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How to Create an Automated Forex Trading System

By Will Ellis
Last Updated on March 15, 2024

The idea of entering any sort of market might sound very enticing to many people. At the same time, it might sound very terrifying too.

It can seem overwhelming and too much for one person to handle on their own. Entering any sort of market and investing your money is daunting, and the risk of losing your funds is so scary that some people don’t even attempt it.

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But you should. In fact, all people should have knowledge of and experience with investing. They should not be afraid of the massive amount of information out there and the steep learning curve that comes with investing.

Table of Contents:

Welcome To The Currency Market 🤑️


Currency

If you are planning to put your money into a marketplace, then the currency market would be a very good place to start. Many people don’t know it, but you can actually buy, sell and invest in international currencies to make money. 

Much like how you can buy and trade the stocks of the companies, you can also buy and trade the currencies of countries.

An exchange of foreign currency is called “forex” and it is a booming industry that offers many advantages and benefits to those who invest. When you invest in forex, you need to choose two different currencies that you want to pair, most likely your own country’s currency with another country’s currency. 

When you pair currencies, you are using your own money to buy and hold a different currency. It’s as simple as that. From the yen to the ruble to the US dollar and beyond, there are so many currencies that you can buy, hold, and then trade for a profit.

If you are doing this, you should use an automated forex trading system. Why? Because it takes out so many of the challenges that often get in the way of making money when investing in forex.

What is a Forex Trading System? 💱️


Forex Trading

In its most basic form, a forex trading system is a program made of rules used to carry out trades with one or more currency pairs. 

Although these strategies can be applied directly, many traders choose to employ automated systems to eliminate emotions from the process and carry out trades faster and more efficiently. 

These automated systems can watch the markets at any time of a day, seeking opportunities and placing trades in accordance with predetermined scripts. They can be thought of as custom robots that are designed to carry out the trader’s wishes.

How To Create Your Own 🔎️


The biggest advantage of creating a customised automated trading program is that there are virtually no restrictions: these systems are only limited by your creativity and by what can be programmed. 

However, creating a custom system requires some serious knowledge of trading, money markets, and advanced analytics. A programmer can be hired once you have the program designed, but you will still need to translate the framework into code.

Creating A Plan

A thorough trading plan serves as a framework for your financial transactions. It can assist you with determining your objectives and how your automated program will support your goals. It’s a smart idea if you want to get the most out of your time spent in the marketplace.

After deciding what you wish your platform to accomplish, the next step is to figure out how to execute your plan.

What Will Your System Do?

It’s crucial to think about your software’s ability to recognise investment opportunities, as well as what you wish it to do when it does fine one. The software might carry out transactions for you, or just notify you when an opportunity you have been waiting for pops up.

As you construct your program, consider the methods and indications you often use to spot patterns and how you choose to perform transactions.

Study The Market

Remember that instead of quantitative research, the majority of automated trading programs are focused on technical indicators. Therefore, it’s crucial to have a solid understanding of this subject and how it might influence your performance.

The process of converting your program’s concept into code shortly follows. You must develop your strategy for the particular system you intend to use, because every platform employs a distinct programming language.

While having a basic understanding of what can be programmed is helpful, having in-depth coding experience is not completely essential.

You Can Hire Help

You could always hire a programmer to make your platform for you. Many people take this path because they can then rest assured that their program will do what they want, when they want. However, this option will certainly cost you more because programmers are not cheap. It also relies on you being able to clearly explain to the programmer exactly how you want the platform to perform.

Verify Your System

The last stage is to verify the performance of your trading system using past data and tweaking the platform until you achieve the required outcomes. This is basically kicking the tires of your platform, lifting the hood, seeing how it works and if it performs as planned. It is an essential step because it will make sure that the program will work beyond just theory.

Regardless of whether you decide to buy a conventional system or design your own, this is a crucial phase since it will offer you a good indication of the system’s effectiveness, while not actually putting your funds in danger.

Backtesting is a great tool for gauging the efficiency of the platform you have chosen, but it has several drawbacks. Static data may not necessarily be indicative of what would occur in a real market environment, because it may not compensate for variables like volatility.

Time To Get It Working

Once you have configured and optimised your technology, it is time to put it into practice. However, it is important to note that automation does not mean complete detachment from the trading process.

Even the most sophisticated automated trading algorithms can encounter glitches or exhibit unexpected behaviour. Therefore, it is necessary to maintain constant vigilance and closely monitor the system’s performance.

Furthermore, automated systems primarily rely on technical indicators to make decisions. They may not possess the ability to fully assess the impact of economic developments, current events, political considerations, and economic conditions – which are factors that human traders often incorporate into their financial analysis. Therefore, it is essential for human traders to consider these factors as part of their overall decision-making process, complementing the capabilities of automated systems.

By recognising these limitations and actively monitoring the automated trading process, traders can effectively navigate potential challenges and optimise their overall trading strategy.

Why Use Automated Trading? ➡️


Automated Trading

Now that you have seen how you can set up your own automated trading system, you should answer a very important question: should you even use one?

There are plenty of people who have fallen in love with automated trading in the forex market and found terrific success buy settling on a system that is designed to follow out their wishes no matter the hour of the day.

But there are other people who have found some of the shortcomings and downsides of using an automated trading program for forex trading, and they are completely valid in their complaints too.

Let’s go over both the good and the bad of automated trading systems.

Pros ✔️

They Work 24/7 ⏲️

One of the best things about forex investing is that you can do it all day long, and all night long too.

Many markets have hours when they are opened and closed. You can only trade during these business hours. Take the American stock market, for example. No matter where you are located, if you want to partake in the US stock market, you’ll have to do it during their open hours.

With the forex market, you can trade at any time. That is a huge benefit to people, and an automated trading system will allow you to make your trades at 2 AM when you are fast asleep. You don’t have to actually be awake and at your computer or on your smartphone.

No Emotions 😶️

Many people refuse to pull the trigger on a great trade – or they pull it too quickly – because of emotions

People get cold feet or they get too excited. They let their emotions get the best of them. But with an automated trading system, that is all taken care of. These programs make a rational decision based on the available facts and then carry out their duties. 

Cons ✖️

Mechanical Issues 👎️

Even the best computers and software can run into problems from time to time. Take internet connectivity, for example. When your WiFi goes out, you are completely cut off from the internet. And, obviously, you need the internet to be working to make your trades.

If your internet goes out and your system is scheduled to automatically make a trade when certain parameters are met, this simply will not happen. That’s a pain in the neck and you can wake up from a good night’s sleep to find out that you missed out on a great opportunity. 

The right automated trading system can be great for your trading career in the forex market, but only if you come up with a good plan, create a strong system, test it, and then put it into practice. 


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