Trading with an algorithm is where traders take their trading strategy and put it into code, allowing a computer to execute that code 24 hours a day while the market is open. By default, trading manually is restricted to waking hours (often aided by the use of Red Bull, in my case), and is limited to the number of charts and currencies the trader can watch.
Naturally, the amount a single person can watch, monitor and trade is quite finite. But by utilizing an algorithm traders can have computers do in microseconds what would take humans hours to manually, thereby opening up a new supply of trading opportunities (not all of them being good opportunities, mind you).
Meta4 trading platform allows traders to create their own automated forex trading programs in what is called an “Expert Advisor.” The use of the software is free for all traders - demo and live.
The rise of the algorithm
According to my research, in 2004 a whopping 98% of trading in the foreign exchange market (or forex for short) was manual trading; but by 2010 only 55% of trading volume came from a human. The forex market is a fast moving market that is open 24 hours a day, and I think this huge influx in algorithmic trading is traders trying to capitalize on these factors.
Some exchanges here in the States have tried to embrace algorithmic trading, but have met resistance. My research concluded that forex has been more friendly to algorithms simply because the market has no central exchange to regulate where a trade comes from.
The Pros and Cons
One of the benefits of algorithmic trading in any market is the increase of liquidity. Algorithmic trading typically places more trades than a human naturally would, which opens up more liquidity for everyone: human and machine alike. But with this comes a change in volatility. An increase in volume naturally leads to increased volatility. But some suggest algorithmic trading might actually lower market volatility as algorithms aim for optimal execution at minimum cost.
What’s on the horizon?
One very important lesson from my college years is this: the more we learn, the more we learn we don’t know. My research into algorithmic trading has answered some questions, but seems to have opened up even more. For instance, what is the future of algorithmic trading, and how will it impact my trading? I’m currently researching this topic, and plan on releasing another infographic soon with my findings. Stay tuned: more good stuff is on the way!
For more information on Algorithmic trading, Here is a programming link: http://www.ibfx.com/Education/Programming, or You may contact Adam at <adam.evans@interbankfx.com>
Besides skill, there is really only one thing that separated the pro from the amateur in forex and that is DISCIPLINE!
The DISCIPLINE to do what You need to do when it needs to be done. In order to succeed in forex, You need a game plan. A set of rules that You must adhere to in order to enjoy any real measure of success. Forex is a master game that isn't hard; it is just tricky and not playing with discipline is a very costly venture. The #1 No-No in forex is holding on to bad trades. It is the thing that will break You faster than anything else.
Let me simplify this for You:
Superior DISCIPLINE = Superior Success and eventually a lavish lifestyle
Great DISCIPLINE = Great Success and eventually a very lucrative lifestyle.
Good DISCIPLINE = Measured Success and a nice/decent living.
Fair DISCIPLINE = Too much frustration and lots of struggling.
No DISCIPLINE = BROKE, busted, frustrated and disgusted
When I first started sharing strategies, I was asked was I afraid that the market might start to change because of my sharing. I know that any master trader can freely share any strategy/secret and the market doesn't have to worry, because most traders don't have the DISCIPLINE make the strategies work for them.
Everyday Traders are lead into traps by Master Tricksters and it happens to the best of Pros too, but the difference is that the Master Pro will spring the trap when Her/His rules say cut, while the amateur will hold on until the market cuts the trade for them. Never let the market cut Your trade, because it will always be at a point much worst than the point that You thought You couldn't afford the loss.
DISCIPLINE is the ultimate advantage for the Pro Trader. It is the secret forex weapon that the Amateur fails to use. Traders are always looking for the holy grail of trading, well the closest thing to the holy grail in trading that I know is discipline. The discipline to enter when Your rules show that You have the advantage and the discipline to exit when Your rules show that You don't have the advantage that You thought that You did.
A trader who follows a good set of rules with discipline will enjoy success and happiness, the trader who makes exception to good rules will be frustrated, full of self pity and BROKE.
REMEMBER THE CHOICE IS ALWAYS YOURS, YOU NEVER HAVE TO STAY IN A BAD TRADE. YOU ALWAYS HAVE THE POWER TO CUT!
YOU CAN BE SUCCESSFUL HERE, BUT ONLY IF YOU CHOSE TO BE!
Develop a system that You have confidence in and trade it boldly!Have confidence to ride winning trades until your rules say exit.
Be consistent with Your trading rules even when it hurts. Discipline in the market is what makes a long term successful trader.
