How do Forex Automated Systems Work?

If you are going to trade Forex, sooner or later you will hear about automated Forex systems. They are also called “robots”, “expert advisors”, and “auto traders”. No matter what you call them, they all operate in a similar manner. While the exact technical set ups will vary from system to system, the operation of them will essentially be the same.
You will download and install the system to your Forex trading platform, and set up should only be a couple of steps. The basic premise of these things is that they are essentially an “add on” to your trading platform. This allows for easy installation, and uninstalling is just as simple. Because of this, many traders will actually have several different systems that they use in a variety of market environments.
The systems will fall into two basic categories: automatic and semi-automatic. The automatic ones will place trades for you, without any input from you at all. The semi-automatic ones will simply give you a signal or suggestion as to which way to trade a particular currency pair.

The automatic one will simply buy or sell based upon a sometimes complex mathematical formula that tells the computer when it is time to enter or exit the trade. The automated system simply does all of the work for you. It is very common for these systems to have a hidden proprietary algorithm that you never see in order to make these decisions. The one thing they will all have in common is that they are all mathematically based. Hiding the algorithm is just a simple way of protecting their intellectual property.
The semi-automatic system offered by Forex automatedtraders will simply let you know when it gets a signal to buy or sell. The system will still have that hidden algorithm that you won’t see, but instead of placing the trade you will often see some kind of pop up alert when it is time to trade. You can then choose as to whether or not you want to trade the signal, allowing greater flexibility for the trader.
Auto Trading MT4

The majority of these systems are made for the MetaTrader 4 platform as it is by far the most popular one out there. There are systems made for other platforms such as GFT’s DealBook 360, NinjaTrader, TradeStation, and many others. However, you will find an almost unending supply of them for the MT4 platform as even the brokers that use other platforms will often offer MT4 as well.
The better Forex automated systems will come with a money back guarantee, normally through some kind of ClickBank vendor account. Because of this you should be able to feel somewhat comfortable with the software as your money can be refunded. However, it is recommended that you try a new system out on a demo account just to make sure it performs up to your standards. Like anything else, there will be some that are better than others and your mileage may vary so to speak.
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How Forex Connects to Other Markets

One of the most commonly overlooked places that a trader can find information as to the future direction of a Forex pair is in various financial markets around the world. Most Forex traders will simply stare at the currency pairs, completely oblivious to the world around them and the fact that it takes various reasons to move that money from one international border to another.
This is a very common problem with Forex traders, as they are brought into this world under the assumption that Forex is where all of their money will be made. They are often enticed by the fact that Forex offers the most leverage, and is supposed to be the most "simple" market out there. Because of this, they miss a lot of the more obvious signals that professionals around the world pay keen attention to.
By knowing some correlations, you can often see signals and other markets before you see them on your Forex terminal. As an example, the gold market is often either predictive more reactive of the Australian dollars moves. This is simply because Australia exports massive amounts of gold. If you think about it, it makes sense as companies will have to pay these Australian miners in Australian dollars. So as gold rises, as a general rule over time the Australian dollar will as well.
Another market the trader should pay attention to is the crude oil market. The futures market for crude can often have a massive effect on the Canadian dollar. This is because Canada exports so much crude oil to the rest of the world, with a special emphasis on the United States. Because of this, as the price of oil rises the value of the USD/CAD pair will fall - which of course signifies strengthen the Canadian currency. This is a double whammy of fact, has the oil markets are priced in dollars. So as the value of the US dollar falls, it will take more of them to buy those barrels of oil.
Quite often, the yen base pairs are a good proxy for risk. In other words, as the world's markets rise in value - which of course signals that traders are feeling like taking risk, the value the yen typically falls. The main reason for this is that a lot of large institutions will borrow their funding in Japanese yen, and invest abroad in countries that have higher rates of return. As these institutions feel more nervous about the markets, they will often bring money back to Japan in order to pay off these short-term loans. This is essentially what the so-called "carry trade" was about.
By knowing a couple of these correlations, you can often see an anomaly in one market ahead of the other one. For example, if you see gold breaking through resistance, there is a very good chance that you will see a rise in the value of the Australian dollar. Or perhaps you see crude oil falling in price. As it breaks through support, the US dollar will typically rise in value over the Canadian dollar. As you can see, these are trading signals in and of themselves but rather a good way to get a "heads up" on where to be looking for trade setups in the currency markets.
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Forex Trading and Small Profits

If there is one thing that characterizes the Forex market and even differentiates it from other financial markets, it is the constant promise of wealth being issued to Forex traders by the brokers. In fact, these promises not only separate the Forex market, they actually cause damage to the image of the entire market. 

While the potential for great wealth is very much present, the current statistics indicate that a very high percentage of traders actually end up losing their money. This, of course, does not stop the brokers from making false promises, and it is the trader’s responsibility to take it all with a grain of salt. 

There are endless tools and resources available to traders that will assist them in achieving Forex success, or better yet, in avoiding Forex failure. Such resources include online and offline articles, Forex news, Forex market analysis, trading strategies, money management, and much more.

In this specific article, we are going to focus on one aspect of Forex trading, that when followed, can become the difference between complete failure and ultimate success in Forex trading.


Measuring Your Risk

The big question Forex traders ask is how much to risk? Let’s say, for example, there is a big announcement that day, and a trader is convinced the market will respond a certain way. The trader does their necessary research, and concludes that there is a lot of money to be made from this Forex position.

Now the question arises, should that trader leverage the position with a high leverage of 400:1 or more? Perhaps, they should risk their entire account on this one trade, since the higher the risk, the more potential for profit?

