You should have your Forex trading strategy description – even if you trade manually. And if you do auto trading, it is a must.
It is safe to say that the majority of amateur traders use Expert Advisors (EA) for automated trading. Why? Because it is a convenient way to interface the market via Metatrader trading terminal. And it is free.
What is EA exactly? It is essentially just a computer program, written in a proprietary language that is very similar to very popular C++, which is not the easiest thing to learn.
However, not all of us are computer programmers. And not all of us even want to master programming in a quite complicated language – just to be able to do the Forex trading strategy description ourselves.
Let’s also look at it this way. A lot of coding skills is needed essentially to program 2 relatively simple things.
decide when to enter the market
decide when to exit the market
You might say that we may also need to decide how much to buy / sell. We can argue that, at least in trading strategy testing, this is already a secondary priority. Any risk management won’t compensate for wrong entry or exit decisions.
Using this simple approach, we can understand that the best Forex trading strategy description should not need to be programmed each and every time.
Instead, we can just use a simple logical blocks to be able to define our strategy . The idea is that an average person – who is just able to think logically, but not having any programming skills – can understand it easily.
That said, of course, we need to develop the blocks themselves. But it’s one-off effort and you don’t have to do it yourself.
It’s like Lego – you don’t have to create the blocks yourself – just use them.
This is the approach that we used in our Smart Strategy Tester from the very beginning. The 0.9.x series used state machines for trading strategy description.
The all-new Tester 1.0 will bring it to the new level. It provides C++ environment, that we can use to program a trading strategy. But in the next releases it will also provide the way to program and use the blocks discussed above.
The benefits of automation are obvious – you are not chained to your computer and it gives you much less stress. To say nothing of the fact that a computer reacts to opportunities and executes trades way faster and better than you.
The downside of trading automation is also obvious. It is not that easy to develop an algorithm that fully replaces you in all sitiuations.
A question: why can’t we take the best of both worlds?
We tried it with our latest Smart Forex Tester 1.0 software. It has an option to manually override when an automated trading strategy is being run.
Trading automation was represented by a simple strategy that uses 3 RSI of different time frames to enter or exit the market, This strategy obviously only works well when the market is not trending.
For the calm markets, a typical situation where manual control was needed was around the peaks. There was usually a great deal of see-sawing there. And it was not clear whether a peak will hold.
Even such simple algorithm as we used could enter the market well. But fixing the profit was more efficient and easier manually. You could take less risk and if it was not sure the market goes where expected, you usually had a chance to close the trade with a small profit during the see-sawing. Or even small loss was a better option in an uncertain case than relying on a fixed automated stop-loss.
However, the main benefit of the manual control was during the beginning of the trends. Our simple 3 RSI algorithm works very badly on trending market. It will persistently try to enter the market in the direction opposite to the trend and will be stopped out a lot of times.
But even with such a simple system, you can still be successful. Once you notice a trend starting, you can disable the automated strategy and manually take a position in the direction of the trend and just hold it. When the trend is exhausted, you can return the control to the trading atomation.
UPDATE 12/27/2016: Smart Forex Tester 1.0 is available!
This article is deprecated! Expert Advisor (EA) testing as the source (MQ4) code is now possible with Smart Forex Tester – both on historical data and on live streaming prices.
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Expert Advisor (EA) testing is possible with Smart Forex Tester, which is planned to be published between Christmas and New Year.
The release 1.0 will use a new platform (similar to that used by the Forex Simulator). The EA testing will be possible both on historical data and on live streaming prices.
The release will be of a prototype level; the main focus of it will be on the integration of EA testing functionality to the new tester framework. Therefore it will support a limited number of indicators and trading functions, and the GUI functionality will be limited as well.
Expert advisors will be tested as the source (MQ4) code. In the initial releases, the main focus in the EA testing will be on the feasibility of Forex trading strategies. Meaning that the highest development priority will get the EA functionality that is responsible for programming the market entry and exit decisions.
The trading features will be implemented reusing the same state machine mechanizm currently supported in the Tester. But this will be made transparent for the EA testing module – by middleware. This layer will be receiving new ticks from the Tester engine and translating trading commands rom EA into the states of the tradiing state machine.
In the next releases, when the core features in the new framework are ready and software is stable enough, more EA functions will be supported. Also the GUI functionality will be brought to the level currently available in the Tester (zoom, mouse operations, etc).
Subscribe and download current release of Smart Forex Tester to be updated automatically.
Indicators seem to predict the Forex market at times. However, it’s difficult to turn this into profit.
A typical example of that is overbought conditions in oscillators. So, if the RSI is already very high (over 80), this condition points to reversal. But the problem is in timing. If you followed markets for some time, you know that such powerful trend can go on and on.
Siimilar situation is with Elliot waves. Even though we might have a very clear impulse wave pattern, the moment of reversal is hard to pinpoint. It is known that 5th waves can quite often be extended.
So basing the trading on indicators is difficult. In addition, the indicators are widely known, so a lot of traders might wait for the same event. And it is known that when market is commonly expected to go in some direction, it quite often behaves completely differently.
The only sure thing we can predict in the Forex market is that there will be ups and downs. Regardless of the market direction. Ups must be followed by downs and so on. This comes from the nature of the market – price discovery process.
The shorter is the timeframe, the better your timing can be. But if you try timing on e.g. M30 graph, you might lose hundreds of pips before the reversal occurs.
On the other hand, using the tick graph, even if you can time the reversal, you can’t tell the big picture. The pivot point can just be a local extreme.
In our opinion, the only way to tackle this is to react very quickly by generating pivot points signals on the tick graph and then use them to predict the action on longer timeframes.
