Nowadays, there are numerous trading approaches and systems both for trading on forex and CFD contracts. And since it all can be transformed into a computer algorithm, the number of automated trading systems is proportional to the number of ready strategies. Even if you already have a ready profitable strategy, it can be computerized in the form of a forex trading robot, which will do the work of the trader.
What is a Forex Trading Robot?
A robot is a special trading system that works in automatic or semi-automatic mode. The first suggests not only a sophisticated market analysis and recognition of signals to open trade but also an autonomous placing of orders with all the necessary parameters ( Stop Loss, Take Profit, leverage, and so on). These algorithms have become extremely famous among beginners for a reason. They do not have enough understanding of the market for profitable trading and market analysis. In the case of a forex trading bot, all of this is built into the algorithm. Therefore, it completely and partially eliminated the need to study this complex science.
Traders often use trading advisors for passive income. Even seasoned traders who open positions manually use such programs from time to time. For instance, for night trading, when a trader has a rest. It allows making the most out of trading.
We should mention that the main mission of forex bots is to off-load the trader and take over the tasks partially or completely. It is the absence of an emotional aspect that is the major benefit of such algorithms. It is human nature to make mistakes. But it is not characteristic of automated software. It will never get exhausted and can work 247. And it will never shift from its algorithm and will strictly follow the predefined script, and the trading plan. The trader can succumb to the excitement and start trading outside his strategy. This is another common mistake and the reason for losing the deposit.
It is possible to create a trading advisor at your own discretion and desire. You can make a fully automatic program. Or it can be a program that will simply signal the crossing of two Moving Averages with different periods.
There are forex automation robots with a complex algorithm, which includes not only the combination of numerous indicators but also setting Stop Loss and Take Profit orders automatically. And there are simple ones, which will simply determine the current trend in the market. Unlike a human, such a program will open trade only at the moment when all the conditions prescribed in the algorithm are satisfied.
What Depends on the Trader
In real trading, a lot depends on the trader himself. Forex bots, as the reviews confirm, greatly simplify the entire work process, but it still requires your intervention. If you do not follow the strict recommendations attached to the Expert Advisor, then you need to regularly check whether the strategy is working the way it was originally intended.
Changing the degree of trading risk in the settings immediately changes the specifics of the algorithm's execution. The lower the level you set, the less risky the operations will be. At the same time, the profit will be relatively low. And vice versa, the higher the risk tolerance, the higher the potential earnings through the Expert Advisor.
Due to the fact that the trading expert cannot conduct a fundamental analysis by itself, the interference in its work on the eve of important news, as well as after unforeseen events on a global scale is inevitable. You should not forget about the profit-taking, because the work of the Expert Advisor is sometimes unstable, including due to fundamental factors, so some of the accumulated funds can quickly disappear under the influence of an unforeseen jump in price or technical slippage.
Should I Start Using a Forex Automated Software?
If one understands in more detail and learns a lot more about such robots, one can get these results:
- Robots will become good assistants only if you carefully think through your strategy and the process of operations;
- The work of this software will not give all 100% of the profit, they work the same way as traders, and not in all cases the position can be successful.
You should not say right away that this robot does not work. This is fundamentally wrong because this software is designed as an assistant to the user, not as an opportunity to grab more money. The forex automation helps the trader free up a little more time for his personal leisure time while keeping his work completely intact. The forex developers' goal was to help the trader, not to get money out of nothing.
Therefore, you should not pay attention to those users who are sharply negative about the program and leave unflattering reviews. The majority of such people are living with the dream of making a lot of money without doing anything, although any sensible person understands that this is unrealistic.
The forex bot is designed for experienced users, such a program can't help beginners. Without understanding all the important nuances of investing, it is impossible to make money on your own or with a robot.
