How to Choose a Forex Robot

By Mike Ashford

I get at least 5 spam forex related emails in a day. Most have some amazing automated forex robot that will make me a lot of money in a hurry. The temptation is high to get the great forex robot, especially when it is only being offered to a few "special" forex traders.

Having fallen for such forex scams before, I am now more careful when searching for a reliable automated forex trading system. These are a few rules I use before I buy an automated forex robot.

1. Never trade before Back testing

When one looks at the results of some of the automated forex systems, one is tempted to immediately trade their real accounts. This might lead to heartache when one discovers that the automated system is not for them.

It is imperative that the forex trader finds out if a forex robot has worked before. It is not enough to read testimonials and listen to salesmen to confirm that an automated system actually works. The prudent forex trader needs to back test the results themselves so they can be confident that it actually works and also to know the inner workings of the automated system.

Other than back testing I also make an effort to forward test the system. Forward testing involves actually trading the system in a demo account with current market action. In this way I am able to find out the strengths and weaknesses of the automated system.

2. Customer Support

If a company selling a forex robot does not have customer support, I never touch it. I have bought forex systems that come with an eBook with the notion that the ebook will come with all the information I will ever need to trade the forex robot.

This is rarely the case and do not be surprised to find a forex instruction manual with poorly written English. Some forex robot vendors are in such a hurry to sell their forex robots, they never think about giving proper support for their product.

If a vendor can not take the time to give quality customer support, then it is very likely that they used the same amount of effort in creating the forex robot. If you have paid for a product, it is not too much to ask that your questions are answered so that you can use the product to the optimum level.

Over your forex trading journey, you are going to come across a new forex system every day. It is important for your profitability to ensure that your forex robot is not over optimized. Just concentrating on the win/loss ratio and the total profits of any forex robot is not encouraged. One should take the time to figure out if the forex system has positive expectancy and the system can also survive drawdown. Ignoring drawdown in an automated forex robot is a major cause of pain especially for new forex traders. Make sure that your forex robot is profitable during the good times and also conserves your trading capital during the bad times. - 23229

About the Author:

If you want to find out this "secret" and start making a nice income with forex, click here.

Currency Trading (Part II)

By Ahmad Hassam

The most active traded crosses focus on the three non USD currencies (EUR, JPY and GBP). These crosses are known as the euro crosses, yen crosses and the sterling crosses. The most actively traded cross currency pairs are: EUR/CHF, EUR/GBP, EUR/JPY, GBP/JPY, AUD/JPY and NZD/JPY. Crosses enable currency traders to directly target trades to specific individual currencies to take advantage of news or events.

You may notice that the currencies are combined in a seemingly strange way when you look up at the currency pairs. For instance, if sterling-yen (GBP/JPY) is a yen cross, why it is not being also referred to as yen-sterling (JPY/GBP)? The answer is that those quoting conventions were evolved over the years. These conventions have been designed to reflect traditionally strong currencies versus traditionally weak currencies with the strong currency coming first.

The first currency in the currency pair is known as the base currency. For example in USD/EUR, USD is the base currency. It is the base currency that you are buying or selling when you buy or sell a currency pair. The second currency in the pair is known as the counter currency. In the above currency pair, Euro is the counter or secondary currency. So if you buy 100,000 EUR/JPY. You have just bought 100,000 Euros and sold the equivalent amount in Japanese Yen.

So currency trading involves simultaneously buying and selling. Going long in currency trading means having bough a currency pair! When you are long, you are looking for the prices to go higher. So you can sell at a higher price that where you bought.

Going short in currency trading means selling a currency pair! It means that you have sold the currency pair, meaning you have sold the base currency and bought the counter currency. In currency trading going short is as common as going long.

Its called squaring up if you have an open position and you want to close it. You need to buy or go long to square up if you are short. You need to sell or short to go flat if you are long. Having no position in the market is known as being square or flat. Selling high and buying low is the standard currency trading strategy just like in any other trading.

