Forex robots… a good idea or not. In this post we try to explain about the pros and cons of robot trading and how to use them.
What are forex robots or expert advisors
Forex robots aka expert advisor is trading software, mostly developed in the computer language “MQL” that uses technical indicators and/or mathematic calculations to conduct trading around the clock. Most forex robots can trade fully automated which allows it’s users to save loads of time, not to mention to rule out emotions whilst trading.
An Expert Advisor runs on the Metatrader platfrom (MT4 or MT5) and you can backtest a strategy using this trading terminal that offers a built in strategy tester.
The problem is that forex robots and their pre-wired thinking do not compensate for ever-changing market conditions and therefore robots needs to be monitored constantly.
What types of automated forex robots are there?
The most common forex robot strategies are:
Price action strategy
Typically a scalping strategy aims for as little market exposure as possible and take profits are small and trading volume could be high. Exposure is considered risky and a scalp trader therefore tries to minimize it.
In the chart above you can see how this strategy “scalps” little profits using the stochastic indicator.
Probably this is the most loved and hated strategy at the same time. A grid strategy is the best suited algorithm for automated trading, since it doesnt care if markets go up or down.
A grid forex strategy starts trading from a certain entry point, usually based on a macd ,stochastic or moving average indicator, from where it starts building a “grid”. Basically if the entry was wrong and thus the market goes into the wrong direction, it starts adding more position in the same direction as the opening trade. If this next position keeps doubling in size (1, 2, 4, 8, 16 lots) we are talking about a Martingale strategy (don’t burn your money with that!). This will most likely blow up your account. There are some sophisticated grid strategies out there there show steady results and use proper money management tools.
As you can see the grid strategy builds a so called “grid” where the starting point typically the first entry is. From that point the grid will take trades if the market either goes in favor of the opening trade or when the market moves in unfavourable direction.
These are definitely the notorious ( and maybe loved) strategies. They show amazing results in a few months and then suddenly you wake up with no account balance You blew up. Be very careful when using these kind of strategies. The trading rules for these EAs are rather simple. Enter a trade and if the market is against the position it increases the lot size. This process keeps on going until all margin is used. To some extend a Martingale strategy is very similar to a grid strategy, however with a martingale strategy the lot size will increase drastically for each consecutive trade. That is the reason why many accounts are blown during volatile market events.
Price action stragey:
As much as many people try to believe that price action can be automated, they are wrong. Price action trading is likely the trading style that consumes most of your time. The trick is to identify real or fake price action. Therefore we created a price action robot that can be used as a trade manager to never miss a trade whenever the markets tend to move fast.
Pro’s and cons of forex robots
Trading with robots (or bots) has become extremely popular in the last decade. Moreover they are use a lot to pass the FTMO challenge. It is estimated that over 60% of all forex traders use some kind of algorithm or bot to improve their trading. The question is why? I think that deep down we are all guilty of having an excessive desire to find the holy grail strategy. Many times we visit the website of a robot developer and we simply can’t resist the 1000% per annum results. We want to think we found the holy grail!
Guess what…if their would be any out there, I would not be writing this article.
Over the years I have used a lot of expert advisors and I can honestly say that many of them are not bad. However, I also noticed that if I would manage the bot, the results were increasing drastically. Conclusive I can recommend to be extremely careful to trade any bot in your account without exactly knowing what the strategy does.
So the most important tips to use any robot are;
– Track records should be published from a live trading account
– Check which broker the developer uses.
– What are the trading conditions
– Does the developer explain in detail how the strategy works
– Does it look too good tob e true? It probably is.
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Risk warning: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particularly trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk. Variables such as the ability to adhere to a particular trading program in spite of trading losses as well as maintaining adequate liquidity are material points which can adversely affect actual real trading results. Currency trading involves high risk and you can lose a lot of money.
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