Trading Concepts
This page explains the core ideas behind AurexTrade in plain language. No prior trading experience needed.
What Is a Trading Strategy?
A trading strategy is a set of rules that tells you when to buy and when to sell. Instead of making decisions based on gut feeling, the strategy follows the same rules every time — no emotions, no second-guessing.
Think of it like a recipe: given specific ingredients (market data), follow these steps, and you get a specific output (a buy or sell decision).
The Two Strategies
AurexTrade currently offers two strategies. They work in opposite ways, which means they perform best in different market conditions.
SMA Crossover (Trend-Following)
The idea: Follow the trend. If the price has been going up, keep buying. If it's been going down, keep selling.
How it works:
Imagine smoothing out a bumpy price chart into two lines:
- A fast line (short window) — reacts quickly to price changes
- A slow line (long window) — moves more gradually
When the fast line crosses above the slow line, the market is trending up — buy. When the fast line crosses below the slow line, the market is trending down — sell.
When it works best: Markets that have clear upward or downward trends.
When it struggles: Markets that bounce sideways without a clear direction.
Analogy: It's like following a river's current. You don't fight the flow — you go where the water is already moving.
RSI Mean-Reversion (Counter-Trend)
The idea: What goes up too far will come back down, and vice versa. Buy when the market has fallen too much. Sell when it has risen too much.
How it works:
The RSI (Relative Strength Index) measures how "exhausted" the price movement is on a scale of 0 to 100:
- Below 30 = oversold — the price has fallen too far, too fast. Expect a bounce. Buy.
- Above 70 = overbought — the price has risen too far, too fast. Expect a pullback. Sell.
When it works best: Markets that bounce between a range (sideways/choppy markets).
When it struggles: Strong trending markets where "overbought" keeps going higher.
Analogy: It's like a rubber band. The further you stretch it from the middle, the harder it snaps back.
Which Strategy Should I Use?
| Market Condition | Best Strategy |
|---|---|
| Clear trends (up or down for weeks) | SMA Crossover |
| Choppy, sideways, range-bound | RSI Mean-Reversion |
| Not sure | Test both with a backtest and compare results |
In practice, no one knows in advance what the market will do. That's why testing matters — you can see which strategy worked better on recent data.
What Is the Risk Engine?
The risk engine is a safety system that sits between the strategy and your money. Even if the strategy says "buy", the risk engine can block the trade if it would be unsafe.
Rules the risk engine enforces:
| Rule | What it prevents |
|---|---|
| Kill switch | Halts all trading immediately (emergency stop) |
| Stop-loss required | Every trade must have a maximum loss limit |
| Max drawdown | Stops trading if total losses get too large |
| Consecutive losses | Pauses after several losses in a row |
| Position size limit | Prevents betting too much at once |
| Daily loss limit | Stops trading for the day if losses exceed a threshold |
| Trade frequency | Prevents excessive trading (overtrading) |
Think of it as a co-pilot that can override the autopilot when things look dangerous.
The 3-Step Validation Workflow
Before you trust a strategy with real money, you need to validate it. AurexTrade provides three tools for this:
Step 1: Backtest
What it does: Replays past market data through your strategy and records what would have happened.
Why it matters: If a strategy doesn't work on past data, it almost certainly won't work on future data either.
Limitation: Just because it worked in the past doesn't guarantee future success.
Step 2: Parameter Sweep
What it does: Tests every combination of strategy settings (e.g., different moving average lengths) and ranks them by performance.
Why it matters: The same strategy can be profitable with one set of parameters and unprofitable with another. A sweep finds the best settings systematically.
Limitation: The "best" settings might be overfit — they could be tailored to quirks of that specific historical period.
Step 3: Walk-Forward Validation
What it does: Splits the data into alternating "learning" and "exam" periods. Finds the best parameters on the learning period, then tests them on the exam period (data the system has never seen).
Why it matters: This is the closest thing to testing on future data without actually waiting. If settings work on the exam period, they're more likely to be genuinely robust.
Analogy: It's like studying for an exam using practice questions (learning period), then taking a real exam with different questions (exam period). If you pass the real exam, you probably actually learned the material — not just memorised answers.
What Happens When You Start the Bot?
Once you've validated a strategy, you can run the trading bot. Here's what it does each cycle (every 60 seconds by default):
- Fetches the latest price data from OANDA
- Runs the strategy to see if there's a buy or sell signal
- Checks the risk engine — is it safe to trade?
- Places the order if approved (or skips if rejected)
- Records everything — every decision is logged
The bot runs continuously until you stop it or the kill switch activates.