There are many myths about algorithmic trading. The idea that algorithmic trading will make you a wealthy person is perhaps the biggest misinterpretations of all facts. Robot trading is most often packed into a “mystical sphere” where you will never know how and why it is performing. Combined with numerous stories where the Forex trader has too high expectations, the result might turn out to be catastrophic instead. Algorithmic trading is not, and will never be, any “magic trick” applied to be performed by a computer. Instead it is all based on pure human logic as the following will explain.
Handling market conditions that repeat themselves are daily tasks for any Forex trader. So is getting fast enough into (and out of) the Forex market in order to have profit. These are both reasons for any Forex trader to consider machine trading. However, the computer performance will still be based only on its instructions what. In this way, it is never possible to consider a computer, even at its highest specification, as nothing more than a set of hardware. Thus, it is obvious that human logic and discipline will remain the force behind any machine traded strategy.
We should never expect anything higher than what the human mind has to offer. On one hand we follow the technology where terms like “machine learning” and “artificial intelligence” is in focus. However, it will still be the human force that defines how the machine will learn. The same with complex rules that are a part of artificial intelligence. Furthermore, there is also a need to define how a combination of facts shall be used to make future trading decisions.
The remaining force behind any trading technology will still be the hman mind.
Assisting the human eye should be the number one reason to define a machine traded strategy. Forex trading consist much of handling market events that repeat themselves daily. In addition, there will be a repeated need to enter the market faster than your mind and body can do. Everything depends on your trading plan and what your trading strategy consist of. In any instance you will need to maintain a flow of events to happen. Be it market entry, risk evaluation, market exposure and exit points. This is the point to let the computers start working.
Dependent on your trading strategy, your entry points should follow the same definition each time. If you are following technical indicators, perhaps a combination of such will be your trading signal. Being programmed into an algorithm the computer will check if any of your criteria are matched at any given time. Any other combination of events that you do in your Forex trading can be programmed into an algorithm. By taking benefit from the computer power you also acknowledge that it is faster and more accurate. However, and most importantly, it eliminates human emotions.