As traders gain more experience, it is natural for their curiosity to wonder about forex trading robots and auto-trading. After all, auto-trading can save both effort and time, which is attractive to traders. At first, it might seem that forex trading robots are intimidating but this in-depth forex trading robots guide should give you all the information you need.
You might see these automated tools being called Forex EAs. They have become increasingly popular these days. Lots of traders now take advantage of auto-trading and use the best forex trading robots so that they can rest assured that their affairs are in order while they are doing something else.
How do trading robots work?
Forex trading robots are just an algorithm or computer program that scans the FX market to look for potentially profitable trades. The robot can be set with trading strategies or pre-set parameters. Traders can instruct a robot to trade for them automatically or they can enter trades manually.
Most forex trading robots make use of indicators that locate potentially profitable trading opportunities. Forex trading robots are capable of watching forex markets much more efficiently than a person can. What’s more, they are never susceptible to human emotions that can hinder trading decisions.
How to choose the best trading robots?
- Live trading results – robot sellers often promise winning ratios above 90%. This figure, however, can be deceiving. It’s important to decipher whether or not this figure is based on simulated trading or real-time trading. There are big differences between the two. In real-time trading, markets are often chaotic whereas simulated trades have strict parameters. With simulated trades, you don’t get the reflection of liquidity, which is really important when trading in real-time.
- Back-testing – You should always seek forex trading robots that have undergone back-testing on different currency pairs in various market conditions. This shows you how the market conditions affect the program. You can see how low volatility or high volatility, important news and announcements affect trading.
- Order size limitations – many forex trading robots work really well if they stick with a specific order size. However, things often go awry if there is an order size change.
- System credibility – It’s important to check user testimonials and reviews before you decide which of the forex trading robots to use.
- Drawdown – different traders have different requirements. Some traders prefer a 50% drawdown and others might want 25%. Since this is a personal preference, it’s vital to check the drawdown of forex trading robots to find one that suits.
Trading robots and their advantages and disadvantages
Let’s take a look at the ups and downs of automated forex trading:
- You can keep your emotions in check – Emotions should come anywhere near Forex trading. Using a forex trading robot will make sure there are no emotions in any trading decision. Orders are carried out automatically when certain parameters are met.
- Backtest trading rules – This means you can apply your trading rules to past data, helping you to decide if your rules are viable or not. Since trading robots can’t guess what to do, they need to know what they should do for any arising scenario. Your rules have to be pretty precise and you should test them on previous market data before you risk any money in trades.
- Maintain discipline – even if the market is volatile, auto trading rules are always the same. This means that emotions are removed – you won’t fear losing; you won’t have an increase in desire to have more profit. With a robot, your discipline is the same.
- Consistency – Remaining consistent with forex trading requires lots of discipline, especially if you’re coming back from a couple of losses. With forex trading, you’re always going to experience a loss at some point. When you’ve encountered a loss, people are easily tempted into skipping the following trade, which could actually be the winning trade. A forex robot removes these decisions and makes things consistent.
- Improved order entry speed – computers are much quicker when it comes to responding to market conditions. A forex robot is capable of generating an order as soon as the specific criteria are met. These few seconds gained could make big differences to trade outcomes.
- Diverse trading – Automated trading means traders are able to trade on different accounts at the same time – each with different strategies. This means you are able to spread your risk and hedge against any losing positions. Computers are much better at this multitasking than people are.
- System mechanics failure – even though forex trading robots are very sophisticated, they aren’t without fault. If you lose internet connection, if a trade order doesn’t transfer to the server, or if the theory doesn’t match fact, it can cause huge problems. This is why it is best to start small and allow for minor system adjustments as you go.
- You still need to monitor it – It isn’t particularly realistic to think you can set off your forex trading robots and then forget about them. There are many things that could happen that require human input – like connectivity issues, power outage, crashes, etc. If you fail to pick up these anomalies, you might have missing orders, wrong orders or duplicate orders.
- It could look great on paper but not in the real world – it’s pretty easy for system creators to show off how great their product is on paper. Creators know how to market their products to show excellent results that might not actually work in live, real-life trading.
So, do these online trading robots really work?
Honestly, there is no truly reliable way of being a successful forex trader. There are no systems, tools or strategies that will give you 100% success. The same applies to forex trading robots. Although there are some pretty amazing robots out there, they’re never going to be the perfect system for making money – after all, if someone created that they wouldn’t be sharing it!
Final thoughts before you choose which of the forex trading robots to go for
You should always read genuine customer feedback on forex trading robots before deciding which one to go for. Reviews are plentiful online but you should make sure that the source you’re reading them from is reputable.
Forex trading robots are capable of analyzing millions of trade charts much quicker than humans can and they’re capable of pointing your trades in a more favorable direction. However, any forex trading robot can only perform as well as its program allows. The good news is, there are some fantastic programmers out there who have created some amazing forex trading robots.