Improving your Automated Forex Trading Strategy

Improving your Automated Forex Trading Strategy

Don’t get me wrong, not all automated trading systems you create will become instantly profitable…but if you put the time in, the rewards will be worth it.

So in order for your automated trading system to start becoming profitable, you need to dedicate time and effort into getting it right.

Several people have wondered how I create my systems when they appear to be very simple. They are almost too simple to be able to profit from today’s ever-changing market conditions.

However, what fellow traders often don’t realise is that some of the most simple systems do have a winning edge over the market and will generate profits.

In this post, I will go through a few of my very simple untold market tricks that you can follow to enable you to achieve success in automated trading.

Remember, there is no perfect trading robot

Keep it simple, stupid

Keep it simple stupid! Automated trading doesn’t have to be complicated. Go back to basics and keep it simple. That’s what works!

As the quote suggests, keep it simple! Don’t make your automated strategy too complicated at first. Build up a fairly simple strategy to begin with, which incorporates a limited number of rules and indicators, and then build on from there if needed.

By doing this you are able to familiarise yourself with your strategy and improve on your system slowly, gradually adding more rules and indicators where necessary.

Check out my other post on how to improve on the Simple Moving Average Crossover System

Understanding your system

Do not go into automated trading blind.

Many traders who attempt to create their own automated forex trading system don’t often understand what their system will be doing. Having an idea of how your system works and how it can have a positive edge over the market is vital for success.

This is why I create my own systems. By doing so, I know if my system is executing trades correctly in line with my system rules.

If you go into a system with no knowledge on how it works and it loses money, how will you ever improve on that system? I see so many traders blame the robot. However, unfortunately you only have yourself to blame.

Don’t blame the robot, blame yourself.

Plan for how you strategy will deal with news announcements

When you trade automated, you need to allow for the impact that news announcements may have on your trades such as non-farm payrolls. Trading news announcements can be risky due to the increase in volatility that can follow a news release. This increase in volatility can lead to large swings in price when the result of the news announcement is not as expected.

I often programme my systems (especially those on the shorter timeframes) to avoid opening new positions straight after an announcement and close any positions before an announcement is released.

See how adding in certain filters increases profits

There are times when you can include certain filters that will increase the performance and profit of your algorithmic trading system.

I would always add in the following filters to all of my strategies to see if my strategies performance metrics improves:

  • Trading hours (such as only opening and closing trades within the New York session)
  • Trading with the overall trend
  • Trailing stops
  • Stop loss
  • Take profit

See how I improved the Simple Moving Average Crossover System by adding certain filters to increase profits and reduce drawdown.

Monitor performance with backtesting and performance metrics

Often traders will attempt to design a system based on a few weeks or a couple of years of backtesting data. It is crucial to analyse and test systems for a significant period, which is vital for success.

I always analyse systems for a minimum of 5 years of historical data before I even consider any strategy for demo testing, let alone for a live account.

Not only does this analysis provide me with more information about the system, but it also helps me understand the reasons why it does or does not work so I can amend my system accordingly. It may be opening too many trades, in which case you will need to review your entry criteria.

How do you compare two systems? When I backtest and compare two systems against each other I use the following metrics to analyze performance:

  • Total Return (Net Profit)
  • Maximum Equity Drawdown (%)
  • Winning Trades
  • Sortino Ratio
automated trading optimisation criteria ctrader
My chosen criteria in cTrader when optimising my automated trading system

You could also include the following metrics:

  • Profit Factor
  • Sharpe Ratio

Every trader is different and so there is no correct target value for these metrics. Consider what is acceptable based on your own risk profile and trading styles.

Check out my ultimate guide on backtesting now

Do you want to know how to backtest your automated Forex trading strategy? Check out my ultimate guide on backtesting.

Demo test every forex robot long enough

I have seen many traders demo test their automated strategies for only a few weeks or a couple of months. Yet, when they switch to trading on a live account, their accounts end up blown.

It’s only a fool that would go into trading a live account without demo testing their robot first.

I would recommend testing the automated version on a demo account for at least 100 trades and/or 6 months. It is important that you give your system enough time for it to prove itself. Remember in trading you have to play the long game.

To succeed in trading you have to find that winning edge in the market and keep applying that system.

You may get lucky and fool the numbers in the short term. But over time, your true profit expectancy will always work through.

If you like the results after demo testing then feel free to start trading your algorithmic strategy on a live account. However, do not put all of your eggs in one basket. Start small and increase position sizes gradually over time, as well as trading multiple forex pairs to help diversify your portfolio.

Conclusion

If you have been struggling with your own automated forex trading, hopefully a few of these tips will help you to identify where you are going wrong and how you can improve your profits in the future.

Of course, there may be other aspects worth considering. But from my own experience, these are the most important to know if you want to develop a successful algorithmic trading strategy.

Do you have any other useful tips that I have missed that improve your automated trading? Just let me know by leaving a comment 🙂

Happy trading

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