Wed. Oct 27th, 2021

“Using a mechanical system is the best way to make money constantly. If you know that your system is making money in the long run, it is easier to pick up the signals and follow the system during periods of losses. – Richard Dennis

Automation really looks like the Holy Grail of commerce. Develop a method, do it with a machine and let it do the grunting work day after day. If it were that simple!

Many marketers try to automate their strategies and fail. In our experience, successful business models are not necessarily complex, but they are tedious to implement in a fully automated manner. So our solution, at FXRenew, has been to approach things differently. Instead of going for Gold, we simply point to the podium: if we still can’t fully automate a strategy, maybe we can automate parts of our models efficiently.

And maybe you can do the same. We find out how.

Add automation to a volatility strategy

The example we will use is one of our own strategies used in our end-of-day signals: volatility outbreaks. The systematic approach (which you can read in detail here) has the following automation potential:

Configuration condition: wait until the Bollinger Bands relative width indicator drops below 70%.

Entry condition: wait for the price a Close on the Bollinger Band in the direction of the dominant trend. (Note that you must use daily charts with Candelers near New York for this.)

You can see these two conditions illustrated in the chart below. Red vertical lines are the non-discretionary signals given by the configuration and input condition.

Initial hard stop / Final stop: often trade does not reach the goal and it makes no sense to return all profits if the market invests. To do this, we apply a final stop using our own supertrend indicator with the configuration of factor 2 and periods 7.

Thus, with a couple of well-established indicators and EAs it is possible to automate configuration, input and hard stop / final stop. This is a LOT of work that you no longer have to worry about. It saves you time and effort because your only job from here is to manage the position based on market behavior.

Systematic management of trade

We need to deviate briefly from the concept of systematic business decisions and automation. We have spoken many times before about the need to have extremely clear rules for dealing with markets. Without clear rules, you will be at the mercy of the temperament of the market. Here are some classic symptoms that usually indicate a lack of clarification:

  • leaving a position prematurely due to a “rapid movement” (which was then only a setback)
  • trying to guess if a move is a setback rather than an inversion
  • be nervous until you can “track your stop at height”
  • etc.

The advantage of thinking systematically is that it disregards any market behavior that does not fit certain boxes. We can’t try to create a “all season” negotiation model. Rather, each model should be built to exploit a very specific market advantage (e.g., volatility outbreaks) and trade management should follow logically, complementing the approach (capturing the momentum of the break before follow more passively).

If you can do that, you’re very close to automation. Avoid guessing and making clear decisions based on various market behaviors.

For example, in order to capture the momentum of volatility outbreaks, you may decide to adopt the Supertrend in a shorter period of time, in order to track the price more closely. In the 4H chart below, the red lines indicate days of “break” and the Supertrend is a potential example of a stop that makes you exit the market when the momentum dissipates.

Logic first

I really have to stress the fact that we are not blindly looking to “choose a few indicators” and create a system of them. Real-world business models always start with the ending in mind: what exactly are you trying to do?

  • Are you trying to spot long-term methods in the Turtle Trader?
  • Are you trying to detect outbreaks of volatility?
  • Are you trying to capture short / medium / long term trends?
  • Are you trying to capture extended prices before reversing?
  • Etc.

Each goal needs to be tracked with logical configuration / input / management / output rules.

MT4 and EA indicators ready

We have decided to complement our systematic methods with indicators and EAs that can automate snippets of work not only for us at FXRenew, but also for you.

Each goes through rigorous testing before being released to the public. They are a natural complement to our signal services and maintain their educational value, as each indicator and EA includes an explanatory PDF and there is always the possibility to contact our programmer directly for ad-hoc questions or requests.

Our goal is to help you do your business as well simple and efficient as possible.

About the author

Justin is a forex trader and coach. He co-owns, a Friday signal provider of banks and hedge fund traders (get a free trial), or get FREE access toT the advanced currency exchange course for smart traders. If you like writing it, you can subscribe to the newsletter for free.

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