If you’re a “newbie” to forex trading beware the ‘make thousands a year with 2 hours work a week!’ – run a mile and keep going. If you want to make money you have to invest both time and money into being successful no matter what you do. Automated forex trading systems can make you money – but only the right system in the right hands is the key. Read on and I’ll expand on this later in the article.
There’s no such thing as fully automatic – especially in forex!
First of all, to end the confusion about ‘automated’ meaning ‘hands-off’, ’set and leave’ is rubbish. These systems work on ’signals’ a simple explanation of the mechanics of the process follows.
How the systems actually work.
The signal is arrived at in two ways, by Chart and by Mathematics. The signal is provided via a market feed into a program which firstly analyses the data into real time data sets and then ‘charts’ this data. The information is then ‘formatted’ and presented say for example in Japanese candlestick format. The program then has built in parameters which extrapolates (puts information on top of other information) other historical information and then ‘voila’ you have what is termed as a SMA (simple moving average). I have identified this factor (one of many) as it is easy to understand and replicate yourself (if you have the time and the patience). Where moving averages intersect and diverge gives a buy/sell signal. An automated trading system will recognize this and then transact for you. The result is either a profit or a loss. More ‘complicated’ signals are often used which extrapolate ratios like Fibonacci ratios and this is where things become a little more mathematical.
These systems should be as ‘Tools only’!
The key to understanding this type of ‘tool’ because that is really what it is a trading tool, is that it is not a set and forget it business in a box. If you look at it in such terms you will lose your deposit!
The way many of these automated systems are marketed is nothing short of a scam simply because – to get a sale many of the providers mislead customers into thinking that because it’s automated that it’s guaranteed to make them money. I would say that close to 80% of purchasers of these systems are inadequately ‘qualified’ to apply them. What do I mean by qualified? Qualified individuals tend to be Traders who have knowledge, experience and some profitable experience already behind them.
Let me explain why this is so. Nearly all, potentially profitable automated trading systems require, you the user, to input the parameters for the software to analyse and provide the signal to you. We haven’t got to the stage yet of a computer that thinks like a human – so you have to provide the input for ‘it’ to make its decisions. This is why you need a thorough understanding of charts, in particular patterns,moving averages, support and resistance levels, stochastics etc the list goes on and on. Think about it – if you don’t know what to put in to get your results that you want i.e. profits – how’s a program going to know?
Some forex traders do make money using these systems!
Many of these programs are quite sophisticated pieces of kit and will work in the right hands. The top 10% of traders that make the money ‘do’ use automated forex trading systems from time to time – more often than not to place take profit and stop loss orders – but these guys know what they’re doing – they have experience and knowledge gained through failure as much as success. The famous saying to apply here is ‘Learn and Earn’.
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Peter Burke MBA has been writing Journals and Articles for academic publications for over 7 years and is Managing Director of a Consulting Company in the United Kingdom.
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