Automated Trading Cheat Sheet

Forex traders who have developed ideas for profitable strategies in manual trading may be interested in transferring their ideas, or exploring new ones, with some of the automated trading platforms that are offered online.

What is Automated Trading?

Automated trading, sometimes known as algorithmic trading or robot trading, is the use of computer software applications to apply trading strategies automatically, and to buy and sell assets according to pre-established parameters related to market characteristics or price levels.

With these systems, trade entry and exit points can be pre-programmed to allow computers to execute and monitor trades, and to take some of the workload off the hands of traders.

Why Use Automated Trading?

Automated trading may offer some distinct advantages.

The first is that it can take some of the emotional elements out of trading. Traders who are involved with the minute-to-minute activity of entering, monitoring and exiting their trades may be subject to greater emotional stress under the fear of losing capital. An automated trading strategy assures that the computer software, and not the trader, bears the impact of monitoring any volatile price moves that might otherwise cause stress.

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A second and related advantage is that it can reduce the number of errors made. Traders who are tied up with the physical demand of monitoring and executing all their trades can be prone to more errors in execution. Automated trading, if set up accordingly, may assure that traders enter fewer unprofitable trades and help make more money overall.

A third advantage is that it can save time. Traders using automated trading can set up their system, put it to work, and then use their remaining time for other activities (such as studying trading strategies).

A fourth advantage is that it can allow traders to expand their trading ideas to multiple currency pairs, assets and markets. Rather than focusing only on a single asset or market that must be monitored on a full-time basis, automated trading can allow traders to expand to differing trading realms and conditions simultaneously. This leaves the burden of executing the actual individual trades on the software. If set up accordingly, this may also allow traders to multiply their profits.

How To Automate?

Traders may want to develop their own trading strategies, which will often be based on multi-day moving averages, relative strength index, average true range or other chart analysis and trading techniques.

Some dealers will offer automation systems on their platforms that already include tested strategies. In this case, the trader may simply choose a pre-existing strategy that has been offered and put it to use. Examples of popular platforms that allow automation systems can be found on our platforms page.

Consider Market Conditions

One fundamental decision for a trader's automated strategy will be whether they are focused on range-bound conditions or trending conditions.

In range-bound conditions, asset prices will generally remain between a given level of support and resistance, and traders can count on swings between these two levels. This may occur in a period of stability between the economies of major currencies, such as the U.S. dollar, euro, British pound, Japanese yen or Chinese renminbi.

Alternately, currencies may undergo a longer period of shifting against one another that may be provoked by alterations in global commodities prices, changes in local monetary policies or large shifts in a nation's current account balances. In that case, traders may want to employ a strategy that takes into account the likelihood of a longer-term upward or downward trend in the price of a country's currency.

Entry And Exit Signals

Unlike an individual trade, where a trader may be looking to maximise the profit for a particular price movement, in automated trading the entries and exits will be executed numerous times in conditions that may vary slightly.

For that reason, traders may want to consider their strategy in light of a number of trades to understand whether it is likely to produce profits on a whole over time. To do this, they may want to stick with specific risk-reward ratios and carry out backtesting over previous scenarios to verify whether the strategy will yield more winning trades than losing trades on average.

Money Management And Leverage

Before developing an automated trading strategy, traders will want to consider how much of their account they may want to put at risk at one time. A common rule of thumb is to put no more than 5% of a total account at risk at any given time. In relation to this, traders should exercise caution with leverage and becoming overconfident that their strategy will be successful in all market environments.

When considering the possibility of losses, traders may want to limit their use of leverage at least initially, to a conservative amount of five times or less of trading equity. Traders who gain confidence in the success of their strategies may then want to consider increasing them to beyond that level over time.

Backtesting And Optimisation

Some trading platforms will allow traders to refine the trading strategies they choose with optimisers. These will take a strategy, set up multiple variables for its components, and then run tests on selected price data. Traders may want to be careful to not over-optimise, and maintain a simple list of variables, because real trading conditions may differ from historical data used in testing.


Automated trading may be a good option for traders who have tested some strategies successfully and who want to maximise the efficiency of their trading. Like manual trading, automated trading carries risk. Traders should take time to lay out and develop their strategies before engaging in trading activity.

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FXCM Research Team consists of a number of FXCM's Market and Product Specialists.

Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.

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