How to Set Up a Trading Robot in MetaTrader 4
After downloading the archive with the robot, you may find files with the extension .ex4 or .mql inside. This is the Expert Advisor itself. Both files are suitable for trading. The archive may also contain other files, such as libraries or indicators. The robot itself should be placed in the "Experts" folder, which is located in the directory of the terminal. You can get there by clicking "File -> Open Data Folder". The "Experts" folder will be placed inside the "MQL4" folder. If the package contains any libraries, they should be placed in the "MQL4/Libraries" folder. Presets that contain settings of the Expert Advisor for certain trade conditions have the .set extension. They must be placed in the "MQL4/Presets" folder. If the indicator files used by the Expert Advisor are included, they should be placed in the folder "MQL4/Indicators". Their extensions are the same as the robot's ones, i.e., .ex4 or .mql. Then you need to go to the menu "Tools -> Options" on the top panel of the terminal. In the window that opens, open the tab "Expert Advisors" and check the boxes. Then go to the Navigator and find the desired robot in the Experts tab. If it is not there, reload the terminal. Then, from this window simply drag the advisor with the mouse cursor to the price chart of the desired trading instrument.
This will open a window of robot settings. It allows you to change various parameters, such as the trading volume in lots, which the robot will open the trade with, and much more, depending on the advisor. If the Expert Advisor comes with presets of settings, then you can apply them by pressing the "Load" button to select their file and apply it. And it is also possible to save your own set of settings by clicking the "Save" button. After you press "Ok" a smiley face with a smile should appear on the chart, it means the robot is working as it should. If the smiley face is sad, right-click on the chart and left-click on "Expert Advisors -> Properties". The Expert Advisor settings will open again, where we will be interested in the "Common" tab. Check the checkboxes here. And you need to check that the top panel of the terminal was pressed and the lit green button "Auto-trading".
Pay attention that each forex bot will have its own settings, which may have different names and functions, and there may be absolutely any number of them.
But there are basic parameters that can be frequently encountered in EAs, so let us analyze the most common ones. The values of a parameter may be specified in numbers, such as, for example, lot size or maximum allowed number of orders to be opened. It may be that this parameter is in charge of some function, or it may be turned on or off. And its value may just take these phases. If you choose On, True, or 1, the function is enabled. If Off, False, or 0, the function is disabled. Here it all depends on how the developer decided to set the values of such parameters.
You may often see such parameters:
- Lot or Lotsize — here the trade lot size per trade is set.
- MoneyManagment — enables or disables auto-management of risks.
- Comment — usually has a text field where you can enter comments in order to somehow highlight one or another order, and mark important information.
- Risk — sets the value, usually in %, of risk per trade or total drawdown, at reaching which the Expert Advisor stops trading.
- MagicNumber — the unique number used by the Expert Advisor to identify its orders. If there are several Expert Advisors with the same MagicNumber on one account, they will confuse each other's orders and will consider other EAs as their own orders.
- GmtOffset — this is the time offset relative to Greenwich Mean Time. This is usually a difference in hours.
This is a basic set of parameters. But there are also robots that include more detailed and complex settings. And if the developer didn't provide detailed instructions, a beginner simply won't be able to trade. And if set up incorrectly, the robot will trade at a loss.
When a Trading Robot Can Be Useful
In theory, a forex automation is useful in that it allows the trader to "unglue" himself from the computer screen and not wait personally for the right time. This is tedious and complicated. Where there is even the slightest option to get rid of the routine and let your energies go in a more productive direction, a forex robot will help to do this. But it won't make money for you.
How Popular and Safe are Trading Robots
The big disadvantage of automated trading systems is the possibility of failure. The software doesn't exist on a server, and a local software or connection failure can easily wreck your trading. You won't even notice until you run out of money. And in forex, they will run out very quickly. In addition, the real, not advertising experts keep repeating that the automated trading systems have never been designed to completely replace humans - their task is to simplify life. Yes, it is easier and faster to dig with a tractor than with a shovel. But no matter how well it can do this task, it will not plow the ground while you are lying on the couch. The same thing is true for forex trading robots.
Pros and Cons of Using Forex Trading Robots
Algorithmic trading has many advantages over traditional trading methods.
Here are the main advantages:
- Speed. Trading algorithms analyze the situation in a fraction of a second and immediately place a trade. This is important because price changes are recorded in real-time, and on dozens of assets simultaneously. On a volatile market like forex, a human would not be able to do so.
- Accuracy. Human intervention is minimal. That means that the probability of mistakes because of emotions or other human factors is greatly reduced.
- Profitability. The forex automation allows trading quickly as it opens positions as soon as it sees a signal. The program is able to process hundreds of trades per day. No human is able to work at such a pace.
- Greater market coverage. A person can work with several charts at a time, focusing on the major markets. A forex trading robot monitors all markets at the same time.
