Financial Literacy: Forex and Automated Trading
In this article I would like to share the experience of creating automated trading systems for Forex and talk about the problems that those who want to engage in this business face. I hope I save you a few hundred, maybe thousands, dollars.
Forex for me is a rogue’s fight against rogues. It began in 2003 at the courses of one of the leading companies. The minimum deposit of $ 2,000 for a 19-year-old student was too big, so in order to gain access to micro-lots and learn to press buttons on little money, I had to buy a training course for $ 300 several times, which included a training micro-account with two hundred dollars per account.
During the training, the lecturers sweetly talked about possible millions, and the video with a housewife who earns $ 400 in a couple of hours with a towel on her head tickled the toad at heart. It seemed that here it is - the solution to all problems. But in practice, as with most, everything went differently. The first couple of micro-accounts went to zero within a month and a half.
In the office of the company was a bookcase with books. Over the next couple of months, Murphy, Demark, and other classics of stock analysis were read to the cover. Everything read was structured and immediately checked by the monitor. The third account, although not growing much, was already above zero. At the same time, the director of the office, six months after my start, despite the fact that I did not have an outstanding result, offered me a place as a teacher. This, most likely, gave the main impetus to development. When you start teaching others, finally, you begin to understand it yourself.
Our team of teachers was friendly, we often stayed up, analyzing statistics and strategies. Dozens of hours took manual miscalculation, and the strategies themselves were based on simple indicators and their combinations. Then the need arose to process a large amount of data by technical forces. The first language was very limited in function, but it was enough to reduce the analysis time by hundreds of times.
Soon the first tester was written, which allowed learning to trade on history without losing money in the market. The new director of the company did not like this idea, since the influx of deposits due to this approach began to decline. I had to change my job. But having worked in 3 more companies, the vision of the business fell into place.
Work as a teacher and communication with the back office made it possible to understand how the company takes money from the trader. In fact, in most cases, nothing needs to be done. The client will merge his deposit by his own actions. You can draw an analogy with a man caught in a swamp. The stronger it starts to move, the faster it sucks. There is simple math: a client chases a deal, on average, for 20 points. Spread - from 2 points. It turns out that starting from the moment of entry, in order to get a loss, the price is enough to go through 18 points. And in order to make a profit, the price needs 22. A negative expectation is 10% (we assume a normal distribution of prices and a 50/50 guessing chance).
Rule # 1: the greater the result in the transaction that the trader is chasing, the better the expectation. And vice versa.
For advocates of the statement “Forex is not a casino” I’ll immediately give a gag: the basic analysis tools available to most people who go to the market do not shift the expectation by more than 0.5–2%. Therefore, if measured at a larger value, roulette with a negative expectation of 2.7% will feed those who wish more than forex.
It happens that a random trader gets into a pleasant dispersion and his deposit grows many times over in a matter of days. Those who have ever seen the managerial part of the terminals know how companies "treat" such situations. In 2003-2007, dealers worked on the correction. Beginning in 2008, automatic systems — auto-dealers — were widely adopted in their place, in which all the logic and actions are written to return deviations to normal. Most often this is done with the help of two primitive actions: delayed execution and widening of the spread.
If you are not a programmer and are not going to become one, there is only one way to make money - expanding your trading goals. On large timeframes, there will be more chances to use market deviations and beat the company. But at the same time, high profitability will be lost and Forex will turn into an ordinary tool for you with a 20-30-percent non-guaranteed annual yield. How big goals should you set? - one third of the annual currency volatility. For example, in EURUSD this value will be about 1000 points. Even if the DC will give you an extension of the spread to 5 points with the base of 1.5-2, the negative expectation that you will need to overcome will be only 1%, which is more than twice as much as in a casino. There will be less sports interest, but you will remain with the money.
Let's move on to sweets: automated trading. Most companies support Metatrader, which, in turn, makes it possible to write code in the built-in MQL4 language or build a bridge with the usual software. A little disappointing readers: next, we consider the methods that we in our team used to earn before, but now they are of historical value only and can be applied only with additional conditions or in certain situations. There are no perpetual motion machines (or as the stockbrokers call them graals). Methods for extracting quick money from Forex are constantly changing.
