February 10, 2014

Choosing An Automated FX Trading System


It is common for new forex traders to become attracted to the prospect of using automated FX trading systems. Usually, this desire is a result of difficulties in the forex market in the form of not enough profits or even lack of enough time to completely master techniques.

In fact, some traders even choose to base their presence in the forex market on automated FX trading systems. They start using various systems on various terminals and their skill becomes their ability to choose the right system and monitor it properly. Selection, as is obvious, is important and here is a list of things that you should consider to ensure the right choice.

Success Rate

There are two ways through which you can assess an automated FX trading system but the best thing to do is to use both of these ways. The first is to check the success rate of the system which basically means how many times it wins in comparison to its losing trades. You should try to take out a success percentage of the system you are considering.

Profit Potential

The other way to check the quality of an automated FX trading system is to evaluate its profit potential. Profit potential is basically the amount of money the system ends up making after a certain period of time.

It can also be seen as account growth potential. While profit potential and success rate are two independent aspects, if both of them are good then the system will bring in consistent profits for you.

Historical Drawdowns

There are other things to consider while choosing an FX trading system as well. You should never choose a system without considering its maximum drawdowns. Drawdown is the maximum amount of money that the system can end up losing before bouncing back. You must make sure that your risk capital can absorb this drawdown before depleting too much.

Sustainability Over Time

You should never plan for changing an automated FX trading system repeatedly. This is neither efficient nor profitable for you in the long run. Instead, you should look for systems which are sustainable i.e. able to operate through changing market conditions for a considerable amount of time before becoming redundant.

Versatility And Programmability

There are rigid automated FX trading systems and flexible systems. The latter are more desirable because they never become redundant as the market conditions change.
Because these types of systems are versatile and offer programming options, they can be modified to cope with changes in the market conditions as and when they happen.

The Need To Monitor Remains Paramount

There is no way that you can rely on any automated FX trading system indefinitely, regardless of how successful and consistent it is. Sooner or later, every system will be rendered obsolete by the market. The dynamic nature of the forex market makes this factor inescapable.

This is why automated systems need to be monitored constantly. By monitoring them constantly, you can make a decision to switch over to other systems or modify them to reflect the new market conditions.



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