The FX market is one of the world’s most lucrative trading instruments. It is accessible to anyone with an internet connection and provides smooth sailing for day traders across the globe. But if you are new to trading on the Forex market, it isn’t easy to know where to begin.
Let’s shed some light on how you can get started in robot-powered algorithmic trading of foreign currencies (or “Forex”). The first thing that must be understood about this type of trading is that it differs from what many people may be used to – stock or commodity trading. That means that traders accustomed to either of those markets may find they need a completely different mindset when it comes time to embrace automation via algorithmic software.
Algorithmic trading is based on mathematical models that use historical data to try and predict future trends in the market. When traders use algorithmic software, they need only provide their chosen algorithms with starting capital and install it on their computer. Then they can leave the rest of the work up to the software itself – and sit back and watch as their money multiplies.
Makers of algorithmic trading software do not come cheap. They require large development budgets and significant funds for testing accuracy before launching anything onto the open market. It means that most traders who wish to master this form of automated forex trading will likely be buying into such features at premium prices, even though there are now more than 20 different types of algorithmic Forex trading software on the market.
Here are a few of the most commonly used types of algorithmic Forex robot traders for CFD out there right now:
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Elliott Wave
Elliott Wave trading works by identifying short, mid and long term trends in currency prices using the Fibonacci ratio to help determine support and resistance levels. This method can be effective for forex traders because it allows them to see significant picture changes well before they happen. The mathematical approach Elliott waves uses is constantly refined as new information becomes available, which can be pretty accurate when correctly applied.
Markov Chain
One of the most promising algorithmic trading approaches is a Markov model. The original Markov model was initially used in Russia as a predictive system to forecast future prices based on past statistical data.
It has since been adopted for use by brokers and traders who wish to automate their buying and selling decisions, which can be very profitable indeed. However, one problem with this approach is that it requires an extreme amount of time and money to develop and test it. It means that automation via algorithmic software is not yet possible due to the current limits on programming ability.
Algorithmic trading strategies
These are the most common Forex algorithmic trading robot types, which tie together multiple approaches to help create profitable deals. The strategy you choose should be based on your skills and experiences as a trader, including what time frame suits you best (i.e., short or long term), whether you prefer technical analysis over fundamental analysis, how much experience you have trading etc.
However, as with any trading, testing out any strategies before using them is an absolute requirement. It means using demo accounts so that even if your chosen strategy loses money during testing, it won’t hurt your account in any way at all.
Choosing a trading robot
When choosing an algorithmic Forex trading robot, traders should remember that automation may not always be the best option. If you are serious about trading as your career, it is often better to do your research and what your chosen software suggests to ensure maximum accuracy over time.
You can also develop a customised program for yourself by buying into various types of automated trading and then mixing and matching them to suit your needs.