Method # 1: hunting for volatility
The method worked very well in times of fixed spreads. What is remarkable for the market is the strong news –– it is impossible to analyze and clearly say where the market will go after them, but you can be sure of one thing: there will be movement. We specialized in labor market data. They are quite strong, from 20 to 80% of the daily volatility, fluctuating the exchange rate. Automation in a cycle 30 seconds before the news release scattered order grids in both directions at 30-50 positions every 1-2 points. At each position was set the minimum allowable stop loss. In those days, less than 5 points were not. Take profit was 2-3 times more. In practice, basically, they caught the same number of profitable and unprofitable positions. The feast was arranged when the "shots" took place. Companies guaranteed the execution of all pending orders, therefore,
Method # 2: spike hunting
This feature of the quoting mechanism of several companies was discovered when OdlSecurities (a British company) exposed us a loss of a couple of thousand dollars in non-market quotes. Price emissions at the time of fixing the loss were only at this company. Despite the arguments and screenshots from ten other companies that we could provide from accounts scattered around the world, the management decided not to reimburse us for losses. We are greedy. We noticed that the “feeding” stop loss in one account - the shift of quotes to lick it at night, occurred on all our accounts in the company (they had 4 accounts). They wrote a simple automation that did the following: on one account it started a stop at a distance of 70 points from the market, and on the other three, when there was a deviation, it poured a full deposit on the return movement. For a couple of nights, the deposit was restored and there was a handful on top. We must pay tribute, we were returned both our money and the fact that we earned from above, but were forever forbidden to open accounts in this company in our names.
Method # 3: using market features
We dispersed the deposit from 10 to 30 thousand at the official automation championship in 2007. The logic embedded in the robot worked exactly six months, when there was a very high correlation between the pound and the euro. The cross rate volatility of these pairs (EURGBP) was very low. We took the most profitable part of the day, when the deviations were even less - night. As soon as a small spike occurred, the robot instantly reacted and switched on to trade against this movement.
Here we got another rake. Despite the fact that earnings were based on a specific time market feature and we did not use the “holes” of a particular broker, several companies refused to return the money we earned, citing the fact that the average transaction life was less than 10 minutes. There was no “pipsing” clause in the contracts, but there was always an all-describing “at the discretion of the security service” or something like that.
I am grateful to the Forex business for the opportunities and the school that he made me go through. Would I decide to get involved in it if I knew what to go through and what situations to get out of? - I do not know. Here is its own irony and its own chance. Now we are not actively trading on Forex, but we go there as a whole team when a group expectation appears. As a rule, this happens as a result of the actions of slow marketers, less often - market circumstances. Most of the time we spend on the American market, there are our own rules of the game, but this is the topic of another article.
Brief Dictionary:
Spike is a sharp surge in prices, for Forex, as a rule, not associated with changes in market prices. With the help of spikes, brokers can get stop orders for customers who are close to the current price.
Pipsing is one of the types of trading in which the goal of earning in a transaction is 1-2% of the daily volatility of the instrument. As a rule, the life of such transactions is very short (less than 10 minutes). For forex brokers with poor technical capabilities is dangerous, because it can be based on the delay of quotes.
Background
Forex for me is a rogue’s fight against rogues. It began in 2003 at the courses of one of the leading companies. The minimum deposit of $ 2,000 for a 19-year-old student was too big, so in order to gain access to micro-lots and learn to press buttons on little money, I had to buy a training course for $ 300 several times, which included a training micro-account with two hundred dollars per account.
During the training, the lecturers sweetly talked about possible millions, and the video with a housewife who earns $ 400 in a couple of hours with a towel on her head tickled the toad at heart. It seemed that here it is - the solution to all problems. But in practice, as with most, everything went differently. The first couple of micro-accounts went to zero within a month and a half.
In the office of the company was a bookcase with books. Over the next couple of months, Murphy, Demark, and other classics of stock analysis were read to the cover. Everything read was structured and immediately checked by the monitor. The third account, although not growing much, was already above zero. At the same time, the director of the office, six months after my start, despite the fact that I did not have an outstanding result, offered me a place as a teacher. This, most likely, gave the main impetus to development. When you start teaching others, finally, you begin to understand it yourself.
Our team of teachers was friendly, we often stayed up, analyzing statistics and strategies. Dozens of hours took manual miscalculation, and the strategies themselves were based on simple indicators and their combinations. Then the need arose to process a large amount of data by technical forces. The first language was very limited in function, but it was enough to reduce the analysis time by hundreds of times.
Soon the first tester was written, which allowed learning to trade on history without losing money in the market. The new director of the company did not like this idea, since the influx of deposits due to this approach began to decline. I had to change my job. But having worked in 3 more companies, the vision of the business fell into place.
"Baby, they are crooks!"
Work as a teacher and communication with the back office made it possible to understand how the company takes money from the trader. In fact, in most cases, nothing needs to be done. The client will merge his deposit by his own actions. You can draw an analogy with a man caught in a swamp. The stronger it starts to move, the faster it sucks. There is simple math: a client chases a deal, on average, for 20 points. Spread - from 2 points. It turns out that starting from the moment of entry, in order to get a loss, the price is enough to go through 18 points. And in order to make a profit, the price needs 22. A negative expectation is 10% (we assume a normal distribution of prices and a 50/50 guessing chance).
Rule # 1: the greater the result in the transaction that the trader is chasing, the better the expectation. And vice versa.
