Automation has become a major part of the digital trading ecosystem on the global foreign exchange market. Many retail and institutional traders can now automate their trading strategies to take advantage of opportunities as they arise on the market.
This is especially pronounced on the forex market, which is the most liquid capital market available.
The advent of machine learning and large language models like ChatGPT, has made it even more accessible for traders to automate strategies by writing prompts and pieces of code that allow them to deploy technical indicators for orders to be executed as soon as the right conditions have been met.
It is also worth noting that trading platforms like MetaTrader 5 also allow for automated backtesting capabilities to check how a particular strategy would have performed during prior market conditions.
Creating an automated forex trading strategy using ChatGPT
As we have already mentioned above, ChatGPT has become one of the most popular methods for creating automated trading strategies for the forex market.
For example, we can create a trading strategy using fast (50 EMA) and slow (200 EMA) moving averages and the Relative Strength Index.
In this case, this is how the strategy would generate buy and sell signals:
Buy Signal:
- The fast moving average crosses above the slow-moving average
- The RSI is above 30 (indicating that the momentum is not oversold)
Sell Signal:
- The fast moving average crosses below the slow-moving average
- The RSI is below 70 (indicating that the momentum is not overbought)
This is a simple automated trading strategy that uses two moving averages and the Relative Strength Index, which acts as a barometer for overbought and oversold conditions.
Bollinger Bands strategy using ChatGPT
To better illustrate how to use ChatGPT to build an automated trading strategy, we can look at an example of a strategy that uses Bollinger Bands.
In order to do this, we must create a prompt that directs ChatGPT to create a sample automated Bollinger Bands strategy. You can also ask to create a code snippet for the strategy.
The conditions for the strategy are the following:
- Middle Band: A moving average (20-period SMA)
- Upper Band: Middle Band plus 2 Standard deviations of price
- Lower Band: Middle Band minus 2 Standard deviations of price
The core idea behind the strategy is to:
- Buy when the price touches or falls below the Lower Band (indicating potential oversold conditions)
- Sell when price touches or rises above the Upper Band (indicating potential overbought conditions)
The Bollinger Bands strategy
Here’s how the strategy generates buy and sell signals:
Buy Signal:
- Condition 1: Price touches or falls below the Lower Band
- Condition 2: Price then closes above the Lower Band
- If the price is above the Middle Band, this confirms an overall bullish trend
Sell Signal:
- Condition 1: Price touches or rises above the Upper Band
- Condition 2: Price then closes below the Upper Band
- If the price is below the Middle Band, this confirms an overall bearish trend
ChatGPT can generate the entire strategy as a pseudocode which can be used to deploy the strategy described above on the trading platform of your choice.
As we can see, AI can easily generate multiple different automated strategies depending on the technical indicators you would like to use to analyze the chart.
It is also worth noting that these strategies are not exclusive to the currency market and can also be deployed when trading stocks, crypto or other listed instruments.
Conclusion
In order to generate an automated currency trading strategy using AI, it is important to generate a clear and concise prompt which addresses the exact type of strategy and indicators you would like to use.
Furthermore, you can also instruct the AI to provide a pseudocode for you to use when implementing the automated strategy in practice.
