2ways2wealth Automatic Trading Since the advent of computers there has always been an increase each year of automatic

c trading systems, these are systems managed by computers. They fall into two major categories, Systems  that are developed within the MT4 Metatrader language. These are generally designed by small traders or purchased from marketing companies who sell thousands. Do they work? Sometimes for short periods and in certain market conditions, but as a whole the big boys from the institutional end of town are not telling and the internet is riddled with tales of failed EAs. Many systems use mean regression strategies, which double up as positions lose and by adding further positions of the same size or by adding larger positions to your series of trades as the initial trades start losing as the market moves against you. This creates an opportunity to reduce the size of the move back in your favour to break even or get in front. If you had unlimited funds, really deep pockets you could almost guarantee that you would win every trade series. Most traders do not have bottomless trading accounts, so there is a risk issue that is tempered by the accuracy of the system. What that means is as you win nearly all the time, you can be forgiven for wanting to give it a go as the rewards make the risk seem acceptable. This is done all over the FX market all day, every day. The trick is when to add the positions and when to increase the positions; this is the part where you can get it really wrong or really right. By reducing the size of the move required to create a winning scenario you increase the likely hood that it will turn around and deliver the winning series. In the illustration below we are using a simple Martingale approach were each position is an equal distance from the last and each position is twice as big.

The point where the 8 trades are all winning the initial trade of one unit is now down twice as much as the two unit trades, these two together equal 4 units in loss which has to be factored in from the 8 units of winning. Four units profit. Notice the move to create a result is less than half the initial move down. You can see why it is very popular for traders and especially EAs as there is no emotional or psychological issues with a robot. A human could get very concerned as just two more using down is losing about 40% of your account. Algorithmic trading or automatic trading is here to stay: it is just a matter of optimisation to see where the martingale entry and size points are. Now remember here that the one unit has lost twice as much as the two units and so is equal to 4 units. The outcome is that the system wins 4 units on this series of trades, if every unit is worth 1% you have made 4% in the day. I have seen these trading systems run for 18 months and continually bank profits and then usually in about three or four days and a huge move in the opposite direction the system needs which causes a margin call as the loss gets bigger and bigger and the equity shrinks. This happens so often with MT4 ous versions hoping that this one will be the one that cracks it. More recently there have been attempts to blend the results of specific robots that have a high propensity of winning, with the desire to mitigate risk through system diversification. This is a great idea if you can temper the risk from individual systems and avoid correlation with specific currencies, like the USD or JPY. If you have a series of trading systems that are all based on similar trading concepts and traded on similar currencies, like the EURUSD, GBPUSD and AUDUSD, then the USD moves strongly in one direction it is likely that all three currency pairs will be affected and move in the same direction, this could cause your overall account to suffer a serious drawdown. These issues aside algo trading or algorithmic automatic trading is now responsible for over 75% of all trades placed on certain financial markets and the FX markets are automated more than most. Information on automatic trading is sketchy as most people will only encounter it from the marketing material and sales copy of internet marketers, this is usually the start of the issue as their material tells such fantastic tales and displays amazing returns. The result is usually a costly purchase and poor results and no one to deal with when the system falls over in a few months. Get the blend right though and the automatic trading has some fantastic outcomes, do your  If you want to see this concept mastered you can have a look at tradedesk.2ways2wealth.com and review the many different algorithmic systems and their results. 2ways2wealth