For advocates of the statement “Forex is not a casino” I’ll immediately give a gag: the basic analysis tools available to most people who go to the market do not shift the expectation by more than 0.5–2%. Therefore, if measured at a larger value, roulette with a negative expectation of 2.7% will feed those who wish more than forex.
It happens that a random trader gets into a pleasant dispersion and his deposit grows many times over in a matter of days. Those who have ever seen the managerial part of the terminals know how companies "treat" such situations. In 2003-2007, dealers worked on the correction. Beginning in 2008, automatic systems — auto-dealers — were widely adopted in their place, in which all the logic and actions are written to return deviations to normal. Most often this is done with the help of two primitive actions: delayed execution and widening of the spread.
But how, after all, make money on Forex?
If you are not a programmer and are not going to become one, there is only one way to make money - expanding your trading goals. On large timeframes, there will be more chances to use market deviations and beat the company. But at the same time, high profitability will be lost and Forex will turn into an ordinary tool for you with a 20-30-percent non-guaranteed annual yield. How big goals should you set? - one third of the annual currency volatility. For example, in EURUSD this value will be about 1000 points. Even if the DC will give you an extension of the spread to 5 points with the base of 1.5-2, the negative expectation that you will need to overcome will be only 1%, which is more than twice as much as in a casino. There will be less sports interest, but you will remain with the money.
Let's move on to sweets: automated trading. Most companies support Metatrader, which, in turn, makes it possible to write code in the built-in MQL4 language or build a bridge with the usual software. A little disappointing readers: next, we consider the methods that we in our team used to earn before, but now they are of historical value only and can be applied only with additional conditions or in certain situations. There are no perpetual motion machines (or as the stockbrokers call them graals). Methods for extracting quick money from Forex are constantly changing.
Method # 1: hunting for volatility
The method worked very well in times of fixed spreads. What is remarkable for the market is the strong news –– it is impossible to analyze and clearly say where the market will go after them, but you can be sure of one thing: there will be movement. We specialized in labor market data. They are quite strong, from 20 to 80% of the daily volatility, fluctuating the exchange rate. Automation in a cycle 30 seconds before the news release scattered order grids in both directions at 30-50 positions every 1-2 points. At each position was set the minimum allowable stop loss. In those days, less than 5 points were not. Take profit was 2-3 times more. In practice, basically, they caught the same number of profitable and unprofitable positions. The feast was arranged when the "shots" took place. Companies guaranteed the execution of all pending orders, therefore,
Method # 2: spike hunting
This feature of the quoting mechanism of several companies was discovered when OdlSecurities (a British company) exposed us a loss of a couple of thousand dollars in non-market quotes. Price emissions at the time of fixing the loss were only at this company. Despite the arguments and screenshots from ten other companies that we could provide from accounts scattered around the world, the management decided not to reimburse us for losses. We are greedy. We noticed that the “feeding” stop loss in one account - the shift of quotes to lick it at night, occurred on all our accounts in the company (they had 4 accounts). They wrote a simple automation that did the following: on one account it started a stop at a distance of 70 points from the market, and on the other three, when there was a deviation, it poured a full deposit on the return movement. For a couple of nights, the deposit was restored and there was a handful on top. We must pay tribute, we were returned both our money and the fact that we earned from above, but were forever forbidden to open accounts in this company in our names.
Method # 3: using market features
We dispersed the deposit from 10 to 30 thousand at the official automation championship in 2007. The logic embedded in the robot worked exactly six months, when there was a very high correlation between the pound and the euro. The cross rate volatility of these pairs (EURGBP) was very low. We took the most profitable part of the day, when the deviations were even less - night. As soon as a small spike occurred, the robot instantly reacted and switched on to trade against this movement.
Here we got another rake. Despite the fact that earnings were based on a specific time market feature and we did not use the “holes” of a particular broker, several companies refused to return the money we earned, citing the fact that the average transaction life was less than 10 minutes. There was no “pipsing” clause in the contracts, but there was always an all-describing “at the discretion of the security service” or something like that.
How did it end?
I am grateful to the Forex business for the opportunities and the school that he made me go through. Would I decide to get involved in it if I knew what to go through and what situations to get out of? - I do not know. Here is its own irony and its own chance. Now we are not actively trading on Forex, but we go there as a whole team when a group expectation appears. As a rule, this happens as a result of the actions of slow marketers, less often - market circumstances. Most of the time we spend on the American market, there are our own rules of the game, but this is the topic of another article.
Brief Dictionary:
Spike is a sharp surge in prices, for Forex, as a rule, not associated with changes in market prices. With the help of spikes, brokers can get stop orders for customers who are close to the current price.
Pipsing is one of the types of trading in which the goal of earning in a transaction is 1-2% of the daily volatility of the instrument. As a rule, the life of such transactions is very short (less than 10 minutes). For forex brokers with poor technical capabilities is dangerous, because it can be based on the delay of quotes.