio. If you are not an advanced Forex trader avoid trading low timeframes.
(ii) The Risk Profile (Appetite for Risk)
The level of accepted risk should be in accordance with the level of experience of each individual trader. Semi-advanced and beginners Forex traders should focus on risk-averse trade strategies.
Categorizing Trading Experience
By combing (i) and (ii), we may form three (3) categories of trading experience:
(a) Professional Traders
- High-Risk / Many Trades per Day / Tight Stop-Loss / Medium/High Trading Leverage
(b) Experienced Traders
- Medium Risk / Many trades per Week / Wide Stop-Loss / Tight Trading Leverage
(c) Semi-Advanced and Beginners
- Low-Risk / A few trades per Week / Wide Stop-Loss / Very-Tight Trading Leverage
Basic Trading Tip:
Beginners and semi-advanced traders who trade frequently and/or apply high trading leverage will lose their capital in the long-run. Intraday trading can only prove profitable for experienced and professional traders. The rest should trade the mid-term and minimize the use of trading leverage to no more than 5:1.
Forex Tip-(2): Selecting a Trading Platform
Nowadays, Forex traders can choose from a great variety of trading platforms. The Forex industry’s standard is certainly MetaTrader4. The newer MetaTrader version (MT5) is gaining ground as more brokers start to adopt it. MetaTrader is the ideal platform for advanced and professional traders especially for those that are willing to implement an automated strategy by using an Expert Advisor. The MetaTrader platform incorporates the MQL language, an editor, and the MT strategy-tester.
Alternatively, a web-trading platform is easier to use. and can better fit the needs of beginners and semi-advanced Forex traders. In any case, web-trading platforms are recommended neither for day-trading nor for automated-trading.
- Forex Automatic offers a wide section of Forex platforms reviews: » Review and Compare Popular Forex Platforms
Forex Tip-(3): Choosing the Right Forex Broker
The best way to start trading Forex is by choosing an ECN or an STP Forex Broker. These are called No-Dealing Desk brokers (NDD). ECN and STP Forex Brokers offer the best trading conditions (tighter spreads, fast execution, usually without any price manipulation). On the contrary, Dealing-Desks (DD) firms are recommended neither for day-trading nor for automated-trading.
Profiling the Ideal Forex Broker & The Rating Formula
According to TradingCenter.org and their RatingFormula, the ideal Forex Broker should offer the following features:
(i) Low Trading Cost
(ii) Safety of Money
(iii) Effective Technology
(iv) Wide Variety of Trading Options
By dividing these 4 important factors into dozens of sub-factors, and by giving the sub-factors a certain weight, the Rating Formula is used to rate brokerage firms (0-100% score). The Rating Formula is now on version 4, which is designed to rate Forex Brokers
Forex Tip-(4): Choosing Forex Trading Signals or an Expert Advisor (EA)
A Forex signal can be generated by multiple sources. Actually, trading signals are trading propositions that are delivered usually to subscribers via SMS and email alerts.
Other strategies may concern the use of Automated Forex Signals or even Expert Advisors (Forex Robots). ForexAutomatic includes a wide section of reviews and comparisons regarding popular Forex Signaling Services and Forex Robots.
In general what defines a good signaling service (manual or automated) is the proven past performance. Avoid Forex signaling services or Forex Robots that are relatively new services and can not provide you with facts and figures about their historic performance so far.
Forex Tip-(5): Basic Rules for Effective Money Management
When you are ready to trade, there is something you should never forget, your future trading success will be determined:
(i) 50% by your accumulated trading experience and talent,
(ii) 50% by your ability to wisely manage your portfolio. Actually, money-management is far more important than anything else. If you can not wisely manage your portfolio, you are probably going to lose all your money in the long-run.
Basic Tips for Wise Money Management
Tip-(i) Always Apply Portfolio Diversification
- Do not open positions that count more than 2% of your overall portfolio value.
Tip-(ii) Accurately Calculate your Trading Cost
- Accurately calculate your trading cost before executing any trade (spread and commissions and/or carry-trade swap charges).
Tip-(iii) Trade Longer Timeframes
- Longer timeframes will protect you from unexpected events and extremely volatile market conditions.
Tip-(iv) Limit the Use of Trading Leverage
- High leverage incorporates a higher level of trading risk and a higher trading cost. When you leverage your funds 500:1 you accept a very high risk but you also pay extremely high spreads, commissions, and swap charges. There is no point to leverage your funds more than 30:1. Wise traders basically use even tighter trading leverage.
Tip-(v) Always Place a Stop-Loss Order to all your Trades
Whatever timeframe you choose to trade you must always place a stop-loss order. Market conditions may change at any time. Placing a stop-loss order cost you nothing while it can really save your portfolio in the long-run.
- Also avoid having positions during the weekends, as the market may not fill your stop-loss order.
Tip-(vi) Run your Profits and Cut your Losses
When a trade proves profitable, don’t get anxious to close it. You may change your stop loss to higher levels to ensure no loss, but meanwhile, it is better to run your profits. On the other hand, if a trade is losing money do not increase your position. Instead, if the price reaches the stop-loss, cut your losses, and move your thinking to new trading opportunities.
- As concerns, professional Forex traders, 80% of their trading profits are generated by 20% of their trades
- Professional traders make money because they run this 20%, and cut the rest
Tip-(vii) Filter your Daily Trading Activity with Rules
- Apply some general rules to minimize your risk. For example, if you are a day-trader, stop trading if one day you have lost 5% of the value of your portfolio or you have suffered three losing trades in a row.
■ Forex Automatic Trading Tips