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Automation of a Foreign Currency Exchange Strategy

Foreign Currency Exchange Trading Automation

This article looks at the advantages and disadvantages of an automated foreign currency exchange trading system.

Many traders, especially the part-time traders, find an automated trading system highly beneficial when engaging in foreign currency exchange trading.  This type of trading system presents as a computer trading on your behalf according to specific parameters that have been set regarding trade entry and exit points.  Once these rules have been established and programmed, the computer will monitor the forex market and find the most appropriate buying or selling opportunities as based on trading strategy specifications.

The benefits of an automated foreign currency exchange strategy

There are numerous benefits associated with having a computer system trade on your behalf.  These advantages will be listed below.

1. Lack of emotional response

The automated trading systems do not experience emotional reactions to trading results; therefore reduce the chance of emotional trading taking place.  By using this type of trading system you will be able to control emotions and adhere to your personal trading plan.  Furthermore, as all trades are conducted automatically there is no hesitation when placing the order, which eliminates the chance loss due to ‘second-guessing.’  In addition to helping those who hesitate, automated trading systems can also prevent overtrading.

2. Maintaining discipline

Due to trades being automatically executed, the concept of discipline is maintained even in the most volatile market movements.  It is often the case that a trader will lose discipline due to emotion responses; however, automated trading systems follow a trading plan militantly and will not diverge.

3. Achieving consistency

One of a trader’s greatest challenges when trading is adherence to the trading plan and strategy.  The automated trading system shows consistency as it will follow the trading plan and eliminate any chance of ignoring trading rules.  Furthermore, automation eliminates any order-entry mistakes.

4. Increases order entry speeds

Computers respond immediately to any market movements, therefore the automated foreign currency exchange trading systems will generate trading orders as soon as the criterion is met.  Unlike traders who may show slight a delay when entering positions, the automated trading system enters a position immediately allow with all other orders including the set stop losses.  This is highly beneficial as the timing of entry can mean the difference between profit and loss.

The drawbacks of an automated trading system

While the automated trading system is highly beneficial, there are some disadvantages which must be noted.

1. Technical faults

As with all technological instruments, one must remember that an automated trading system is based on computer software.  As sophisticated as the software may seem, it can lose power and if there is a ‘crash’ can cause damage to your trading.  Hypothetically, if there was an interruption between the system and an internet connection the order entry would be lost and detrimental losses may be incurred.

2. Monitoring of the system

While it is convenient to have a device that trades the foreign currency exchange market on your behalf, the automated trading system does require monitoring due to the potentiality of mechanical faults.  An automated trading system has the potential for connectivity losses, power issues and computer crashes which must be noted if you are to experience profitable trades.  To identify these potential difficulties one must monitor the device.

 

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