Forex trading can be a challenge for any trader, but the learning curve can be intimidating for beginners.
Not only do traders need to master all the nuances of the market, but they need to get comfortable with various trading strategies. One way to master this skill is by utilising automated trading strategies.
Here is a closer look at automated forex trading strategies and how they can help the common pitfalls beginners experience when they first start forex trading.
Not only do traders need to master all the nuances of the market, but they need to get comfortable with various trading strategies. One way to master this skill is by utilising automated trading strategies.
Here is a closer look at automated forex trading strategies and how they can help the common pitfalls beginners experience when they first start forex trading.
What is algorithmic trading?
How does algorithmic trading work? Forex algorithmic trading relies on complex mathematical equations to make trading decisions.
The algorithm containing these parameters will only execute the trade if every condition is met. In addition to market data or price activity, you can train the algorithm to wait for specific types of chart activity, such as candlestick patterns or conditions in a chart indicator.
Automated forex trading platforms, like MetaTrader 4, can automatically execute the transaction and open a position for you. You can also set the software to send you an alert when all the rules are met so that you can make trading decisions and close open positions.
Other benefits of automated trading strategies include:
The algorithm containing these parameters will only execute the trade if every condition is met. In addition to market data or price activity, you can train the algorithm to wait for specific types of chart activity, such as candlestick patterns or conditions in a chart indicator.
Automated forex trading platforms, like MetaTrader 4, can automatically execute the transaction and open a position for you. You can also set the software to send you an alert when all the rules are met so that you can make trading decisions and close open positions.
Other benefits of automated trading strategies include:
Removes emotions from trading decisions
Time-effective, as you won’t waste time analysing charts and indicators
Manages analysis on your behalf
Is algorithmic trading profitable?
Like any trading strategy, those that rely on algorithms do not guarantee profits. Automated trading strategies only work in certain markets and may not be effective in others.
If you have a trading platform like MetaTrader 4, you can take steps to test profitability, like back-testing. Back-testing involves running your algorithm using historical market data. If an algorithm is profitable from past market data, it may bring similar results in the future.
You can also set risk management parameters for your automated trading platform. For example, you can tell the program to stop trading when your account balance reaches a certain level or if you experience a certain number of losses in a row.
If you have a trading platform like MetaTrader 4, you can take steps to test profitability, like back-testing. Back-testing involves running your algorithm using historical market data. If an algorithm is profitable from past market data, it may bring similar results in the future.
You can also set risk management parameters for your automated trading platform. For example, you can tell the program to stop trading when your account balance reaches a certain level or if you experience a certain number of losses in a row.
Best strategies for algorithmic trading
Here is a look at some of the best forex algorithmic trading strategies for beginners and why you may implement them for your next trade.
| Strategy | Why? |
High-frequency trading |
Takes advantage of the instant analysis and execution features of algorithmic trading. Ability to take advantage of minor price movements that occur in seconds. |
Arbitrage trading |
Exploit the price difference between an asset on two different markets or closely related assets trading at the same price. The program waits for prices to diverge, buys the lower-priced asset, and sells higher-priced ones. |
Support and resistance trading |
Focuses on price action activity on support and resistance levels. The program executes the trade when the market satisfies all programmed rules. |
Mean revision |
Measures when the market moves a predefined distance away from the average price and executes a trade. |
Trend detection |
Ability to detect and define a trend and automatically open a position as early as possible. You can also add rules to help detect the end of the trend. |
Other markets for algorithmic trading
How does algorithmic trading work in other markets?
Shares trading
Algorithms can provide short-term automated strategies or alerts for long-term trades.
Cryptocurrencies
Automated trading powered by technical analysis is an effective way to trade digital currency markets.
Indices
You can use automated trading programs to weigh indicators and economic data to trade index CFDs, ETFs, and futures.
TMGM - Experienced brokers for automated forex trading
TMGM is a leading broker offering automated trading tools via MetaTrader 4. We can help you create algorithmic trading strategies for CFDs and track forex movements, commodities, crypto, indices, and stock markets.
We have 10+ liquidity providers and fast NY4 servers, helping you execute rapid trades. And with our transparent pricing, you can add bid/ask costs into your algorithm to ensure better accuracy.
We have 10+ liquidity providers and fast NY4 servers, helping you execute rapid trades. And with our transparent pricing, you can add bid/ask costs into your algorithm to ensure better accuracy.
Visit TMGM to learn more about forex trading and how you can use our many features to create and use automated trading strategies.
Frequently Asked Questions
Algorithmic trading allows you to instantly weigh all the factors involved in trading decisions, removing emotion from the decision-making process.
Also, with forex algorithmic trading, you do not have to spend the entire session closely monitoring your charts — your program does all the heavy lifting for you.
Also, with forex algorithmic trading, you do not have to spend the entire session closely monitoring your charts — your program does all the heavy lifting for you.
Algorithmic trading is no easier than any other form of trading. Your success depends on the quality of your algorithms and data choices. However, strategy creation and testing aspects can be time-intensive. Market factors also change regularly, so you will need to check and tweak your algorithms often to ensure they remain effective.
Algorithmic trading can beat the market if you have an effective strategy, monitor it constantly and make timely adjustments.
The risks of algorithmic trading are the same as any other type of trading. Traders must build risk management into their algorithm, such as making rules for stop losses, position sizing, and other account management.