Cut bad trades quickly! Always have a cutting point when You know that You no longer have the advantage. All long term successful traders use a Stop losses! Traders who refuse to cut bad trades go broke
It is better to ride the price train than to be hit by it **
Many people are wondering how to get good at forex. Forex is very easy, the discipline to do what you need to do in forex when you need to do it is what is hard. I always talk about discipline in forex, today I want to talk about how You get good at forex.
The first thing I want to suggest is to STUDY!
Study and learn your candlesticks/bars, it doesn't matter which one, although your candlesticks provide more of a visual signal than your bars. This is the language of your charts, learn it well! Get to know the language of the charts like you get to know a lover. You can not be successful in forex without a deep understanding of chart language. Both the internet and your library provide some valuable inexpensive material on your candlesticks and bars. I picked up Steve Nison's Candlestick books at my local library.
You have to learn to be a chameleon. You have to have the ability to switch sometimes very quickly as price may change from it's course and choose a new course. Forget the "Trend is Your Friend", "You need to be the Friend of the Trend", when it changes, You'd better change too!!!!!
You must be confident.
You need to observe price movement and study past charts.
You have to take baby steps and keep going forward. Trade tiny amounts first; get your feet wet before jumping in the pool.
Open one position at a time until You are proficient and disciplined enough to handle more.
You have to be able to WAIT (for a proper trade set-up)
You have to be in the market, even if it is with a penny. You have to trade so that you can learn to deal effectively with your emotions.
You must learn to control your fear, and take risk on good trade set-ups.
You have to believe that you can trade successfully, I have made every mistake in forex that can be made, more times than I dare to think. I am no smarter than You. I have probably just gotten my butt kicked a lot more.....lol (^_^).
My success has come through GOD's grace and persistence on my part. A Trader is much like a Doctor or Lawyer. We are Practitioners always perfecting our craft.
The 5 things that are going to make You successful in forex are these knowledge discipline patience consistency faith
YOU CAN DO THIS (^_^)
Learn the language of Your charts Wait for a proper trade set-up Cut bad trades quickly, then wait to see where the market is going and follow profit once the trend has revealed itself NEVER LET THEM TRAP YOU!it is better to be tricked than to be broke
If You follow good trading rules, You will come out ahead. The problem is Traders want instant gratification.
If You are 70 pips in the plus and You get stopped out, cut that bad trade. What we forget is that if we take a 15pip hit then we are still ahead by 55pips.
As a Traders, You will lose some battles. SO WHAT?!!!! The important question at the end of the day is; have You won the War! You must win the war here in order to succeed, and that is going to involve learning to cut trades that are eating away at Your hard earned capital.
As Traders if we play all day and come out ahead by 8 pips, all we focus on is the 30 pips we lost WRONG!!!!!!! Mourning the loss puts Your focus on what is wrong instead of what is right, which puts You at a huge handicap the next time You are up to play. There are 2 things that I believe will help Your game...........
#1 Congratulate Yourself on a good day's play and the fact that You came out ahead!...
#2 Lastly never beat Yourself up for a bad trade, review Your missteps and see how You could have played better. After analyzing it, use the lesson to improve Your game.
Many traders will make 30 pips and see another good entry that ends up going against them and many times will give the market back that gain because they don't want to lose any money.
If You don't have the discipline to cut a loss, then You don't need to play this game! All You do when You hold a bad trade is make rich fat cats out of those who spend their lives tricking traders.
Listen to me, if You play by good, sound, solid rules then You will mostly come out ahead. You can take up to 4 hits a day and still come out ahead as long as You follow good sound rules with discipline.
Keep Your losses small and stick with Your trade until Your rules say cut it. Don't forget that the best traps look like legitimate trade set-ups; that's how they get us.
They lead us into traps deliberately, but it is up to us to spring these traps and free ourselves to follow profit. They only trick us to get us out of the way so that they can enjoy the real price move without our interference.
Too many of us will lose several hundred pips because we refuse to take another loss, when the simple, but not easy truth is: when We realize that price has gone against Us, We can cut that bad trade and make great money following profit, instead of rationalizing why that bad trade has to work out!
Many of Us will go so far as to call Our bad trading bad luck, but the truth is, it is bad trading that comes from a lack of a good set-up, a lack of discipline or refusal to follow good trading rules in the face of a loss.
No GOD is not punishing You, You are as smart as the next girl/ guy doing this, they have just learned the level of discipline that it takes to be successful and YOU CAN TOO!
Listen, I hate a loss worst than anybody and have lost more money than I have gained because of it. What I am discovering is that with patience and discipline, I can take much more from the market than I ever give!
Following good rules all of the time will put You in the winners circle and keep You there! It is possible and it is possible for Y-O-U!
