There are two main criteria for which you need to program rules and they are – Entering the market and exiting the market or stopping you. You can use a huge number of indicators to synchronize your trades, but with an automated trading system you should use as little as possible and here I will show you how to build a 1 rule system simply based on trading volatility.
A very simple system would be one based on the standard deviation (volatility) of the price. The Bollinger Bands, for example, show a mean mean band, and the two outer lines are a standard deviation from the norm or the mean, as volatility increases the bands that widen from the mean. You can easily build a simple volatility system with your own settings, so here’s what you do.
To get started, you’ll need to decide a moving average. This is where prices will find support in the bull market and resistance in the bear market. A buy signal will be generated (and retained) in the bull market, when the average is reached, the outer bottom bar will provide a stop level.
What you need to do is test different moving averages and standard deviation settings for the outer strips, but this is easy to do with today’s software. Then you will have to decide the distribution of the currencies to trade it on and test it back over time to see how successful it is – since there is only one rule, it will show a realistic back test of performance.
The logic of the above system is easy to understand and below you will find how to generate a buy signal and stop at the bull market.
In a strong bullish trend, prices may deviate from the average price, but will usually find support against the average price. If volatility takes prices through the middle lane to the outer lower lane, the supply and demand situation is likely to change from rising to sword and a stop may be made.
You need to do a little research and you can add additional filters if you wish, but the volatility-based system, if traded on a spread of uncorrelated contracts, will work (they very rarely work on one contract).
I’ve seen people make huge profits with simple automated systems, and so can you. Of course, you need to spend some time researching and testing, as with any long-term trading system, but if you do a little work, you can easily build your own automated Forex trading system and make great profits in under 30 minutes a day.