There are two main criteria which you have to program rules for
and they are - Market Entry and market exit or your stop. You can use a
huge number of indicators to time your trades but on an automatic
trading system, you need to use as few as possible an here I am going to
show you how to build a 1 rule system simply based upon trading
volatility.
A very simple system would be one based on the
standard deviation (volatility) of price. The Bollinger Band for
example, shows a mid average band and the two outer lines, are standard
deviation from the norm or average, as volatility increases the bands
widen away from the average. You can easily construct a simple
volatility system with your own settings so here is what you do..
You
would have to decide a mid line moving average to start. This is where
prices will find support in a bull market and resistance in a bear
market. A buy signal, would be generated (and held) in a bull market
when the average is hit, the outer bottom band would provide the stop
level.
What you need to do is to test various moving averages and
standard deviation settings for the outer bands but this is easy to do
with today's software. You would then, need to decide a spread of
currencies to trade it on and test it back over time, to see how
successful it is - because it only has one rule, it will show a
realistic back test of performance.
The logic of the above system
is easy to understand and below, you will find how to generate a buy
signal and stop in a bull market.
In a strong bull trend, prices
may go away from an average price but they will normally find support
against into the average. If volatility takes prices through the mid
band to the outer bottom band, the supply and demand situation is
probably changing from bullish to bearish and a stop can be placed
You
have to do a bit of research and you can add additional filters if you
wish but a volatility based system if traded on a spread of uncorrelated
contracts will work (they very rarely work on a single contract).
I
have seen people make huge profits with simple automatic systems and
you can too. Sure you have to spend some time researching and testing
and also as with any system trade long term but if you do a bit of work,
you can easily build your own Forex automatic trading system and make
some great profits in under 30 minutes per day.
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