What makes a good trading algorithm and where to get one without breaking your budget
– In the right hands, algorithms can yield far higher profits than manual trading.
– Custom-coded algorithms can be expensive.
– Cost-efficient solutions include point-and-click algorithm (algo) builders and online courses.
Once you’ve tried algo trading on Forex, you’ll never want to go back to manual trading – as long as the algorithm is good, of course. What makes a good algorithm and where to get one without paying thousands? Read on to find out.
Many people take up Forex trading for the excitement: the rush of adrenaline and the joy of victory. The sad truth, though, is that when emotions take over, you lose money.
The only way to earn consistent profits as a trader is to have a clear strategy and stick to it. There are, however, two main issues with following a strategy manually:
1) The human factor. You’ll be tempted to stray from the strategy ‘just this once’ when you see what looks like a good trade opportunity.
2) Time. A good strategy brings results when you use each and every market opportunity. But since you physically can’t be in front of the screen 24/7, you’ll miss many of those opportunities.
A Forex trading algorithm is a piece of code (a program) that creates Forex signals and/or executes a trade whenever market conditions fit the rules you feed into it. Here’s an example:
– Buy an asset when the 50-day moving average crosses above the 200-day moving average and sell when the 50-day MA crosses below the 200-day MA.
Forex algorithms (you can call them robots) can be much more complex than that. Some use advanced Forex trading indicators, such as MACD and Bollinger bands, while others use fundamental data, such as GDP, consumer price index, and so forth.
Algo trading on the Forex market requires 5 elements to work well:
1) MT4 (MetaTrader 4), MT5, cTrader, or another platform to connect you to a broker that can provide data and execute trades.
2) Data that will be fed into the bot (usually current and past prices).
3) A set of rules: Your strategy in a structured form – when to buy or sell, stop-loss and take-profit settings, etc.
4) Code: someone has to write the code to turn your ideas into a computer program.
5) Backtesting: feeding past data into the algorithm to see how it performs. This is a key step before going live with your bot.
The honest answer is ‘it depends’. If your strategy is valid, following it through an algorithm can earn you more money than trading manually. Robots have three big advantages over human traders:
1) They always follow the strategy.
2) They don’t sleep, eat, or otherwise get distracted.
3) They are fast and precise.
On the other hand, no single Forex algorithm can work indefinitely. Any strategy or algorithm has to be adjusted when market conditions change.
Cost is another factor. To improve your finances with algo trading, you’ll need an algorithm that yields more money than you spend on it.
1) Strategy. This is the easier part because there are many resources where you can get inexpensive or even free trading systems:
– General FX blogs/sites: google ‘best forex trading strategies’ and you’ll find many useful pages.
– TradingView: the Algorithmic section contains hundreds of free ideas, plus some ready algo scripts. However, remember that their authors can easily be wrong, so better try their MT4 signals and ideas in demo mode first.
– Quantpedia: hundreds of strategies based on serious research, $299 for 3 months.
2) Code. This is harder but possible even on a small budget.
– Expensive: hire a programmer. That is what all the hedge funds do. However, be prepared to face mounting costs as every change to the bot will cost you extra.
– Cheap: use a point-and-click algorithm builder. Tools like Silicon Signals allow you to build an algorithm and create Forex signals without coding anything. There’s also an option to backtest your new robot.
– Cheap: code it yourself. It’s not as crazy of an idea as it first appears. You’ll need to learn some Python, Perl, R, or some other programming language, but coding is a highly useful skill and great for your CV. You can master it with the help of courses on online learning platforms.
If you are looking for ways to boost your income, algorithmic trading is definitely something you should try. However, don’t rush to spend hundreds or thousands of dollars on a professional developer.
Better invest some time into devising a good strategy and then create a trading bot – either using a no-code builder or writing your own algorithm. Even if you decide that Forex isn’t your thing, you will have gained incredibly useful knowledge and ultimately that’s what matters most.
Silicon Signals is a platform where you can set up your own Forex algorithms without writing a single line of code. Create signals within minutes, place trades with any broker, backtest, and alter the strategy as often as you like.
SILICON MARKETS EXPERT
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