One of the biggest obstacles to successful forex trading for the ordinary part time trader is the need to constantly watch the market.  Forex is also a 24 hour per day market, closed only on the weekends.  This can make it difficult to manage a position - it is easy to miss a good trading opportunity, or be unable to close a position.  At the same time, emotions can play havoc with your account - you can easily be overcome by excitement or fear.

Whilst you could put stops in place to partially manage risk, another approach is to used automated trading.  Think of automated trading as a robot that sits at your trading terminal and places and closes trades.  This article is about automated trading systems, and discusses a few of the systems available.

What does an automated trading system do?

An automated trading system has the following characteristics:

• Is either web based, or is installed on your PC (typically only available for Windows)
• Acquires price data automatically from your broker and stores this internally
• Executes one or more predefined trading systems - applies these rules to the incoming data
• Automatically sends buy or sell orders to your broker for execution
• Monitors open positions, and may close them automatically

An automated trading system can be left on autopilot and theoretically automatically increase your account equity over time, with no involvement from you other than selecting the original trading strategies.

Details of some automated trading systems

Here are some automated trading systems that are currently available.  If you know of any others, please let me know.

Trade Robot (www.traderobot.com).  This system has been around for a while.  It can trade accounts with FXCM and Dukascopy.   This system can either be used with external system providers, or your own system (typically developed using a tool such as TradeStation).

I have used this tool only with external system providers.  I obtained mixed results, not as a result of Trade Robot itself, but because some of the trading systems used were not particularly strong, and drawdowns were far more than I anticipated.  I think that Trade Robot would be a good tool to use with your own tested strategies.  When I had some problems, the support team was quite helpful.  This tool now costs $500, which may put off some traders.

FXCM Forex System Selector (www.fxcm.com/forex-system-selector.jsp).  This has only just been released.  Similar to Trade Robot it offers a range of prebuilt trading systems from various providers.  You can blend systems to build your own, plus override the system risk settings, then backtest to measure the result. GoForex appears to offer the same or a similar system.

This system seems quite well designed, although I have not used it myself, so can only comment on what I have seen.  One benefit is that the system is web based, so there is no software to install.   This means that you are not at the mercy of the stability of your PC and connection.

There appear to be quite a range of systems on offer.  Again, you will need to carefully check the drawdowns and the long term performance of the systems.  There appears to be no way to include your own trading strategy in this tool.

Fabrefactum (www.fabrefactum.com) had a reasonably priced automated trading tool, but their website now says “under construction”, so I am not sure when this will again be made available.

TradeStation can be setup to automatically trade positions based on rules that you have defined. TradeStation uses an industry standard language that allows you to define your rules. TradeStation now works only with the associated broking firm, but can trade stocks, futures, options as well as forex. Having said that, the broker does seem to be quite reasonable with its costs. TradeStation runs on Windows based PCs.

Conclusion

In conclusion, automated forex trading does work.  The platforms are quite stable and mature, and they are a good option if you don’t want to spend all your time monitoring the markets.  You need to consider the trading models on offer quite carefully, as these limit the use of automated trading more than the technical aspects of communicating with the broker and executing trades.  I am not sure that automated forex trading will simply work as a desktop cash machine, but certainly offers opportunities.

Tags: automated forex trading, Forex Trading, trade robot, tradestation

This entry was posted on Saturday, April 5th, 2008 at 5:00 am and is filed under Automated Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.