Incorporating Algorithms Into Your Forex Trading Strategy

September 9, 2020 10:30 AM
Forex algo trading

Forex algo trading

Many people take up forex trading for the excitement: the rush of adrenaline and the joy of victory. The sad truth, though, is that when emotions take over, you lose money. 

The only way to earn consistent profits as a trader is to have a clear strategy and stick to it. There are, however, a couple issues with following a traditional trading strategy. First is the human factor. You'll be tempted to stray from the strategy "just this once'' when you see what looks like a good trade opportunity. Next is time. A good strategy brings results when you use each and every market opportunity. But since you physically can't be in front of the screen 24/7, you'll miss many of those opportunities.

Enter algo trading

A Forex trading algorithm is a piece of code that creates Forex signals and/or executes a trade whenever market conditions fit the rules you feed into it. Here's an example, buy an asset when the 50-day moving average crosses above the 200-day moving average and sell when the 50-day moving average crosses below the 200-day moving average.

Forex algorithms an be much more complex than that. Some use advanced Forex trading indicators, such as Moving Average Convergence Divergence and Bollinger Bands, while others use fundamental data, such as GDP, consumer price index, and so forth.

Algo anatomy 

For algo forex trading to work well, it requires the follow elements

1) MT4 (MetaTrader 4), MT5, cTrader, or another platform to connect you to a broker that can provide data and execute trades.

MT4 interface

2) Data that will be fed into the bot (usually current and past prices).

3) A set of rules: Your strategy in a structured form – when to buy or sell, stop-loss and take-profit settings, etc.

4) Code: someone has to write the code to turn your ideas into a computer program.

5) Backtesting: feeding past data into the algorithm to see how it performs. This is a key step before going live with your bot.

Can forex algorithms improve your trading?

The honest answer is it depends. If your strategy is valid, following it through an algorithm can be more profitable than traditional trading. Robots have some big advantages over human traders. They:

  • Always follow the strategy.
  • Don't sleep, eat, or otherwise get distracted.
  • Are fast and precise.

On the other hand, no single forex algorithm can work indefinitely. Any strategy or algorithm has to be adjusted when market conditions change. 

Cost is another factor. To improve your profitability with algo trading, you'll need an algorithm that yields more money than you spend on it. 

Getting started

There are many resources where you can get inexpensive or even free trading systems. Google "best forex trading strategies"  and you'll find many useful blogs and websites. 

The algorithmic section of TradingView contains hundreds of free ideas, plus some ready algo scripts. It's best to try their MT4 signals and ideas in demo mode first. Here are some examples of what you'll find on TradingView.


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Quantpedia is another resource. The site offers hundreds of strategies based on financial academic research. The cost for this access is €299 for 3 months.

And of course there's the do-it-yourself option. This is harder but possible even on a small budget. Just like a hedge fund, you can hire a programmer to build your algorithm. However, be prepared to face mounting costs as every change to the bot will cost you extra. If that's too expensive you can code it yourself. It's not as crazy of an idea as it first appears. You'll need to learn some Python, Perl, R, or some other programing language. Coding is a highly useful skill and great for your resume. You can master it with the help of courses on online learning platforms.

Another option is to use a point-and-click algorithm builder. This tool will allow you to build an algorithm and create forex signals without coding anything. Look for a software option that allows you backtest your new algo.

Summing it up

If you are looking for ways to boost your income, algorithmic trading is definitely something you should try. However, don't rush to spend hundreds or thousands of dollars on a professional developer. 

About the Author

Silicon Signals is a platform that allows traders to set up forex algorithms without writing a single line of code.