Forex trading has become a reliable way to make money at institutional and retail levels. One of the most significant factors that affected the forex market is technology. Now people can make their algorithm in strategy and implement it in FX trading. Algorithmic trading is a process where all trading decisions come from predetermined conditions that take all.
Forex trading patterns explained
The use of algorithms in trading became a reliable way to make money in the early 1970s, after increasing computerized systems in financial trading. In 1976, the New York Stock Exchange introduced a Designated Order Turnaround system that can monitor routine orders on traders’ on the floor. Later on, after a decade, exchanges improved the electrical trading acceptance system where traders became able to operate trades automatically.
Micheal Lewis developed high-frequency algorithmic trading. His book Flash Boys mentioned algorithmic trading that helped Wall Street entrepreneurs define America’s electronic trading system.
Algorithmic trading is when investors input a system that will open and manage trades automatically without any prior input. Therefore, it would be a decent earnings opportunity that does not involve any human intervention.
Algorithmic trading needs specific rules that open buys and sells using a parameter. Therefore, if you want to become financially free using automated trading, make sure you use a profitable algorithmic trading method with a good risk management system.
If you are interested in using algorithmic trading in your trading portfolio, the following section is for you. Let’s see the top ten algorithmic trading systems in the world that can enrich your trading journey.
Trend following trading strategies
There are many trends following trading globally available for several financial markets. It is a process to define the broader market trend and follow a system that does not need human intervention. Moreover, it uses the previous price behavior and trading data to find the upcoming price direction precisely.
The above image shows a list of trend following trading Expert Advisors available for the MetaTrader 5 platform. Moreover, advanced algorithmic trading is available for the cryptocurrency market. One such trading system is AEIEVE.
Mean reversion strategies
It is a trading strategy that considers that the broader market will remain within 80% of the time. Therefore, this trading method executes trades based on historical data that includes how the price reacts to a price level in the previous chart. If the price movies beyond the average level, this method takes trades hoping that the price will come back to the equilibrium point leading to a profit for traders.
The market shows a rapid movement during the news where a sharp, precise pressure allows investors to grab a profit from the market. In this method, traders don’t have to wait for a long time to see the price hitting their desired profit level.
Instead, it is better to grab a profit immediately from the market during the news release and get out of it directly. However, news trading is a risky method that needs close attention to trade management. Therefore, using algorithmic trading based on news trading needs additional attention to the past performance.
Market sentiment-based strategies
The market sentiment-based method uses the buyers and sellers activity in the price chart by observing the net short and long positions in a trading instrument. The system might grab the information from the Commitment of Trader (COT) report and take trades as the report says. However, another approach to this method is using social media and seeing where most traders are heading.
Arbitrage is a method that considers the price imbalance in different exchanges and benefits from the price discrepancies. It is a quick method of making a profit with a 100% success rate. Although the amount remains small in this method, the success rates are strong. In the financial world, arbitrage trading helps different exchanges to keep the same. If the price difference disappears, it will automatically eliminate the arbitrage opportunity from the market.
Nowadays, arbitrage trading is hard in forex trading due to the availability of technology that keeps the price the same in all exchanges. However, it is still profitable in the cryptocurrency market. The arbitrage opportunity in the crypto market started in 2017 where Binance and Houbi were used to find the price discrepancies.
High-frequency trading strategies
It is a method of mixing regular trading systems with scalping in the retail trading industry. However, the current HFT is not limited to scalping only. The high trading volume and quick price movement open the high-frequency trading opportunity in the world that needs a strong knowledge of programming and mathematics.
Iceberg trading strategies
Prominent institutes and organizations use the Iceberg trading method in their forex trading method. Therefore, Iceberg traders don’t trade in a single broker. Instead, they expand the trading portfolio in multiple forex brokers to benefit from the price difference.
Stealth is almost similar to the Iceberg method where we can consider it as a tolerating method of the Iceberg. The stealth algorithm is based on several orders to consider as one. Therefore, it can see what big market players are doing behind the price and catch to benefit from the movement.
The supply level is a price zone from where institutions sell their order, and from a demand zone, they buy from the demand zone. This method includes key players responsible for making changes in the price. Any algo trading system that uses the supply-demand concept has a robust risk management system per trade.
It is a process to anticipate the price direction by looking at what the price is doing with the current market condition and what it might do shortly.
Algorithmic trading allows investors to grab the short-term benefit from the market without any human intervention. Therefore, if you are interested in building a trading portfolio using algorithmic trading, you can choose any strategies from the above list. In that case, make sure to use an appropriate asset allocation in these strategies.