Not long ago, fx trading software (a.k.a forex robots, automatic forex systems etc.) were developed and used by the “big dogs” in the forex market – huge financial institutes who trade with tens of millions of dollars each day. These giant market players invested quite a lot in developing Artificial Intelligence (A.I) trading systems that can scan the market and place trades in an un-human speed and accuracy. It is true that long-term currency positions are analyzed by humans, but for this kind of trading there is no need to be fast anyway because timing is not that relevant. However, timing and speed do matter when trading short-term or even intra-day charts.
The shorter the time frame, the bigger the advantage a fx trading software has over manual trading. A good example for this un-fair advantage is the arbitrage. Arbitrage is “the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the direct and indirect prices”. Indeed, the one thing that can be true for manual trading is that the profit is proportional to the number of trades taken – and the number of trades taken is influenced by the speed of the trader. On the other hand, when trading with a trading system, the speed of entry and exit, as well as the amount of money risked on each trade are dependent on the size of the account. The speed of entry, for example, is heavily dependent on the size of the account. Essentially, it is the volume of the deal taken by the trader. Though the speed of entry seems to be the most important aspect of a trading system, the one thing that is less understood is the long-term trading method. Indeed, it is only when you start trading that you realize how much important the long-term trading method is.
The practice of catching and holding the short-term trends plays an enormous role in the success of a trader. Holding the trends is not easy, however, when you trade against the trend. The best way to trade the short-term trends is to “fence out” the day’s trend, so to speak, and then wait for the next day. When you trade the short-term trends you can do this dozens of times a day and the odds will eventually favour you. By trailing a stop the risk of a trend going against you is greatly reduced. In addition, by using trendlines, you can more accurately depict the resistance and support of the trendline you are using.
“Fence out” days are obviously not mathematically algorithmic system. Often times, traders are quite moody and do not trust their eyes quite as much. This is especially the case when watching a reversal of a trend that seems to lack momentum. nevertheless, you can use your common sense, good judgment, and look at the parameters of your strategy to gauge the scope of the trend. When thinking about money management, you must always consider the risk versus the reward. Trading programs will often tell you when you should take a profit and when you should allow for more losses.
You should not, however, allow for more losses than are inevitable. Allow for a risk to reward ratio of 3:1 for large wins and 1:2 for small losses.
FX trading may be a very lucrative profession if you pay attention to what needs to be done. It is no get rich quick scheme. If you are serious in your FX trading career, you should devote time towards developing a strategy that suits your personality and regiment. I have heard that “solders buildCompanies, but managers control companies.” Very true. Very often, “solders build companies, but managers manage them.” So, don’t let the industry use robots to trade for you because this will not bring about the desired results. Do your homework and, when you have done so, you can be a success.
