Some traders think that trading automation means that they have to create a trading robot that handles of all of their trading.
It identifies the setup, enters the trade and manages the exits.
This is pretty damn appealing at first and you are probably thinking that this is something that you want to try. I don't blame you, it appealed to me at one point. It still does, to a certain extent.
Making money while you sleep is the ultimate business.
But creating a trading robot is like getting married in Vegas while you are drunk. It always sounds like a good idea in the beginning, but it ends up being much more complicated than you think.
When you get down to creating a fully automated robot, it's actually pretty scary. If you don't know programming, you will either have to learn, or put your faith in a developer.
Most people opt for a developer, I sure do.
To find a programmer that fits your needs, and budget, see our guide to finding a great programmer. At the end of the blog post is also a list of programmers that I recommend.
Before you find a developer however, you will need to quantify your trading system so that a computer can understand it. Something that may be obvious to the human eye, may actually be really hard to define to a programmer.
Take pin bars for example:
- What is the ideal ratio of wick-to-body?
- How long should the total length of the candle be?
- Should it be a up or down candle?
- Where should the pin bar print in relation to previous price action?
…and that's not even getting to the entries and exits yet.
Even if you find the best developer in the world, there can still be bugs that can blow out your entire account.
So a fully automated system should be tested thoroughly before trading it with live money.
Not The Only Way
While this is one type of trading automation, it is not the only way. Don't get me wrong, fully automated trading can work if you know what you are doing.
Like any other trading method however, it has to fit your personality and skill set. I honestly believe that only a small percentage of traders are cut out to be fully automated.
But what about the rest of us? Is there any way that almost any trader can get the benefits of fully automated trading without having to battle the fully automated beast?
The answer is yes.
I call it Incremental Automation. This post will explore the concept of Incremental Automation in Forex trading.
I will show you how to start simple and take your trading from partially automated, to full automation.
…if fully automated works for you.
The great thing is that even partially automated trading can provide tremendous benefits.
When This Works
This will only work when the method you are trading has defined entry, management or exit signals.
They don't all have to be clearly defined, but the ones that will be automated need to be. Even if you are trading a very discretionary system however, Incremental Automation may still work for you.
Incremental Automation Defined
So what is Incremental Automation and how does it work?
It is simply the process of automating parts of a trading system and adding as many automated components as possible, until you reach the Maximum Automation Point (MAP).
The MAP could just be automating your entry signal with an indicator. You could also have a robot only handle your exits.
The degree to which you automate is up to you and will depend on your trading method.
The Simplest Forms Of Automation
Let's start with a couple of things that you can do right now. The first thing is to create price level alerts.
You can begin by setting an alert when the price of a currency pair hits a historical high or low. These areas can be major turning points in a currency pair.
Since most people use Metatrader, I'll use that as an example. To setup a price level alert in MT4, click on the Terminal icon, then click on the Alerts tab. Then right-click on the alerts window and click Create from the menu.
Then setup the type of alert that you want and the price at which you want to be alerted. Text message alerts and push notifications are the easiest way to get notified when you are on the go.
Before you start relying on the alert, be sure to test it out. For more information on how this works check out the MQL4 documentation.
Many mobile apps also have this capability. Here is what it looks like on the Oanda iPhone app:
You might forget that limit and stop entry orders are also forms of trading automation. Set your entry levels beforehand and you don't have to worry about watching the trades closely.
The only thing that you do have to worry about is canceling pending orders if they are no longer valid.
Automation Through Indicators
If you need to get more complex alerts, custom indicators are the next step in the Incremental Automation process. They provide you with more flexibility than simple price alerts, but they do not take the extra step of actually executing trades.
This is as far as most independent traders will need to go. Using custom indicators with built-in alerts can greatly reduce the number of trades that you miss.
In order to create your first custom indicator, be sure look around for a programmer who has a good reputation and can create what you need at an affordable price.
You can also look around the MQL4 Source Code Library to see if there are any existing solutions that you can use. Remember to thoroughly test any indicator that you use.
Indicators may not be as dangerous as Expert Advisers because they do not execute trades, but there can still be bugs. Monitor your indicators closely for a few weeks to uncover any flaws.
Automation Through Expert Advisors (EAs)
If you have been able to automate your trading signals, now it might be time to start automating your entries and exits. Just like with the rest of this process, you can choose the degree to which you automate.
You may want to enter trades manually, but have an EA exit the trades for you. Or you might want the EA to manage moving your stop.
Whatever the case may be, EAs do not have to be used to completely automate your trading.
Consider how you can automate pieces of your system and incrementally get to a level of automation that you are comfortable with.
Fully automated trading isn't for everyone.
But you can still benefit from using automation in pieces.
I hope that this post has helped you look at automation a little differently.
When used correctly, it can help you spend less time in front of the screens. It can also help you diversify your trading strategies and trade multiple systems at the same time.