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Forex algorithmic strategies for CFD traders

No matter how many books you read, tutorials you watch or online courses you take, the only way to become a truly successful trader is through experience. There are too many moving parts in place for a newbie to comprehend and produce consistently reliable results.

 

However, there is no harm in a little bit of extra help from algorithmic trading strategies, which have been proven by time and extensive backtesting [and math] to perform better than 99% of all manual traders out there. This guide will show you what automated trading with algorithms entails and how it can add marginal gains to your already existing manual trading strategy.

Algorithmic trading strategies

When dealing with algorithmic strategies, one essential thing is that they aren’t magic. Of course, you’re not going to find an exact strategy for selling Apple stocks when it’s low and buying back when it’s high, but on the other hand, playing around with some semi-complex algorithms can help you out in very subtle ways that might be impossible to spot while trading manually.

Money management

It sounds like something you’d hear during a lecture at university, but it’s one of the most important aspects of algorithmic trading. Money management is so essential because, by itself, it can already generate huge gains over time. What money management does is ensure that the ratio between your capital and risk exposure remains consistent throughout both bull or bear markets.

 

It means that once your algorithm finds good opportunities, you can take more risk on the market by placing larger orders. And when the tables turn, your capital won’t be wiped out instantly because your algorithm will ensure that no single trade can cause any irrecoverable damage.

Discipline is king

As with every other form of trading, discipline is also king for algorithmic traders. Suppose you set out to buy Apple at $500 with a high probability of success but cannot stick to this plan due to nerves or an urge to chase after small profits. In that case, you’ll end up losing money even though your automated strategy ran perfectly.

 

Only once you have good self-discipline will algorithms genuinely shine and work their magic by allowing you to make trades even during periods that aren’t so profitable for manual traders.

Adapting faster to the market environment

With manual trading, it’s not always easy to tell when a bull or bear market has begun or ended, but this is much easier with algorithmic strategies which don’t rely on subjective analysis to look for signals in the market. It means that you can adapt your automated strategy much faster than your human self would be able to look at charts manually.

 

The best thing about algorithms is that they are unbiased and will only act if their preprogrammed criteria are met, so even if you get caught up in a late bear market, an algorithm will keep working until the right opportunity presents itself.

The benefits of automated strategies algorithms

Automated strategies algorithms have many benefits that cannot be matched by manual trading and can result in much more significant gains and much lower drawdowns. While it is possible to create a successful manual trading strategy, this would require enormous time, dedication, and knowledge, which most people don’t have.

 

Algorithms are unbiased and always produce the same results no matter what’s going on in the market, as long as you program them well enough. However, getting such a strategy working best takes both time and dedication and the right tools, so it’s crucial for rookies to first build up a solid foundation before even attempting to start creating automated strategies.

Is this something you should do?

If you’re already a successful trader who makes consistent profits every month, then there isn’t any reason why you should switch to automated strategies. After all, your experience in the market and ability to properly analyze the charts is a massive advantage in itself.

 

However, if you’re not making nearly as much as you could be and still believe that forex trading may one day lead you towards financial freedom, then algorithmic trading might be what puts your dreams into action!