Price level analysis is an integral part of the daily technical analysis job, especially when you’re trading forex. It gives you an idea about the key market levels based on the swing highs and lows of the price within a selected period.
However, analyzing price levels requires significant time and attention when it’s done manually. Traders who seek technical information from multiple charts for making trading decisions may find it hard to draw the price levels manually every day.
Interestingly, in modern times, traders use automated trading systems or forex robots for price level analysis. Such tools capture the frequent swinging areas of the price and draw the support/resistance levels automatically. An automatic price level analysis system saves time and provides greater accuracy than manual systems in identifying the potential price swinging areas.
What is an automated forex trading system?
An automated trading system in forex is a robot trading currency pairs that generates trading signals based on algorithms and logic set by its developer. Depending on its type, it may or may not place the actual orders.
Such systems allow one to trade simultaneously on your selected charts through multiple accounts which offer a greater diversity of trading portfolios. At present, artificial intelligence in trading robots solves almost all sorts of basic and advanced issues regarding technical analysis.
Price level analysis is a common and popular feature in automatic trading systems. Depending on your trading style and requirements, you can choose two types of automated trading systems:
Semi-automated trading system
A semi-automated system only carries on the technical analysis task and automatically sends trading signals to its users.
For price level analysis, it scans the price charts and automatically draws support and resistance levels. Additionally, it sends you auto-alerts, or signals, whenever the price hits an S/R level so that you can make your own trading decision. Besides trade signals, a semi-automated tool also sends necessary information regarding stop-loss and possible profit target level of the trade setups.
So, using a semi-automated system means your robot is fully responsible for analyzing the price levels and sending you alerts of potential trade signals. On the other hand, you keep full authority on deciding whether you’ll pick a signal or not for activating an order.
Fully-automated trading system
A fully automated trading system follows pre-programmed trading strategies, analyzes charts, defines key price levels, and makes trading decisions on behalf of its users.
There are many benefits of using a fully automated system in forex trading. You’re using such tools for price-level-based trading, meaning the system will first detect the potential support/resistance levels. Next, it’ll monitor how the price reacts at the S/R zone. Finally, the system activates an order based on the reversal or breakout patterns of the price formed by certain market events. Moreover, this system automatically sets stop-loss and take-profit levels for each order.
Steps of building an automated forex trading system for price level analysis
There are thousands of open-source and licensed price level analysis tools available in the online market. However, if you’re planning to build your own trading system, here’s the guide on how to get started.
1. Build a trading plan
You obviously want a trading robot that follows your trading plan as correctly as possible. In that regard, you’re required to create a trading plan that perfectly reflects your trading strategy. It is the most important part of building trading software. Because if there is an error in your trading plan, the system will be delivering the wrong signals. You may consider the following facts while creating a trading plan:
- Which forex currency pairs you want to trade
- Your preferred method of price level analysis
- Logics behind activating trade entries
- Risk to rewards ratio or stop-loss and profit targets
- At which market sessions you want to operate your system
2. Develop your automated trading system
Once you’ve built a trading plan, the next move is to transform the plan into programming code. Each trading platform is coded with different programming languages. Therefore, you need to make sure the coding language of your trading system and your platform are the same.
For traders, it’s always helpful to have a clear idea about how the system is coded. However, even if you’re not an experienced coder, you can still develop a trading robot by hiring a professional developer. In such a case, explain your trading plan elaborately to your developer so that he can create the right product for you.
3. Backtest the system
Backtesting is a tracking process that feeds the historical data to your trading system to see how it would have performed during past market sessions. It lets you understand how closely the system is following your trading plan and the winning ratio.
While developing a price level-based trading robot, make sure your system catches the major support/resistance levels during the backtesting process. Also, make sure the system follows your risk management system correctly. We recommend always keep the risk lower than the projected rewards for better results.
In forex trading, the price level is a key factor that is closely watched by investors, traders, and economists. This indicator is commonly used by both beginners and expert professionals for anticipating the entry and exit levels of the trade entries. Besides, major support and resistance levels help traders in assessing the ideal stop-loss levels of active orders.
Applying automation on price level analysis-based trading strategy includes several benefits. First, it speeds up your price level analysis process. Second, it brings discipline to your trading strategy. Because human-made trading decisions may suffer from an adrenaline rush, emotion, confusion, or lack of confidence but a robot only follows the pre-determined logic and strategy for decision makings. Finally, it saves your time and lets you enjoy a relaxed trading life rather than sitting and watching charts for finding key price levels all day long.
However, even when trading on a safer side with your FX robot, you should have a money management strategy.