It is a common knowledge that various algorithms run our lives. In this sense, FOREX trading is no exception. The trading algorithm is simply a list of all necessary steps to be taken in the course of trading in a certain sequence and in different market scenarios.
Forex trading is an emotional rollercoaster, since it is associated with a risk of losing all of the money, so experienced traders recommend writing down the trader algorithm so that you can flip it open and thumb through it whenever needed.
So, if you face a streak of unprofitable trades, you can use your algorithm to see if you are doing everything according to the plan and no longer worry too about it. If not, you need to pinpoint a mistake that resulted in losses and correct it promptly.
1. How to develop a trading algorithm
2. Advantages offered by algorithm-based trading
3. Pitfalls of trading without trading algorithm
How to develop a trading algorithm
A lot of newbie traders have a false belief that writing the trading algorithm is just like a snap of a finger. Some believe that they can easily remember everything and so there’s no point in writing the algorithm.
That being said, it is important to keep in mind that the trader's algorithm should factor in every smallest detail, since your trading success directly depends on it.
The forex trader’s algorithm has to be individually customized to suit the needs of each trader, since it contains specific trading strategy, leverage size, daily routine, risk management system and preferred currency pairs.
This is why, you cannot simply borrow someone else's algorithm and apply it in your Forex trading. The experience has proven that writing the trader’s algorithm is not easy, even if you have got a trading strategy that works well.
More often than not, the algorithm needs to be revised several times, since vital details that were not taken into account previously may come up later on. Once the Forex algorithm has been written down, read it once more just to make sure that you have not missed anything.
Advantages offered by algorithm-based trading
Since the algorithm takes into account every subtle aspect of trading, it protects the trader against mistakes which may cost a fortune.
On top of that, the trader's algorithm allows reducing the emotional impact of the market exponentially, since you can always grab your handy trading algorithm and go through it to figure out what to do in a certain market situation.
When using the trading algorithm, there are two key issues, namely:
- working out the trading algorithm itself, having taken into account the trading strategy, risks, your daily schedule and other key nuances;
- building an iron discipline to be able to stick to the algorithm.
While the second aspect is something that every trader needs to work on him or herself, writing the forex algorithm can be extremely difficult, requiring certain knowledge and trading skills in order to know and understand the price behavior in particular situation and how you can benefit from it.
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Pitfalls of trading without trading algorithm
Newbie traders often believe that remembering the trading strategy is enough and they don’t really need the Forex algorithm. But take a look at it this way. Let’s say, a trader has a strategy, yet trades without the algorithm.
When he or she makes a steady profit, everything looks great, however, sooner or later there will come the losses.
This is when the panic hits, and the trader starts opening positions without sticking to own strategy which in turn leads to even greater losses and may eventually result in a loss of the entire deposit.
On the flipside, when you have the algorithm at the ready, you can always go through it and figure out whether everything was done correctly and if the market didn’t let you profit or whether you made a mistake.
In this scenario, you won’t have a meltdown and will continue trading with a cool head.
Algorithm Developer brought to you by Gerchik & Co is a perfect go-to for every newbie trader!
To help beginners work out own solid algorithm, Gerchik & Co has come up with Algorithm Developer, a special free-of-charge solution. In order to use it, the trader needs to provide the answers to various elaborative question and some data relating to his or her trading system etc.
Once the answers are received and the result is processed, the ready-to-use algorithm will be sent to the email address indicated by you.
With this solution, the newbie traders, who are unable to factor in every detail of Forex trading, can easily create their own trading algorithm. Essentially, they will just have to stick to whatever is going to be outlined in the algorithm.
To consolidate the material, see the video below!
What to know:
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