You will never predict all market movements but you might be lucky more often than unlucky. You just need to be faster than others.
Many try to act only when market starts moving in a certain direction. This is already late. Here automated algorithms are the only way to go.
Trading manually, you can’t react as fast and – most importantly – equally error free for long time. To say nothing of the natural needs to do breaks.
We are developing the price actions algorithms that can be used for trading automation. We based them on our own pivot points detection algorithm. The figure below show the sample results of the detection in real-time.
Predict the Forex market? Pivot Points
You can try it with our Pivot Points Analyzer software (free download).
Forex trading practice with specialized simulation software is much more efficient than using a regular demo account.
The most important advantage of the Simulator is that it saves you a lot of time.
Why it is possible. There is internal redundancy in the markets: not all the time you spend there is equally valuable. The periods of “dead” markets can take a substantial share of time, but they add very little value (if any!) to your practice.
The Simulator can reduce this redundancy. You can choose to skip the useless time and only practice when there is action! Which is impossible on a demo account: you have to always spend all the time.
Offline Forex Trading Practice
How it is working. In Offline mode (principally unavailable on a demo account), the Simulator has pause/resume functionality and provides the data feed speed controls. The same is possible in Online mode, with the Timeshift feature – the Simulator lets you pause the live data stream.
When you resume, you can increase the data speed if the market situation justifies that. In a way, you can “squeeze the air out” of the slow moving markets. Which is nothing else than time saving.
This is absolutely a must-read book on trading Forex. It only concentrates on essential and is pleasure to read.
The author has been working as a professional trader over 20 years and he made all of these years profitable. And he assures he has never traded more than 15 minutes a day.
He shares the approaches that was working for him or for other great traders. Repeating his techniques is no problem as enough details is provided.
Each chapter has concrete recommendations for implementing a strategy or making trading decisions. He favors position trading. But he also shared 3 proven day trading techniques.
He also gives 3 main reasons why people lose trading Forex and discusses in detail how to do risk analysis and optimize risk/rewards ratio.
During your online trading practice on Forex (e.g. with a Demo-account), you need to be careful about how efficiently you use your time. Unfortunately, it is very easy to waste a lot of time in the market.
One of the reasons for that is that the market might be moving really slow. E.g. in Asian sessions, it is not uncommon for the price quotes to come more than 1 min after each other. But even if this is not the case, still the markets can tread water for quite a while.
The example on the below graph shows a market movement of less than 30 pips in EURUSD. This rather unimpressive action took more than 2.5 hours and well over 15,000 ticks to develop.
Online trading practice can waste much time
And if you look at the picture more closely, you can notice that you would practically have wasted the second half of this time.
The Forex Simulator will help you use your time much more efficiently – and save a lot of it!
First of all, the Simulator overcomes the main problem of online trading practice with a Demo account. Namely, it can only be used when trading is active. But live data feed is not available when we would like to practice the most: during the weekends.
With the Simulator, you can practice any time you like. Using offline simulation mode, you get your own “24/7 demo account”.
And last but not least – quite unexpectedly – the Simulator can offer great time savings in online trading practice, as well! With the latest and the most innovative functionality – Timeshift – you can pause the data feed in real-time and later playback at the most adequate speed and squeeze the slow moving market many fold.
Our Forex Simulator development is continuing at full speed. The major new feature of the next release will be Timeshift, which makes it possible to pause/resume online simulation.
This simple example shows you how Timeshift saves your time.
You are at the airport waiting for your flight. You don’t want this time wasted, so you are practing with the online simulation. Now your flight is boarding. While you know it will take some time, still you can’t concentrate properly. Or your colleague invites you to have a drink while waiting.
Here is where the Timeshift comes in. You don’t stop your practice – you just pause it. It might take a while before you will have to eventually turn off your Internet connection. All this time the Simulator will continue receiving the market data.
Later, during the flight, when you have time, you will resume your practice. The Simulator will use the recorded price data. This way, you will get back the time that would have been wasted if you didn’t have the Timeshift.
There is more in our development queue. E.g. the market data collection can not only be used for Timeshift. You can record a trading session while you are at work during daytime. And then use the recording and practice on it while commuting home.
We are also designing trade recorder/player for you to analyze your practice, multiuser mode to practice together with your friends and other cool features.
To make the Simulator that meets your needs, we need your feedback!
Please do take a look on our roadmap and vote – this way we will implement the most needed features first. And if you want to suggest a feature – don’t hesitate to leave a comment!
Trading server delay is always present if your trading terminal, e.g. MetaTrader, communicates to the trading server over the Internet. This data exchange channel has an inherent delay, caused both by the physical distance to the server and by the delays in processing of the signal by the numerous switches on the way.
Due to the delay, you can not always expect to place an order at the price that you see on your computer. This price was in effect at least a RTT ago. RTT, or Round Trip Time, is the time needed for your trading terminal to send a request for the current price to the trading server, and get the response back.
What are the delays? For very good network conditions, the delay can be less than 100 ms. In most cases, the delay is measured in several hundred milliseconds, but sometimes it can exceed 1 s.
You can estimate the delay yourself. On the screenshot below, you can see how to do it in your Windows computer. The command for that is: ping <IP-address>
Trading server delay (example)
In this example, we are measuring the delay to our WiFi access point (192.168.254.254). This is the best posssible situation and the delay is very small.
If you uses the IP-address of your trading server, you can see your delay.
So when you see the price that is at least RTT is delayed by at least the same time. So the price you target when you click the order button, and the price in effect when your order reaches the trading server, will most probably differ. And on fast moving markets, the difference can be considerable.
This is taken into account in the Forex Simulator. You can configure the delay randomly varying between min and max values. And try how the trading feels for different delay values.
