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UNDERSTANDING THE BASICS OF THE FOREX ALGORITHMIC TRADING
UNDERSTANDING THE BASICS OF THE FOREX ALGORITHMIC TRADING

Forex trading has really advanced. Before now, forex trading involved transactions done over telephone, price information, broker-customer relations, and similarities. There was a picture which people had about forex traders; who stayed stood in trading areas with cigarettes, moustaches and coloured suits monitoring prices and shouting at the top of their voices.

Today, forex traders can now sit down in their homes and get news updates, enter into live trades, and monitor prices over the internet.

According to LearntoTradetrading is done 24 hours a day, 5 times a week. And in 2017 alone, the daily global average was a staggering $3trillion for forex trading. As the years go by, this estimate increases and increases. It is a testament to how many people are involved in the forex industry

More interestingly, it can now be done using a robot, with little to no human intervention. It was estimated that 75% of all trades in the US were made by robots. This method of forex trading is called Algorithmic trading, black box trading, and high frequency trading.

WHAT IS AN ALGORITHM

An algorithm, according to Wikipedia is a finite sequence of well-defined, computer-implementable instructions, typically to solve a class of problems or to perform a computation. Algorithms are unambiguous specifications for performing calculationdata processingautomated reasoning, and other tasks.

In simpler terms, an algorithm is a set of mathematical rules written in code for a computer. Codes are the only language computers understand.

Algorithms can be used to generate market signals, manage risks, and forecast market movements

 

WHAT IS ALGORITHMIC TRADING

An algorithmic trading is simply using trading software to trade in place of humans. This is made possible by a set of mathematical rules (algorithms) created by experienced traders. These instructions usually consist of trade timing which lets you in on the right times to enter and leave a trade, analysis of different prices, and risk management.

In the field of forex, they are usually called expert advisors or Forex Robots. The process of trading with robots is called Algo-trading.

TYPES OF ALGORITHMIC TRADING

Generally, there are 4 basic types of algorithm trading strategies. They include;

·        Direct Market Access

·        Statistical Trading

·        Algorithmic Execution Strategies

·        Automatic Hedging

 1.      Direct Market Access

 This type of Algo-trading involves the robot defining the most favorable speeds and the lower prices where the trader can gain access to multiple liquidity providers at the same time.

2.      Statistical Trading

This usually involves the forex robot searching for opportunities that would help you make profits with the use of financial statistical market analysis done in the past.

3.      Algorithmic Execution Strategies

This type of Algo-trading is very beneficial to the trader. It places trades for the trader immediately the price changes. It can also help to reduce market impact while trading.

4.      Automatic Hedging

This is a situation where the robot creates ways in form of rules to reduce your overall risk level while trading.

 TYPES OF FOREX TRADING STRATEGIES

1.      ARBITRAGE STRATEGY

In this strategy, the trading robot hunts for imbalances in prices of different markets and finds a way to make profits from them. To make profits here, you have to be willing to risk large amounts of money because the profits are relatively low, so to win big, you have to be willing to risk big.

2.      MARKET SENTIMENTS STRATEGY

This is usually influenced by the reactions by other traders in the market. Reactions got from blog posts, newspapers, television, and news outlets in general. They are gathered together an analyzed to make quick profits by capturing short term changes in prices. It can also make use of software that generates short and long-term positions.

To generate these algorithms, a firm knowledge of how markets work is vital.

3.      TREND-FOLLOWING STRATEGY

This is a form of statistical trading strategy which involves the use of historical data. The difference here is that the trend following strategy compares historical data and present data and makes some analytics to check if trends would continue to happen or stop.

4.      MEAN REVERSION

This is the assumption that any price that goes up would eventually come down to its original state. Traders open orders while anticipating that a price would drop to its mean point.

Brokers give the robots these instructions usually calculate prices of the past and present before they finally arrive at the mean point where the price would be reversed to. This then allows your robot to automatically implement this strategy wants you set it to do so.

5.      MOMENTUM

This happens when there is a sudden increase in price. The rationale behind the momentum strategy is that once prices start to go up, it would continue to do so until it finds a resistance. The robot can be then programmed by the broker to follow such trends when they appear to reap the benefits in which it has to offer.

6.      ICEBERGING STRATEGY

This strategy is commonly used by individuals who are willing to risk big amounts or large financial institutions who do not publicly announce their position in the forex market. They usually don’t enter into long or short position with a single broker, what they do instead is; they break their trades into smaller positions and trade them using different brokers.

This ensures that they are safe from market fluctuation and can operate under normal market conditions.

The name “iceberging” is due to the fact that independent traders see only the tip of the iceberg. They are not able to see their larger trades

7.      HIGH FREQUENCY TRADING

This trading occurs really quickly. Buying and selling signals are done in nearly seconds. The success in this strategy involves the ability to take in large chunks of information. This strategy can only be handled by robots and not human traders.

A major risk about using the high frequency trading is a situation where there is a hitch by the trading software.

8.      SCALPING

Scalping as an automated trading strategy involves relying on the difference between the bid and asking price of currency pairs.

The goal of this strategy is to create a bid-ask spread. This strategy is not ideal for amateurs because it can be really complex. People that succeed with this method are large firms or individual traders with experience and large capitals.

PERCENTAGE OF VOLUME STRATEGY

In this strategy, the algorithm sends partial orders which are based on the preset participation ratio. It sends orders defined by the user on market volumes and the participation rate increases or decreases prices reach the signified position.

REQUIREMENTS FOR ALGORITHMIC TRADING

·        The resources and the necessary know-how to back testthe system as soon as it is built before it starts live trading

·        Access to feeds from the market that would be analyzed and watched by the system

·        Strong connectivity and access to trading platforms ready for orders to be placed

·        Knowledge in programming

CONCLUSION

New traders who are willing to learn these strategies can start by using demo accounts to gain experience and versatility in trading. It is not advisable for an amateur to start trading using a real account because more experienced traders would feed off your ignorance.


GET YOUR FOREX TRADING DONE BY TOP FOREX PROFESSIONALS

When you are first starting out in forex, implementing these strategies can prove worrisome, especially simple when trying to do it with automated forex software; the truth is that the learning curve of forex is quite steep. It takes time and effort.

Anybody on the internet that tells you that you can start making hundreds of thousands of dollars in your first month of trading is just lying to you or trying to get you to use a service of theirs.

PAMM FOR INVESTORS

As a beginner in the world of forex, what you need is a manager who would put you through the entire process of trading. In order words a PAMM manager. This person invests and monitors the market on your behalf with low capital investments while sticking to the agreements both of you entered into.

By joining this program as a PAMM investor, you enjoy firsthand knowledge from well experienced traders that are willing to pass on their knowledge to you.

PAMM FOR MANAGERS

We at ALGOFXPRO are interested in the growth of everyone we get involved with. We have created a system which provides a reward for your experience as a manager. You get paid a commission based on the profits you make on behalf of the investor.

The PAMM manager initiative was created to help experienced forex traders make money on the side by helping less experienced forex traders grow in knowledge and profit. Become a PAMM manager with ALGOFOREX by signing up here

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