- Diversification. It is possible to set up a forex robot so that it works with correlated currency pairs, opens counter positions, and uses other methods of risk diversification. The user's brain boils, but the trading robot keeps working as if nothing has happened.
There are some disadvantages to this approach. In particular:
- Dependence on the technology provider. Trading only with forex robots, you are not progressing. Time passes, market conditions change, and bots lose relevance. If you know how to trade, reconfiguring the software or trading without it is not a problem. If you are not an expert in trading, you are destined to spend your whole life paying money to some random developer, even without any guarantee of profitability. You will spend money on the trading robot and you will lose your deposit.
- Limitations of the brokers. Not all brokers allow connecting forex trading robots to the platform. Regulatory authorities in different countries could not come to a consensus about whether algorithmic trading should be legal or not. So be prepared that your favorite brokers do not have such a chip. And where they do, the conditions are not as steep as we would like them to be.
- The short lifespan of the algorithms. It's the most glossy thing, that developers prefer to keep silent about. The truth is that the forex market is changing very rapidly, so almost 98% of trading algorithms have a very short lifetime. They work, they work, and then suddenly stop understanding the market.
Simply put, you need a flawless algorithm for a perfect result. But it is obvious that such an algorithm can be created only for static systems. The market is dynamic, which means that no ideal trading scenario can exist a priori.
Classification of Forex Trading Robots
There are several types of indicators, which differ in the methods used and the way the data is interpreted.
- Indicator. As the name suggests, these trading programs display the processed data in graphical form using one or more indicators of technical analysis. Due to their simplicity and clarity, they have "captured" up to 70% of the algorithmic trading market.
- Non-indicator. This category of forex automation robots does not duplicate their considerations in the picture. They evaluate price patterns on a candlestick chart and are guided by support/resistance levels. They are not so popular because it is difficult for beginners, who are far from the market, to monitor the correctness of their work.
- News. News forex robots take profits from price movements generated by the news. Let us clarify right away: the bot does not understand the psychology of the market and does not predict what is going to happen. It only tracks the news and their ratings through economic calendars, and then instantly reacts to price changes.
- Arbitrage. The world forex market is not subordinate to anyone and has no single platform where the bulk of transactions take place. Its decentralized location caused the ineffectiveness of quoting, which is expressed in the fact that brokers draw the prices with a lag. The lag can be different: sometimes it is almost imperceptible, but it is always there, the forex bot can catch it. Many brokerage firms, especially small ones, operate on weak inexpensive equipment. They need more time to receive and process quotes, adjust them by the spread value and display them in the terminal. This fact is used by traders. They connect to two brokers - fast and slow. They learn the rate from the first one, and trade with the second one. Thus, they find out in advance where the rate will move and receive the guaranteed profit.
- Averaging. It is one of the most cunning trading algorithms for auto-trading in forex. In brief, it first, for example, bets on the trend. If the price has gone the wrong direction, the bot realizes it was mistaken and bets on price correction. In other words, it bets by the trend signal at first and if it is wrong, it beats off by correction. But you understand that this is a very complex system. The more complex the system is, the harder it is to tune and control it. It is not an option for newbies.
- Multicurrency. The elite of forex trading bots. The most expensive and the brainiest. They are designed in such a way that they can partially hedge the risks, diversifying the portfolio and opening trades so that profitable ones compensate for losing ones. Expensive, complicated, and requires supervision. 100% return is not guaranteed.
- Trending. Usual Forex Expert Advisors and bots that trade only when there is a pronounced price trend. They are often based on different combinations of Moving Averages, drawing the direction and speed of price and also forming price envelopes from support/resistance levels.
- Flat. Unlike trending ones, they focus on price rebound from support and resistance levels, not on momentum following. Such trading robots are activated at the moments of sideways price movement in conditions of low or moderate volatility. They are not as accurate as trend-following ones but give more signals.
- Scalping. A human cannot track the prices in real-time. It is purely physical. Scalping trading algorithms can do it. They specify in advance the SL and TP levels, and then they work automatically, placing tens and hundreds of positions during a session. This is the case when the automation is really of some use. The effectiveness of scalping itself is a separate story.
