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.Furthermore, it takes a great deal of work anddiscipline to simulate trades manually over a large data set withoutstraying from the strict rules of the strategy.Finally, the normal rangeof human emotions and biases that often interfere with actual trad-ing can also be a detrimental factor in achieving objective backtestresults.That being said, however, manual backtesting can provide thetrader with a real feel for actually trading a given strategy.Thisprovides valuable trading experience, albeit simulated, that no auto-mated backtest could possibly provide.Whether performed manually or automatically, backtesting canbe one of the most important elements of fi nding and/or buildinga solid trading strategy.This vital practice can save traders a greatdeal of time and money that might otherwise be wasted on tradingunprofitable strategies.Autotrading Robots for HireClosely tied to backtesting is the concept of autotrading.As men-tioned in the previous section, automated backtesting utilizes asoftware trading platform to place hypothetical trades when prede-termined trading signals appear on historical price data.The purposeof this is to test the potential viability and profi tability of a tradingstrategy.Autotrading goes a step further by actually executing realtrades on current, real-time market prices.When a predeterminedsignal emerges, the software actually places a trade automatically.190 Aut ot r adi ng Robot s f or Hi r eThis is usually initiated only when all proper backtesting has indi-cated the likely success of the trading system.Autotrading is common in foreign exchange trading.Manyhedge funds and other entities that manage money via forex tradinguse some form of autotrading in their daily activities.In addition,many private, individual traders have also begun to adopt autotrad-ing to execute their thoroughly backtested and highly optimizedforex trading strategies.For these traders, autotrading is accomplished using an ApplicationProgramming Interface (API), which connects the trader s system tothe dealer s trade execution structure.APIs require programming skillson the part of either the trader or a programmer hired by the trader.But once all of the trading rules and criteria are determined by thetrader, programming an API can be relatively straightforward for any-one with programming experience.After the specifi c trading rules and criteria are determined,the strategy is backtested with positive results, and the API is pro-grammed, autotrading is almost as simple as fl ipping a switch tobegin the trading process.When this occurs, not only are tradesentered when predetermined technical criteria are met, but tradeexits in the form of stop losses and profi t limits can also be pro-grammed into the API.This creates an entire self-contained systemfor trading foreign exchange.As with backtesting, any nondiscretionary technical trading strat-egy that has clear-cut, unambiguous rules is a good candidate forautotrading.In fact, if a trader has optimized and perfected this typeof a black-and-white trading strategy that runs devoid of humanjudgment, autotrading is perhaps the best way to execute it, as it191 For ei gn Exchange Tr adi ng Met hods and St r at egi eseffectively eliminates all human biases, errors, and emotions in thetrading process.Chapter SummaryThree general approaches to forex, including position trading, swingtrading, and day trading, outline the primary styles that have beenadopted by many forex traders in the market today.Position trad-ing attempts to capitalize on longer-term trends, and can employboth fundamental and technical analysis to determine directionalbias.Swing trading is generally a purely technical style that looks toexploit short- to medium-term swings, or turns, in the market.Daytrading is the shortest-term approach that seeks to get in and out ofposition within a given trading day using extremely short chartingtimeframes and well-defined technical signals.Besides these general approaches to trading foreign exchange,there are other delineations of trading methodology.On the techni-cal trading side, these include trend trading, range trading, breakouttrading, and pattern trading.Trend trading, or trend following, utilizesprimarily technical analysis to identify the overall trend, and then todetermine the best place to enter that trend.In the absence of a trend,traders will often go into range trading mode, where lows are boughtand highs are sold during sideways trading ranges.When a range orsupport/resistance level is broken to the upside or to the downside,breakout trading takes precedence.Traders will then buy on a breakabove or sell on a break below.One type of breakout trading occurswhen chart patterns are broken.Common examples of traded patternsinclude head-and-shoulders, triangles, wedges, flags, and pennants.192 Chapt er Summar yYet other common methods for trading forex include strategiesthat utilize the powerful analytical tools of Fibonacci, pivot points,and Elliott Wave.Each of these tools commands its own loyal fol-lowing among traders, and each has its own unique approach toforecasting price movement.Divergence trading seeks to identify instances when price andan oscillator are diverging in direction
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