When you open an online currency trading account, you will need to pony up cash as collateral to support the margin requirements established by your broker. A clear understanding of how P&L works is especially critical to online margin trading. Profit and Loss is how traders measure success and failure.

Profit and Loss calculations are pretty straight forward and are based on position size and the number of pips you make or lose. A pip is the smallest increment of price fluctuation in currency pairs. Pips are also referred to as points. Most of the currency pairs are quoted up to four decimal places. Suppose EUR/USD quote is 1.2853. If the price moves from 1.2853 to 1.2873, it has gone up by 20 pips. Pip is the increase or decrease in the fourth decimal digit. - 23229

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Learn Currency Trading. First Trade Your Forex Demo Account!

Intro To Trading Systems

By Maclin Vestor

A good trading system is about much more than just selecting stocks. Certainly that is important as well. However, a good trading system will provide the ability for you to protect against losses, manage your money, add proper leverage when necessary, and also select a stock selection maximizing your reward and minimizing your risk.

The guess work is taken out of the way for you. The stock is purchased when criteria is met, the amount of stock purchased is also based on certain criteria. The stock is sold when criteria met, and there are protective measures against a stock's demise, and where possible and appropriate leverage is created to maximize the returns without taking on more risk than you can handle.

This trading system will be talked about in 5 additional parts in addition to this intro. This post is designed to explain the trading system, its functions and how it operates.

1) Exit strategy. Every good system trader will first know the exit strategy. It doesn't matter what vehicle selection you use, if you have no exit strategy, you're stuck. The trick is to understand that unless you want to get trapped in an investment you have to know when you're getting out.

A good exit strategy has both loss protection, and profit taking, and sometimes even a 3rd stop. The first 2 might be a maximum loss, and a maximum gain before taking profits, while the 3rd one will be a trailing stop that rides the gains up, and will sell the remaining shares. There are other exit strategies such as hold forever and write covered calls against it to collect income, or protective puts in place of a stop-loss.

2) Protection. Although #1 covers most of the protection, there are several other ways to protect yourself. Protection is vital to allow you to stay in the game. Many people know that if you lose 20% you need a 25% gain to make up for it. Losses not only can result in a series of losses that wipe you out, but they also hinder your ability to gain in the future. a 95% loss for example requires a 2000% nearly impossible goal to make up for this loss. So even if you flip a coin and have a 50% chance of gaining 200% or 50% chance of losing 95% of it, you should probably not take it if all your money is at risk, because it doesn't have the downside protection A series of wins followed by 1 loss would prevent your ability to stay in the game. Even though those odds SEEM fair, they are not without proper protection. Protection ensures that you won't have that 95% loss, and it absolutely restricts that loss to a fixed amount, rather than take 100% risk.

Such forms of protections are writing calls, in this situation you are given a premium so if the stock tanks to zero in a worst case scenario you'd still end up with the premium, this is minimal protection, and only protects a marginal amount of decline before the losses continue. The other form of protection would be buying a protective put. This actually in fact does protect against catastrophic losses. The lower your stock goes if/when it crashes, the more you make from your put or puts. You are the one paying a small amount in order to protect against any sort of decline below the designated price. The lower this price, the cheaper the option. If a stock is at $50 and you buy a protective put at a strike price of 40, you will NOT be protected against losses from 50 to 40, but beyond that you will be protected to the downside.

These are somewhat more sophisticated forms of protection. Basic forms of protection are diversifying, and perhaps being short. If you buy a stock at $100, and you short one in the same sector at $100, if the whole sector goes up, you are betting not that the market will go up, not that the sector will go up, but that stock A that you are long will outperform stock B in a bull market, and stock B will under perform stock A in a down market. This offers protection although it may limit the gains as well, Plus, you actually have to be right in your thesis.

