To increase the profitability of trading on the Forex market, some private traders and investment companies automate the process using trading robots (Expert Advisors). Forex trading robot is not only a modern solution, but also a valuable upgrade to the functionality of a trading terminal. However, one should be attentive to the quality of this software, in particular to the accuracy and speed of their work. Let’s look at the trading robot concept through a magnifying glass and decide if you need it for your daily Forex trading. Another vital question to ask is how to choose one among the many options on offer today? We’ve gathered the answers in the article below.
A trading robot is a program to automate transactions on the Forex market. Simply put, a trading robot contains a set of rules: when to buy, when to sell, what factors to take into account when making deals and how to prioritize them, and what to disregard as irrelevant. It may look like the work of a professional trader, only everything works automatically. And this is a result of rocket-speed changes the fintech industry has been going though. In the US, such services (such as Betterment or Wealthfront) are popular and run billions of dollars of private investors.
In the international financial market over the past couple of years, several analogues have appeared. Since the use of robots in investments has recently been actively developed and advertised, we will try to figure out whether they can be useful for a private investor and whether to use them on Forex market.
What is a trading robot?
As the actions of the trader within his strategy can be described as repeated, they can be split into a string of successive manipulations that are performed in clearly defined circumstances. This stability makes it possible to crystalize algorithms, to write a program on their basis that will imitate the trader during his working day, ruled by the same conditions that the trader is ruled by. This This is the mechanism that lies in the heart of the trading robots concept.
Pros and Cons of using a trading robot
No one will argue that involving a trading robot means removing a serious stress load from the trader. When even the most experienced trader loses concentration over time he starts to make elementary mistakes. If he then tries to correct these mistakes by taking an unreasonably high risk he may easily be zeroing his account overnight. The emotional component among other human factors ruined more than one successful currency trader.
A forex trading robot can have many names: an advisor, an expert, or mechanical trading systems. All of them are designed to maximally automate the process of trading in Forex. Their main functions are:
- conducting round-the-clock analysis of financial markets and detailed tracking of trading signals;
- execution of the programmed strategy;
- autonomous round-the-clock trading without the participation of the trader – sending all kinds or orders to the broker without human involvement;
- lightning fast processing speed of large data volumes;
- illusion – free risk assessment.
Forex robots can be written with different drawdown assumptions, for example, from 5 to 60% depending on the implemented strategy. There are such robots that are able to catch price fluctuations in intervals of two seconds and have time to make purchase / sale transactions, which people obviously cannot physically and intellectually do.
Automated trading system has its drawbacks. Each adviser for forex is developed by a person, carrying in his algorithm and his erroneous perception of the market. Secondly, trade experts have no intelligence, which allows them to make mistakes, based on the erroneous testimony of their technical analysis indicators. Thirdly, the expert cannot make independent decisions when the market situation changes, which may lead to an increase in risk from potential erroneous transactions. Fourthly, over time, the market changes so much that the relevance of the adviser decreases, and this requires optimization and a series of testing. To this can be added the exactingness of some experts to the size of the deposit and the high cost of really good advisers. Besides, some forex brokers do not allow the usage of trading robots.
What are the criteria for choosing a robot?
Everything is simple here. Look at the profitability of the robot in the past, the level of risk and, in principle, the openness of the system. Do not agree if you are told only about profitability and are not informed about risks.
When choosing a trading robot, remember the importance of minimizing risks. Ideally, several robots with different trading strategies will be connected to the account. So you will not depend on one system and are less likely to face force majeure cases.
Undoubtedly, on the Internet you can find certain ratings of robot programs for Forex, but among which aggregate sample they were compiled and whether it was representative is unknown. At what time period was the robot tested? How many traders were involved? All these questions, in most cases, remain unanswered. Therefore, study the ratings as you surf the market for choices, but make the final decision after testing the robots preferably independently or in a tandem with an experienced trade you trust.
The choice of a forex trading robot must begin with determining the goal pursued by the trader and, first of all, with an assessment of the expected profitability of the adviser. You need to understand the higher the profitability, the higher the risks. Therefore, the trader must evaluate acceptable risks for themselves, corresponding to the style of trading. This should take into account the rules of money management.
Many robots show efficient trading only on certain types of market. Therefore, a robot designed for a trending market will cause losses during flat periods. It is important that the expert does not lose money earned during periods favorable for him. Testing allows you to evaluate the maximum drawdown in an unfavorable market and evaluate the profit factor of a trading robot.
It is necessary to dwell separately on paid and free advisors. From my own experience, I can say that plums are possible not only with freebies, but also with paid robots. As a rule, paid advisers are distinguished by detailed instructions and the opportunity to receive technical support directly from the algorithm developer.
What are the best forex trading robots in 2019?
Again, the better the work done by programmers and experienced traders when creating and writing a Forex robot, the more expensive it will be. There are also free robots, but they can be suitable only for de-testing. Otherwise, the range of prices for various trading robots is huge - from $ 30 to $ 30,000. Another question is, can a robot worth a thousand times more expensive be at least a quarter of this number more efficient than a cheaper one?
Any application program (forex robot, technical indicator or other script) is written for certain trading platforms and terminals. The most authoritative and popular of them is MetaTrader versions 4 and 5. In essence, MetaTrader has the most various scripts in its own MQL4 IDE and MQL5 IDE development environments written in MetaQuotes Language versions 4 and 5, respectively.
Author: Kate Solano, Forex-Ratings.com