New trading tools appear all the time: new auxiliary indicators, modified old ones, cutting-edge algorithmic systems. These systems are essentially trading robots that are able to analyze assets and open buy/sell transactions. Simply put, a piece of code is written which, based on software iterations, reads the values from the chart.
As known, each indicator or technical figure can be detected and recognized by a robot. Indeed, in their essence, all the indicators that appear in the MT4 fix api terminal are also software code that displays the value based on the quotations. Take, for example, the simple moving average. This indicator represents the average price value during the last n bars. That is, if a trader sets n=50, the program calculates the average over 50 candles and will give the result in a line form. Trading robot is able to perform this calculation, compare prices with the MA level and based on that decide on a long or short position.
This example of MA is the easiest working principle for a robot. Today I’d suggest to consider, how does a divergence signal based robot work.
So, divergence is the difference between the currency pair quotations on the FIX API Forex market with the values of the indicator. In order to understand what it is and how it works, let’s look at an example of divergence on the basis of a MACD indicator.
The MACD technical indicator is represented with two lines (the MACD line and the signal line), as well as histograms (which show the difference between the two lines). To detect the technical divergence signal, a histogram is required. Since we already know that divergence is the difference between the price and the indicator, we need to spot this difference.
The graph clearly shows that the moment when the currency pair quotations showed growth, MACD histograms declined. We see that peaks of quotations grow, and histograms peaks are falling. This is the signal for the correction movement, which did actually happen afterwards. This kind of divergence suggests opening short positions after the second discrepancy.
In turn, the trading robot analyzes both the MACD value and the value of quotations, and, based on its program code, opens a deal after it “sees”, that is, detects, a divergence.
The main advantages of a divergence-based trading robot:
- Speed: the robot is able to detect the presence of divergence in a fraction of a second and then perform a trading operation;
- Monitoring of the whole market: A FIX API trader is just not able to simultaneously review all assets, and often the signal simply goes unnoticed;
- Continuous trading: the key advantage of any robot, not only of one based on divergence, is the 24/5 operation. Trading via FIX API broker, the robot will constantly analyze the market in search of divergence while it is open;
- Short stop loss level relative to the take profit level Loss limitation will always be set behind the peak, and the level of profit has to be 4-5 times longer, which is a good indicator and increases the mathematical expectation of the trading robot.
It is worth mentioning that a divergence-based trading robot can determine it not only by MACD indicator, but also by some others: Awesome Oscillator, RSI, MA etc. Also within the parameters of the robot, you can set it for trading after two as well as three divergencies (3 maximum quote peaks and 3 consecutive indicator drops), which makes the signal more robust.
Divergence-based trading robot is a full-functional tool for FIX API trading. It is an irreplaceable assistant for a trader, as well as a means for performing automatic transactions.