In addition, if you are short, and the stock market booms, you may get a margin call and be forced to sell. Also, if you do not use money management, you are at risk of a short term swing requiring you to sell all of your shares of the stock that went up, in order to pay for those that you were short that went up, and if you can't cover your short, your entire account is in jeopardy of being wiped out.

So rather than being short, I recommend replacing it with buying put options, although this has lots of risks involving time decay as well that you must understand before investing. Using a business entity such as a C Corp or a LLC is another form of protection that can protect you potentially against higher taxes, and personal financial trouble such as a bankruptcy on your record if you intend on using forms of leverage such as loans.

3) Money Management and Control. A good trading system will have a form of control. it will allow you to not give up that control when things go bad. In other words, it allows you to manage your money. Money management is very important. Perhaps one of the most important things is position sizing. If you buy $10,00 of stock for one stock when you only have $10,000 in your account this is very poor money management. Continue to do this, and eventually you will suffer a large loss which will be great, and it will be very difficult to gain enough to make up for it. In addition, if the price goes lower depending on your system, you may want to give yourself flexibility. Extra cash on the sides is another form of money management. It doesn't have to be cash per say, but some form of safety. Various forms of currency, sometimes some gold, bonds, and money market accounts that are all fairly liquid would be a few examples.

4) Leverage Leverage is about using your abilities to gain, the strength of your trading system and various tools to minimize risk, and increase gain. When you take on leverage, you should be able to reduce your position size in comparison to your capital, and still have a similar reward or gain.

Forms of leverage include options, the further out of money option you purchase, the more leverage you have if that stock does make a strong move. You can also sell options to raise capital to invest in some cases.

Another from of leverage is a loan. Whether it's a credit card, a home equity loan, going on margin, or a business loan for an asset holding company, or even taking a company public and using the capital to invest, the idea is to gain money at x% and to invest it and make a greater return than x%. if you can do this, and manage money well, and protect yourself, Your gain is only limited to the amount of capital you can borrow at the maximum of slightly less than what you expect to gain. Generally however, if you use a loan, you should have a form of cash flow or income that will cover the costs of the loan just in case your investment goes wrong. That's another form of money management while using leverage. Money management should be treated much differently under different forms of leverage.

5) Finally, the stock selection vehicle. You need some method to select your vehicle, based on this and your other factors you will determine time horizon and a methodology of trading. The system will help you choose your trading stocks, and exactly what to do with them. You can play around with different trading systems, but generally you should first attempt a good exit strategy and make sure your controls on parts 1-4 of your trading system are sound, and try tweaking them

Stock Trading Systems that are well defined will leave very little room for error. If you learn to use a trading system, you can choose to enhance the essential skills it takes to making your trading system better.

Unfortunately, many day traders are slaves to the computer screen and can miss a moment. Focus on building the better trading system, and not placing the better trade, and you will give yourself some valuable time. If you are really using a system, you don't need to be the one to place the trades, and can instead higher someone to do the work for you. You can use that extra time to improve your system, or find new ways to invest, or learn how to become a better trader.

You can learn other tips like this at the System Trading|Stocks Trading Systems blog, which is full of tips for day trading, options, swing trading, momentum trading, and advice on building a trading system. - 23229

About the Author:

Maclin Vestor teaches about trading systems. You can learn more about system trading and find a Trading System that works for you at his blog.

Money Management in Automated Forex Trading

By Mike Ashford

Automated forex trading can be profitable for even new forex traders. A good forex trader in addition tries to increase his chances of profitability by looking for forex trading robots that also include money management techniques.

A good forex trading robot should enable the forex trader to take profits, limit loses and even trail their stops. In other words, other than just being profitable, the automated forex system should also increase his trading exposure in winning periods and reduce trading exposure during losing periods.

Money management in automated forex trading is very crucial for the following reasons.

1. Preserving Capital

A forex trader who does not learn how to preserve trading capital is bound to lose it. Many forex robots only allow you to trade a system. Few are able to protect a traders capital even when they are in a drawdown. A good forex robot should be able to have trading parameters that allow the forex trader to preserve his capital when the market is not in tandem with the automated forex system.

