Mark Thomas — Trade On Track
It’s easy to believe in the current forex climate, that Expert Advisors (EAs) for Metatrader 4 are the only way that you can get into automated forex trading. With all the trading robot scams and high-powered marketing that goes on with MT4 EAs, many traders think that running MT4 is the only choice they have. There are in fact many software vendors who provide trading platforms that allow for some form of automation. This article will cover a few of them along with how different levels of automation can help the trader.
Before jumping into the more popular trading platforms available, it’s important to have an understanding of what levels of automated trading systems (ATS) are out there. Automated trading or assisted trading can be of great benefit in many ways, even if you want to continue to trade manually. The different levels of automation that you may encounter include:
Chart indicators only. This is a fairly basic level, but one that can still be very useful. For instance, a custom indicator could be used to help you refine your entry point or the right time to exit a trade. You still have full control over your trading, but a custom indicator may give you that edge over other traders who are using the standard indicators. For example, you might come up with some magic way to trade based on the combination of an RSI and MACD indicator.
Alerts. These are indicators taken to a slightly higher level. An alert might be an arrow displayed on the chart (indicating the direction in which to trade), or it might be an audible signal notifying you that a possible trade setup has occurred, or it could even be an email or SMS that is sent to you – making you aware that a trade possibility is at hand. Alerts can also be used in the same way to notify you about possible times to exit a trade. Once again, you have full control over when you enter and exit – the alerts are there just as an added tool. Alerts could be placed on many different charts – monitoring lots of different currency pairs, something you would have difficulty doing manually. And, you can be free to do other things around the home or at work while your software looks out for trade setups for you.
Trade management. If you’re in a trade, then automated trading software can help you manage the trade by monitoring price activity and keeping you on track with your trade strategy rules. For instance, the software can notify you when it’s time to move a stop loss or when it’s time to buy or sell some more.
Risk management. We’ve seen that risk management calculations can be simple (say 2% risk per trade) to reasonably complex – as we saw in the NYTime strategy. Automated trading software can help here too. As well as providing alerts of when to trade and in what direction, the software can also be programmed to calculate how much you should trade.
Full automation – putting all these pieces together, you can see that the software can be programmed to find entry signals, determine the amount that should be traded, and it can even place the trade for you. Once in the trade, the software can monitor price action and move stops and targets as appropriate, then exit the trade based on the programmed strategy too.
Ok, so we know how automated trading systems or software can make life easier for us as traders. Automated trading software can also help take the emotion out of our trading, by following the markets without prejudice – just sticking to its trading rules. We can improve our discipline by just following the signals provided by the automated system and resisting the urge to trade at other times based on impulse. Let’s take a look at the trading platforms out there that allow at least some sort of automation.
Metatrader 4 is certainly very popular among traders first getting into forex and/or automated forex trading. One of the main reasons is because it’s generally a free platform, many major brokers offer the platform in a demo and live mode, and the automation scripting language (called MQL4) is relatively easy to learn and quite feature rich. There is also a good community surrounding the platform, there’s plenty of help at hand through the forums, and you can obtain commercial support and help through other sources. Metatrader 4 can be used to trade forex, CFD and futures markets, but if you’re looking to trade stocks and options as well – you’ll be out of luck.
Metatrader 4 has a built-in testing module too, called Strategy Tester, which can be used to backtest an EA over historical data very easily. There are optimization options that you can play with as you’re testing the strategy, to try to obtain the best results possible.
This is a very popular platform for forex traders, and it has the advantage that it can also be used to trade stocks, futures and options too. TradeStation has a programming language called EasyLanguage® which is used to script indicators and trading strategies. EasyLanguage® is supposedly very easy to learn as the commands are formatted in English-like statements. The automation facilities allow full control over taking trades, setting stops and targets, moving trailing stops and closing trades. TradeStation also allows you to program trading strategies that may incorporate fundamental factors (for instance, the impact that major news events can have on the market) – this sets it apart from many of the other trading platforms.
This is probably one of the nicest trading platforms I have tried, with more features than you could ever want to use or even think of. It comes in a java-based version which allows it to run on non-Windows platforms too, which sets it apart from most of the other trading platforms. So, if you’re a Mac or Linux fanatic and you want to trade – then ThinkOrSwim is well worth a look. This platform allows you to trade all sorts of securities: forex, stocks, bonds, options, futures.
It has hundreds of chart indicators included in the standard system, then you can use their scripting language called “thinkScript” to program more. ThinkScript doesn’t allow for what I’d call fully automated trading though. It can help you build custom indicators and even execute orders for you – setting stops and targets too, but that’s about the limit. Using the current version of thinkScript you won’t be able to implement trailing stops or moving targets – so ongoing trade management is next to impossible. ThinkOrSwim has a new Robotic Trading Engine coming out soon though, which should expand greatly on the thinkscript capabilities.
Oanda is another trading platform that is java-based, so will run on all sorts of computers: Windows, Mac, Linux and more. The trading program itself is no where near as feature-rich as ThinkOrSwim, but I like it for its simplicity, speed and ease of use. It doesn’t have its own automation system built into the trading platform as such, but it does have an Application Programming Interface (API) available for a fairly hefty fee ($600/month). The API allows programmers to develop automated trading strategies in the language of their choosing (example: Java, C++ or .NET), which can then execute and manage trades with total flexibility. Oanda’s automated trading facilities are probably aimed more at corporations, brokers, hedge funds and money managers, rather than the average retail trader.
When it comes to automated forex trading, there are plenty of options available in terms of trading platforms and levels of automation. Automation can help a trader in many ways such as the ability to automatically monitor multiple markets or currency pairs, freeing the trader from staring at the trading screen looking for setups, and also removing the emotion from trading – thus improving discipline.
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