The answer is an across-the-board no. Experts all agree that a crucial part of Forex trading is effective account management. You might be sure that this trade will be a successful one, and you might be tempted to put all your eggs into this one basket, but it is not a good idea. In fact, even if you are right about this one trade, and you end up kicking yourself that you did not go in heavier, trading with lower risk will ultimately make you a better trader.


Looking at Leverage

The one thing that most brokers forget to mention is that Forex leverage, in addition to raising the bar for potential profit, also brings with it more risk accordingly. The higher the leverage, the higher the potential profit, but do not forget that the risk also goes up.

Think of leverage as a mortgage. You are in essence trading the broker’s money, and if you lose the trade, you lose more since your trade was that much bigger thanks to the broker’s loan. 

The recommended percentage is to risk 2% of your entire trading account per trade. That way, even when you lose, and you will lose, we all do, you can carry on trading with the rest of your account, which was not wiped out by this one loss.
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Why Your Forex Mindset Matters

If you have been studying the Forex market, you most likely know that it is the largest financial market on the globe, by far. You also probably know that anyone can trade Forex, but not without risks. If you have spent some serious time studying Forex, you most definitely heard different experts tell you that before risking money in Forex, you need to do a lot of mental and psychological preparation.

Before trading Forex, all experts will advise you to get to know yourself well in high pressured situations. They will also suggest you formulate a thorough trading strategy and money management skills. Lastly, they will recommend that you gain complete control of your emotions in order to disqualify them as any sort of factor in your future Forex decisions.


Forex Experts' Consensus and Questions

There is a wide consensus among the majority of Forex experts about the above principles. While these experts do not agree about the best type of analysis, the most advanced Forex trading platform, or the best currency pair to trade, most of them agree that you need a specific mindset in place in order to achieve true Forex success. 

The obvious question is why? If all you are doing is trading the Forex market, why are your thoughts and feelings even being discussed? How are they relevant to your success as a Forex trader? Is it not possible to succeed without these prerequisites?

The answer is that your thoughts and emotions are very much involved in your future success or failure in Forex. The following is a list of reasons every trader should train their minds and hearts before trading Forex.

• Lower the Pressure: It is no secret that a relaxed trader is a better trader. If you can take your losses without letting it get you down, you will most likely trade more professionally and less based on your weak human tendencies. 

 Don’t Overtrade: If you have complete control over your emotions, than greed will not become your guiding light in your trading. What this will prevent is the need to overtrade as a result of losses you experience.

• Keep up the Motivation: I am sure you do not need to be told of the importance of motivation. A direct correlation between high motivation and success has been proven time and time again. If you control your emotion when trading Forex, you will not allow your losses to bring you down and will therefore maintain a higher motivation, which will eventually translate into dollars and cents.

• Recognize Spammers: In the previous points, we focused on emotions, but this point is more relevant to mental training. If you prepare your Forex knowledge before trading, ie study the market and become familiar with the ins and outs of Forex trading, this will help you recognize Forex scammers as opposed to real Forex services. In reality, this requires you train your mind and heart because if you immobilize your emotions, the various promises being thrown at you by brokers will have no effect on you, and your familiarity of the market will enable you to separate the real services from the scams.
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Overrated Broker Features

When choosing a Forex broker it is quite common to look into all of the features that are available, as it should directly affect your purchase decision. While this makes sense as a consumer, some of the features can be unnecessary, and quite frankly “fluff”.

One of the biggest overrated features that is commonly found is something called AutoChartist. This piece of software will randomly pick out technical patterns on the chart, bringing them to your attention. In theory, it is a great idea. But the reality is that by using this piece of software, you are doing nothing to advance your knowledge as a trader. There is no point in trying to trade the Forex if you are not willing to learn it.

Another big problem with this piece of software is that it will often give technical patterns that are suspicious by nature. For example, a pennant pattern on the five-minute chart is hardly anything to be concerned with. While it will show the pennant pattern on the weekly chart as well, the truth is that it shows far too many low grade patterns as the software seems to be lacking filters to keep out some of the less noteworthy technical setups.

Other Things to Consider

Forums are a complete waste of time when it comes to your Forex broker. Most of the forum chat that you will see on these boards tends to be of the "troll" variety. In other words, it is just a bunch of people flaming each other on the Internet. At best, you will have a bunch of unknowing people trying to convince you that their trade setup is the right one, even though they have no idea what they're doing. At worst, it becomes much like grade school with all of the insults and name-calling.

Analysis can be overrated at times. It really comes down to the particular analyst that the firm hires. Most of the well-known analysts are working for the larger brokerage houses. Quite often these are well respected analyst, but the smaller broker may hire somebody who doesn't necessarily know what they're doing. One of the biggest tells for a suspicious analyst is if they focus mainly on the short time frames. If the analyst tends to show a lot of five, 15, and one hour charts, it is very likely that they are they are simply to get you to trade more, thus parting with your money quicker.

One of the most common wastes of time that you will find with Forex brokers is the Dow Jones newsfeed in yourMetatrader4 platform. While the content of the news is certainly acceptable and professional, by the time you get that news on the platform, it is already affected the markets and now becomes useless. It is almost impossible to compete with brokerage firms that are using Bloomberg terminals and T-1 connections for their news services.

While not all of these services are harmful, they are necessarily a reason to open an account with a specific Forex broker. You will find that most Forex brokers are essentially the same, and offer very identical packages. To be honest, the industry just isn't that innovative. By focusing on what truly matters to you specifically, you will find that you aren’t sucked into a Forex broker based upon “empty calories”.
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