♔ Introduction to Automated Forex Trading Strategy

Automated trading is a type of systematic trading that uses computer software and hardware to run trading continuously without human involvement. All automated trading systems are systematic, but not every systematic system is automated.

• Algorithmic trading is estimated to make up 75–90% of all trading activity in the Forex market

• All automated trading-strategies are systematic, but not all systematic trading strategies are automated

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🌐 The Global Arena

Forex trading is a global market where different types of traders compete. Intraday traders, day traders, swing traders, and carry traders all open positions with the same goal: to sell at a higher price. However, whether they sell at a higher or lower price, their expectations create demand, which in turn generates liquidity and trading volume in the foreign exchange market. This retail activity is only a small part of the overall foreign exchange market, which also includes transactions by central and commercial banks, hedge funds, large corporations, and others.

👉 Altogether, daily trading volume in the foreign exchange market is estimated to exceed US$7 trillion.

👉 It is estimated that retail traders make up only 1% of the aggregate Forex market volume.

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➡️ Basic Assumptions of Automated Trading

Liquidity and tight trade spreads make it possible to use automated trading systems in the Foreign Exchange market. An automated Forex trading system analyzes key market data, such as price and volume, to identify and trade short-term trends. By applying technical analysis, the system compares current demand and supply with historical price behavior to decide what and when to trade—without human intervention.

These are some basic assumptions for all automated trading systems:

• Past results have at least some predictive value {Sharpe 1994}

• Financial markets are not perfectly efficient

• Financial markets have limited depth

• Patterns in financial data exist, but usually only for short periods; a window of opportunity may open and later close

• Financial data are influenced by human psychology and social decisions, making them random and unstable

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⚙️Components of an Automated Signaling Machine

All automated systems include two main components:

□ The Forecasting Module

The forecasting module analyzes market dynamics, focusing on potential changes in demand and supply.

□ The Action Module

The action module carries out specific trading actions at a set price and time, with the ability to open, adjust, or close positions.

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⚛️ Main General Categories of Automated Forex Trading Strategies

Trading strategies can be classified by their trading logic and time horizon. Some popular categories of auto-trading strategies include:

• Trend Following – Following established market trends

• Breakout Trading – Trading significant breakouts when the price crosses key support or resistance levels

• Mean Reversion – Assuming exchange rates tend to revert to their historical average over a certain period

• Scalping – Exploiting small price movements (3–10 pips) by executing many trades within minutes

• Contrarian Trading – Using sentiment-based tools to trade against the overall market positioning

• Arbitrage – Taking advantage of small price differences across brokers or markets for the same Forex pair (effective when trading against dealing desks)

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🔁 Arbitrage

Arbitrage aims to make profits by taking advantage of price differences between brokers. This means buying an asset on Broker A while at the same time selling an equivalent asset on Broker B. Both positions are then closed after a short period. To make this practice profitable, you need advanced technology. In general, you need:

• A very powerful computer and ultra-fast internet connection

• Two different brokerage accounts

• Automated trading software that can instantly detect and trade price differences

👉 Arbitrage types include Spatial Arbitrage (across different brokers) and Triangular Arbitrage (exploiting cross-rate inconsistencies). Both require complex, ultra-low latency systems.

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💱 Automated Forex Trading with Forex Robots (Expert Advisors – EAs)

Using an Expert Advisor for automated Forex trading is a simple and cost-effective method.

In general, trading with an Expert Advisor requires:

(i) A trading account with an ECN/STP broker that fully allows automated trading and scalping

🔗 Compare ECN/STP brokers here: » https://tradingcenter.org/index.php/trade/forex/ecn-forex-brokers

(ii) A trading platform that enables automated trading, such as » MetaTrader-4, » MetaTrader-5, and » StrategyQuant

(iii) An Expert Advisor,

🔗 Find Expert Advisors here: » https://tradingcenter.org/index.php/trade/forex/expert-advisors

(iv) A VPS Hosting service

A VPS hosting service allows the EA to run 24/7 independently of your PC. Many Forex brokers provide free VPS hosting to traders who meet certain deposit and trading volume requirements.

Important advice when using EAs:

• Check the background of the team or programmers behind the Forex robot before buying

• Review past performance (at least 2 years)

• Backtest the software using historical data (when it is possible) and then test the Forex robot on a demo account before trading with real money

• Use the robot only on ECN/STP accounts that offer fast execution and tight spreads

• Keep manual and automated trading separate (open a dedicated account for your Forex EA)

Creating Custom Automated Forex Trading Strategies without Programming

For traders who want to build custom automated strategies but lack programming skills, there is an online tool with a user-friendly interface and a wide range of functions. EA Builder is a 100% web-based tool that creates automated trading strategies for MetaTrader 4, MetaTrader 5, and TradeStation. It is suitable for all levels of trading experience, including beginners.

• Free for creating indicators; $97 USD one-time payment for creating EAs

• Hundreds of built-in functions (technical analysis and money management)

• Works across all asset classes (Forex, Equities, Commodities, etc.)

• Produces a compiled file ready to use in MetaTrader 4, MetaTrader 5, and TradeStation

• Includes customer support and many video tutorials

🔗 Website: » EA Builder Web App for Building Custom Automated Systems

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🏁 Final Verdict

Automated Forex trading is complex and requires significant trading experience or a professional background. You can purchase and use a commercial auto-trading system (Expert Advisor); however, creating your own custom trading system is generally a more sophisticated approach. In any case, the results and performance of any automated trading system should be evaluated over at least one year.

👉 Data quality is critical, as any auto-trading system requires reliable, low-latency market feeds

👉 Every automated strategy must include strict money management (stop-loss orders, position sizing rules, and take-profit levels)

Key steps and considerations when planning to implement an automated trading strategy:

√ The first step is to choose an automated strategy that matches your trading profile and available capital.

√ The next step involves extensive backtesting and strategy optimization on the financial markets of interest.

√ In the case of an Expert Advisor, testing the software on a demo account is a necessary step.

√ Choosing the right Forex broker is also essential, with fast order execution and tight spreads being top priorities.

 

■ Automated Forex Trading Strategies

George M. Protonotarios for TradingCenter.org (c)