You can absolutely do this. You can be successful at forex, with patience, discipline and a good trade set-up!
When most Traders are facing the possibility of taking a loss, they tell themselves that they can not afford to take that loss, I am saying, You can't afford not to take it. A running loss is like a poison that sucks the life out of our accounts until it is dry. The biggest gift that I would give to all trader if I could is how to take a loss and follow profit. I know that I am always taking about this, but it is the #1 thing that cause Traders heartache and financial ruin.
If You are giving Yourself pep talks about bad trades, like "It will come back" then You are already in trouble. I have learned to set my stop losses tightly; You may not be comfortable with that, but whatever Your stop loss is, You must honor it and not move it if price is approaching it. If You are stopped out, it means that Your opinion of the market's direction was wrong and the market did not do what You thought it would do.
So what, it is no big deal. I take losses and believe me it sucks, but the truth is, once You let the bad trade go, You are better prepared with more capital for the good trade. If You trade a good set-up, then You are eventually going to find the right trade, but it is an art that requires discipline. It is all timing, discipline and set-up my Friend.
Trading is not hard, every day the market does 3 things, moves up, moves down, moves sideways, that's all. We make this a hard process by holding on to bad trades. LET BAD TRADES GO AND NEVER LET THEM TRAP YOU!!!!!!!!!!!!
LET BAD TRADES GO, AND DON'T STOP UNTIL YOU ARE AHEAD OF THE GAME. YOU WILL NOT GET EVERY TRADE RIGHT, SO WHAT, SUCK IT UP AND MOVE ON. EITHER PLAY WITH DISCIPLINE OR DON'T PLAY! IF YOU LACK THE DISCIPLINE TO PLAY PROPERLY, YOU WILL ONLY BE ENRICHING YOUR OPPONENT WITH YOUR HARD EARNED MONEY. EVERYDAY SOMEONE HAS TO WIN THIS GAME AND AT THE END OF THE DAY I WANT THAT SOMEONE TO BE ME AND YOU SHOULD WANT THAT SOMEONE TO BE YOU. I CAN'T WIN ALL OF THE TIME, BUT I CAN SCORE BIG WHEN I DO WIN!!!
A loss is like putting a rattle snake in your pocket, it will eventually kill You!
We can learn a lot about how we should strategize in forex from basketball. In basketball if a player misses a shot, the team doesn't sit down, close their eyes and ears, while the other team is still playing; hoping that the game is going to come back in their favor. If a coach told you that was his strategy, you'd say that was ludicrous. Yet in forex a trader will put in a bad trade, turn off the computer, leaving the mistake to grow bigger, hoping that things will come back in his/her favor.
Good trading doesn't work like that, you have to practice good defense, you have to protect yourself!!
Everyday in forex you have an opponent and you must use your defense if you are going to be consistently profitable.
In basketball if your point guard has an injury that is keeping him from scoring, you cut that player and use the back-up point guard. In forex You must do the same thing. When your primary plan fails, you MUST cut that position and use a back-up plan..
Many times as traders we take a hit and quit. If you have a good strategy, you can keep playing until you are ahead of the game.
Two things you must remember to get into the big leagues. #1 CUT BAD TRADES QUICKLY #2 DON'T OVER-TRADE YOUR ACCOUNT. When I say don't over-trade, I mean if you have $1000.00 account don't trade a half of a lot.
If you have a $100.00 account and you trade 1 micro lot (.10) you can grow that by $5.00/day. Everyday that You reach your goal you can add 2 more pennies, which will give you an extra dollar everyday on 50pips. At that end of the 1st week, you will have $35.00, $75.00 the 2nd, and if you stop at that (.30), you can make an additional $150.00 for the month, for a total of $260.00 the 1st month; which is more than double what you started out with. The 2nd month you'd have $300.00, that is an additional $3560.00 for the year if you add .02/day to .10 and stopped at .30 and stayed there the rest of the trading year.
Remember forex is a get rich slow game, so don't over-trade your account.
Use discipline with a good strategy. Most importantly CUT BAD TRADES QUICKLY, because the best strategy in the world is no match for a free running loss!
NEVER LET THEM TRAP YOU!!!!!!!!!!!!!!!!!!
CUT BAD TRADES QUICKLY!!!!!!!!!!!!!!!!!
If you take a hit, don't sit down and quit hoping the other team is going to have mercy and let you win. They are your opponent, they are not your babysitters, they are out to beat you. You have to stay in the game, practice good defense, and protect yourself if you are going to come out ahead!!!!!