How to Choose a Trading Robot
Algorithmic trading on forex is an attempt to attract more investors/traders to the market. It works, but it requires a lot of sensitivity in choosing trading scripts. To avoid wasting money on nonsense, focus on the following:
- First, is the profit factor. It is one of the most statistically important. It answers an important question: will the trading robot make money at all? To calculate the profit factor, take the formula: Profit factor = gross profit (the sum of all winning trades) / gross loss (the sum of all losing trades). If the profit factor is less than 1, you should immediately select algorithms with a larger profit factor.
- The second is the expected profit per transaction (Expectancy). This is a statistic that tells us how much we could earn on average on each trade. Obviously, this statistic is based on trading history, so it is not a guarantee for future results, but it is a useful indicator when choosing a trading robot. The expected profit is calculated as follows: Expected profit = [% of winning trades (average profit per trade)] - [% of losing trades (average loss per trade)].
- Third, is the drawdown. A forex trading robot that makes money is useless if it takes too much risk per trade. Drawdown is a very important indicator of risk. It shows the percentage of maximum losses recorded since the last high point. It can give you an idea of the potential drop in your account when the robot has problems.
- Fourth, is the risk/reward ratio. It indicates an expert's risk appetite. A robot that uses a Take Profit of 5 pips and a Stop Loss of 40 pips has a risk/reward ratio of 8:1. Consequently, to be profitable, you need a success rate of at least 89%.
Trading Robots Strategies
There are dozens of forex trading strategies today. Not all of them are suitable for algorithmic trading. Therefore, you can apply such approaches until you figure them out for yourself.
- Scalping. The correct Stop Loss and Take Profit setting is important here. The duration of a trading session is from several seconds to several minutes. The position is closed as soon as the price reaches a certain amount of points.
- Trend. We already know the operation principle. It is based on a strong price movement. Bots look for it, enter the market, and squeeze as much as they can out of the trend. The most reliable variant for forex, which, however, also does not protect from losses by 100%.
- Grid. This trading style is based on "surrounding" the price with pending orders for both falling and rising prices. The bot schedules the Stop Loss and Take Profit to place the profitable orders and close those that miss them with minimal losses. It is difficult to do this manually. The algorithms work quickly and accurately. But the problem is that many brokers do not approve of such a "freebie".
- All-in. This is one of the reversal trading strategies. The forex trading robot analyzes levels and candles to calculate a potential trend reversal. Catching a real reversal is a difficult task. Among other things, it requires a huge deposit to survive local leveraged drawdowns.
- Martingale. You probably already know the principle according to which these Expert Advisors work. It was brought into forex from the world of gambling. The algorithm tries to compensate for losing trades by automatically opening double orders in the same direction. We do not see the advantage of such bots at all. The risks are enormous; chances to compensate for something before you run out of deposit are at a level of statistical error. No Stop Loss - only hardcore.
- Parabolic SAR indicator. This forex advisor is based on a trading indicator known to all, so there are no problems with setting it up. The advantage of such bots is a good result in trend markets. In flat markets, the efficiency is greatly reduced.
- Moving Averages Crossover. Expert Advisors based on Moving Averages are canon. It is loved by traders for its simplicity of understanding and ease of use. Another advantage is the versatility. Averages work equally well in all markets. Although, we would not take them as an independent tool. Reconciliation based on volumes is still needed.
- Crossover of 2 Lines of Indicators. A kind of pattern trading. Expert Advisor automatically does what a trader should do manually - it overlays indicator lines on a candlestick chart and marks profitable entry points by the position of the signal line. It works both on trends and on reversals.
The Cost of Forex Trading Robots
Since free stuff usually does not work well and an average user of trading robots for forex is not very knowledgeable in trading, the demand for miracle trading scripts grows rapidly. The developers are flooded with orders and raise prices. Personally, we have seen different price tags.
The cost depends on things like:
- type of trading robot;
- principle of work;
- the claimed profitability.
The price range is 300- 5000 dollars. There may be more expensive, but we have not specifically looked for it.
Conclusion
In general, there is nothing outrageous in the development of algorithms for automatic trading in the forex market. After all, a live trader and a machine are guided by the same mathematical algorithms. Some such systems are successful, most are not. And in any case, successful trading is impossible without personal progress.
Open any rating of top traders or investors - not a single random person. Either those who trade personally and have a decent skill or those who hire such people for work. And not a single person who made a fortune on trading bots.
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