Black box trading, algorithmic trading, automated trading, or whatever you’d like to call it, is on the rise. Technology is better, cheaper, and faster than ever before allowing retail traders to take part in an area of trading that was historically reserved only for the big boys.
Speaking with Forex traders on a daily basis allows me to get a pulse on what’s going on out there in the FX world, and a topic that has been brought up in conversation more and more frequently has been automated trading. Retail traders are really embracing this style of trading and with good reason. Automated trading has its benefits (as seen below):
Benefits of Automated Trading
Trades are placed automatically on your account, saving you time.
Strategies are able to trade 24 hours a day, 5 days a week, finding you more opportunities.
Backtesting strategies is a breeze, giving you greater confidence.
Forex traders are using a handful of different methods to reach their trading goals, and I am going to share with you the 3 most popular ways to take advantage of automated trading.
- Using a System Developed by Someone Else
This is the easiest way to get into the Automated Trading arena, simply copying a system someone else has created. But, just because it’s easy does not mean it can’t be profitable. Much like trading in general, sometimes simplicity is the key to consistency.
I’ve seen many publicly available systems post long term profitable p/l statements. The difficulty here is that you often do not know with 100% certainty how these third-party systems operate. You are left having to completely trust someone else with your hard-earned capital which gives most people a bad feeling in the pit of their stomach.
Ideally, you will want the creator of the system to write a detailed description of how the strategy works. Does the system trade trends or ranges? Is it a long, medium, or short term strategy? What is the strategy’s risk/reward ratio (hopefully positive)? What is the strategy’s win rate? The more information available, the better decision you can make about choosing a Forex automated strategy.
- Adapting an Existing Strategy to Meet your Criteria
This next style of automated trading is for the tinkerer. This is someone that finds a system that they really like but believe there are ways to improve it. Maybe they like the entry logic of a specific strategy, but do not agree with the Stop/Limit levels that are used. Or maybe the strategy uses a specific moving average that they would like to change to a moving average they are more comfortable with.
- Creating your System from Scratch
This final way to use a black box system on your account is to create a strategy from scratch. Obviously, this is the most difficult and the most resource consuming way of doing it; but if you have a specific manual strategy that’s been a consistent winner, isn’t it worth automating to be able to run the system around the clock? Plus, if it turns out to be a profitable system, the cost of setting it up will be offset by trading profits.
Most traders will need to find a programmer to turn their strategy into an automated system that trades on its own. And that is what I’ve been doing for the last 5 years. I’ve been helping trading and institutions to turn their trading strategies into true black box automated trading systems that open and manage trades automatically for them.
Black Box Demystified
The Forex market is filled with unknowns, which is part of what makes it so fascinating. But something that should be known is how you can take advantage of recent technology to automate your Forex trading account. Whether you are mirroring someone else’s strategy, making changes to an existing strategy, or creating an automated strategy from scratch, you can take advantage of “black box” style systems just like the big boys.