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Making a Living with Automated Forex Trading Systems

Why Trade an Automated Forex System?

Trading manually takes Time, lots of time...

Simply put, it saves time and stress.

In 1982 I used to spend upwards of 3 hours after the Daily markets shut to input data and calculate what prospective trades there are. All done late in the evening, before actually placing these trades the next Day during the active session with my Broker.

Weekends would be spent compiling summaries of the week’s activities, as well as optimising systems for the next week. Although I loved my work, it was all significantly time consuming...!

Today, I spend almost no time Trading.

The automated systems I use do 90% of the work. I spend 10-15 hours a week setting off optimisations and back-testing new modifications to existing systems, or perhaps evaluating a new system I have purchased. Other than this, I am free to do more or less what I want.

Trading manually, especially intraday, is Stressful

Talk to a manual Day Trader, and they spend upwards of 6-10 hours watching patterns form, calculating trade entry, making the trade, watching a trade unfold and closing a trade. An active Day Trader can place 10-50 Trades a Day. The stress levels are quite something. Measured heartbeat rates of active Day Traders have been known to nudge 180 beats a minute at peak stress moments.

Quite a few ‘burn’ out in a matter of Months.

For me this stress grew as trading time scales got shorter. Intraday Trading being the most stressful.

Stress also made me alter the rules of my trading strategy. I would shorten profit takes, move stops too tight and generally cause Trades to lose money...!

I just knew there had to be a better way.

My first Automated Forex Trading System

My first automated forex trading system worked on End of Day charts, and produced an alert list that included where to put the protective stop, and profit take. At the end of each Trading session this list would be generated and I would simply place the Trades with my broker and leave the system to it. Completely hands off. This was around 1987. I used to Trade US stocks then.

My first Automated Forex Trading System

Over time this system developed into a fully automated forex trading system, that even placed the pending entry orders (complete with active stops and profit takes if the initial entry was taken) directly with my broker, all fully automatically.

All I had to do was check to make sure the orders (and any stop movements) were correct which took 15 minutes in the evening, and I was done until next evening. This was around 1999, just as brokers started to offer trading online via the internet.

The main thing is that this system taught me, is that a Trader should concentrate on assessing a systems performance and modifying the system for maximum gain with minimum risk, as well as monitoring the market being traded for personality change. The idea here was to assess when to trade, not undertaking the actual trading!

This was a revelation! The stress did not disappear, but did become manageable. It also freed up the most important commodity of all...TIME.

I now had the time to study. To develop new systems. I even developed my own code library in TradeStation (although funnily enough I do not use TradeStation today, partly because of the $199 a Month subscription costs, and additional costs for data).

Over the next 25 Years I learned to develop Trading systems that were (and still are) pretty sophisticated, and even earned a Masters degree in software development in the process.

Today, you do not need any of this. Today, with a broadband link to the Internet, and a modern PC you can purchase, assess and Trade an automated system to make money.

This can be done part time initially, and over time can become very lucrative.

Do not be fooled though. This is not an instant path to wealth. Like any business it takes time to get it right.

That said, I know of no other business that has the ability to deliver RAW cash the way that automated Trading Forex does. There is no stock to warehouse, no invoicing, and no wait for payment. You do not need employees, or premises. You don’t need to get up early, or wear a suit. You don’t need to commute either...

I personally would not contemplate any other business.

Why trade FOREX?

If you want to sell a product such as fruit, you need a good supply chain. This supply chain has to have the ability to supply quality goods quickly for you to sell. You need to be able to get your goods in front of customers for them to see, and once sold you need to get the goods to them quickly.

The products you sell have to be at the right price, and you need to make sure that you have enough of them to satisfy demand.

There is no point selling a rare fruit, if all you can get is 3 of them, and no one wants them.

The Stock and Forex markets are the same. You need to deal in Stocks or Commodities or Currencies that people want. You also want to buy and sell quickly as close to the advertised price as you can get.

Forex (short for FOReign EXchange) is the largest market in town. On some days this market can Trade upwards of $3.21 Trillion.

What this means is that when you want to buy currency, it will be sold to you almost instantly. When you want to sell currency, it will be bought almost instantly. What’s more, competition to buy and sell is so strong, that in normal transactions, the spread (the extra bit the broker adds and subtracts to make money) and slippage (the movement in price away from when you asked to buy or sell) is kept to an absolute minimum.

On the most liquid currencies, the spread can be as low as 1-2 pips, where a pip is as low as 100th of a US cent.

On most liquid currencies, the slippage is also low, typically being less than 5 pips.

I have traded just about every market there is from Stocks, commodities and their underlying futures and derivatives, and FOREX beats them all into a cocked hat.

Forex is highly liquid, with some of the largest transaction volumes, and more importantly, once you understand the basics, transacting in forex is easily understood.

For me, FOREX is the only game in town...

Assessing an automated forex trading system...

After having decided to trade FOREX, and having discovered several automated forex systems, how do you assess how good these systems are? Measuring the return of a profitable automated forex trading system is not just about forex trading profits. It is about how this profit is delivered.

Why is this important in order to develop an automated forex trading system that works?

Firstly, Trading Psychology. It is about being confident as a forex trader, that even if the forex system loses, over time you are going to make money trading forex.

Secondly, and more importantly, it is also about just how much time is it going to take to make money versus the amount risked on each forex Trade, and the quantity and frequency of Trading.

So how do you know which system is better?

To compare different, disparate forex systems, you need a standard methodology for measuring the likelihood of success.

I have figured out how to do this...using pretty simple maths too!

Calculating the Likely return of an automated forex trading system.

You need to know what the likely return of a system actually is. To do this you need to know what the return is for every dollar you risk. The maths for this is actually quite simple.

How to calculate the likely return of an automated forex trading system

How do we know which one to pick?

If you have access to historical forex trading data, you can calculate the following. Remember that the more trading data history you have access to, the more accurate an assessment of a forex system becomes.


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Risk disclaimer:

U.S. Government Required Disclaimer - Commodity Futures Trading Commission. Trading financial instruments of any kind including options, futures and securities have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the options, futures and stock markets. Don't trade with money you can't afford to lose. This training website is neither a solicitation nor an offer to Buy/Sell options, futures or securities. No representation is being made that any information you receive will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. Please use common sense. This site and all contents are for educational and research purposes only. Please get the advice of a competent financial advisor before investing your money in any financial instrument.

NFA and CTFC Required Disclaimers: Trading in the Foreign Exchange market is a challenging opportunity where above average returns are available for educated and experienced investors who are willing to take above average risk. However, before deciding to participate in Foreign Exchange (FX) trading, you should carefully consider your investment objectives, level of experience and risk appetite. Do not invest money you cannot afford to lose.


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