Automated Forex Systems: Friend Or Foe Of The Forex Trader?

The forex market was unavailable to retail investors until the mid-1990s. That was when the growth of the Internet gave so-called average investors their first opportunity to try to make pips in the world's largest financial market. Prior to that, the world of forex trading was dominated by brokerage houses, investment funds and the world's various central banks. As the Internet became more accessible, so did forex trading, and as is frequently the case with any rapidly growing new product, the surge in forex trading's popularity led to widespread proliferation of “holy grail” systems.

These products, known as automated systems, signals services, forex robots or expert advisors, are all over the place now. Do an Internet search of forex trading and watch how many search results pop up for these automated systems. Automated forex systems are like anything else in life: Some are good, some are bad and there is definitely a right and wrong way to use them.

Basics Of Automated Forex Systems

The intent of automated forex systems is clear: They are supposed to give you, the trader, the ability to simply install some software on your computer and walk away while trades are automatically placed for you. Some automated forex systems call this “autopilot” trading and many boast that you can literally leave your computer on while you sleep and the system will make tons of pips for you.

Sounds great, huh? Going to sleep and waking up to a forex fortune. Of course, automated forex systems can be altered so they're not trading constantly for you and churning your account in the process. Remember that the forex market is open 24 hours a day and many automated systems are capable of trading more than you are comfortable with. So consider this lesson #1 on how to properly use an automated forex: Be sure to check your system's settings. If it takes a larger number of trades per day than you would prefer, read the instruction manual for information on how to tweak the system's settings so it will trade less.

Narrow Focus Or Versatility?

Another issue to consider with automated forex systems is the amount of currency pairs the system trades. Some automated forex systems will focus solely on one pair (If you find a one-pair system, it is very likely that pair will be the Euro/US Dollar), while others will trade all eight major pairs. Consider this lesson #2 on how to effectively use an automated forex trading system: You absolutely must find one that matches your trading style.

This means that if you prefer to focus on just one pair, an automated system that trades multiple pairs probably isn't for you. On the other hand, if you like the versatility of trading multiple pairs, then a one-pair automated forex system will be of little use to you.

While there is no empirical evidence to suggest that returns are higher with multiple-pair automated systems, think about this: Not every pair is active all the time and if the one pair your system focuses on is stuck in a tight range for an extended period of time, where do you turn in your quest for pips?

Advantages Of Automated Forex Systems

As you can see, there are some advantages of using an automated forex system. That is, if you do your homework and select the right the system. After all, using your system properly starts with selecting the right system for you.

The biggest advantage of automated forex systems is the fact that they're automated, making them ideal for traders that cannot be in front of their computer for hours at a time. In other words, if day-trading isn't your cup of tea, but you know that you want to be involved in forex trading, than considering an automated forex system might be a smart move.

Another huge advantage of using an automated forex system is that emotion is completely removed from the equation. Emotion can be a trader's worst enemy and traders that lack discipline also lack funds in their account. Automated forex systems have no feelings, they simply attempt to pick the best trades with no bias or emotion and this is a trait that can be priceless.

Disadvantages Of Automated Forex Systems

On the flip side, full automation can be risky! If your system goes haywire, you can lose your account money quickly. Or if market conditions change drastically, and your automated forex system can’t handle it, then you are in for a rough ride. If your system makes a trade for you in the middle of the night, and your computer crashes and your “system” can’t exit the trade, guess what? That could amount to some severelosses. The truth is that in all cases, there really is no such thing as a purely automated system. It needs human monitoring and tweaking to make it really hum.

Working The System To Gain Maximum Pips

Let's be clear: The most important thing to realize about forex trading systems is that none of them are going to be right 100% of the time so don't buy one expecting to become a millionaire overnight. Even though you won't be doing most of the trading (if any) with your automated forex system, take the time to learn your system's features and nuances. Manipulate your system, don't let it manipulate you, and you'll be on your way to earning more pips in the forex market.