2. Adequate Capital

Other than preserving your capital during slow forex trading periods, a good forex robot should also ensure that the trader has adequate capital to trade the system.

There is nothing worse than a forex trader entering a trade without adequate capital. It is like going to a fast food restaurant without the proper change to buy a burger. Sooner or later the under capitalized forex trader will probably lose any trading funds they might have in their account. A good automated forex system will alert you to this scenario.

3. Set Reasonable Goals

A good automated forex system will have money management techniques that will allow the forex trader set reasonable forex trading goals. Forex trading is a profitable endeavor but most traders give up when they do not achieve trading profit goals that were unrealistic.

A forex trading robot will allow the forex trader to have reasonable expectancy for their trading dependent on how much capital they have and also the performance of their robot.

4. Predetermine Loses

Many times a forex trader gets paralyzed when trying to exit a losing trade. It is common for the forex trader to exit winners too early but exiting loses is more difficult. Traders hold on to a losing position in the expectation that it will soon turn in their favor. My very first trades consisted of losing trades that were some 100 pips while my wins were in their teens.

A good forex robot will ensure that this does not happen and exit your trades at predetermined levels thus letting you conserve your trading capital. Letting the forex robot determine when you should exit a losing trade is probably one of the most important reasons to use automated forex software.

Good forex traders make it a habit to apply money management techniques especially when they are trading automated forex systems. I have realized that my best performing forex trading robots all have money management techniques built into them. Over time, even a mediocre forex robot becomes very profitable with good money management techniques. - 23229

About the Author:

If you want to find out this "secret" and start making a nice income with forex, click here.

How to Backtest Automated Forex Systems

By Mike Ashford

Automated forex systems are a great boon for forex traders. The ability to always be trading without the need of your presence is a great way to increase your profitability when trading forex. However, getting the wrong automated forex system to trade can cause major lose.

That is why it is important to backtest your automated forex system before you use your trading capital. However, you need to be able to do proper back testing for you to get the most out of your system.

1. Use Proper Forex Software for Backtesting

If you are going to risk thousands of dollars in forex trading, then you can afford getting proper forex back testing software. It is not enough to get software that is does basic testing. A forex trader needs to invest in forex software that is reliable and whose results can be verified. Get the proper forex trading tools and you may never need to worry about the viability of your forex trading system.

2. Get enough Forex Trading Data

The forex market is ever evolving and there is a need to test your automated forex strategy in different forex trading environments. There are a lot of forex data providers who provide such data for free. Your forex broker can also be a good source for such data.

Other than just the quantity of the data, make sure that your source also has quality data. If you test your automated forex system on quality and enough data, your chances of your back testing results being replicated are higher.

3. Do not Over-Optimize

Every time you change the parameters of your forex robot, you are likely to get unreliable results. Over optimizing or curve-fitting a forex system to give you better results on unrealistic parameters will give you a forex trading system that only works on paper but not in the real world.

Curve fitting normally occurs when the forex trader is using too many parameters. Try and keep the automated trading system as possible. If you create a simple forex robot and it shows profitable results on back testing, then it is more likely to work than a curve fitted forex system.

4. Adequately Test Your System

I have seen automated trading system that only work in one currency market. Most of the time such trading systems have been curve fitted. Before you trade your own funds in any forex robot, ensure that you have back tested the system on different time frames and also different currency markets.

The more time frames an automated forex system is profitable, the more likely it will work in a real environment. I have found that the best automated systems are the once that confirm that a trade is on in a higher time frame as well as in a lower time frame.

Take your time when back testing. Do not be lazy about it as it is crucial to making you a better forex trader. I never trade an automated forex system without back testing it thoroughly first. - 23229

About the Author:

I know a way to make thousands a month thanks to forex robots. I found a site called forex robot advice but don't want to reveal their "secrets" here.