Forex trading robots are increasingly becoming the focus of young traders. This article will cover the definition of these robots, the probable advantages and disadvantages, suitable products, and how to deal with them.
What is a forex trading robot?
A forex trading robot is a slang term for algorithmic trading based on a set of forex market signals. These are designed to help determine whether to buy or sell a currency pair at any time. Systems are often fully automated and integrated with online broker platforms.
Forex trading robots are automated software programs that generate trading signals in the forex markets. They are designed to remove the psychological element of trading, which can be harmful. While Forex trading robots advertise the prospect of profits, it is important to remember that they are limited in their capabilities and need to be more foolproof.
Understanding Forex trading robots
Forex Trading Robots are automated software programs that generate Forex trading signals. Most of these robots are built with MetaTrader and use MQL scripting language, allowing traders to generate trading signals, place orders, and manage trades.
Forex (FX) robots are designed to remove the psychological element of trading, which can be detrimental.
Automated forex trading robots can be bought over the internet, but prospective buyers should exercise caution when purchasing a trading system in this way. Oftentimes, companies spring up overnight to sell trading systems with a money-back guarantee before disappearing a few weeks later.
Firms can single out winning trades as the most likely outcome for an acquisition or use curve fitting to get great results when back-testing a system. But these are not legitimate risk and opportunity assessment systems. This is mainly because they are automated to move within a specific range and follow trends. As a result, a sudden price move can wipe out short-term gains.
What to pay attention to when choosing advisor robots?
Forex trading robots have become very popular. The many commercial offers and frequent scams make finding a robot that works well more challenging. In order to find a Forex robot that suits your trading style and risk tolerance, you need to analyze various statistics such as maximum loss (drawdown), profit ratios, and risk/reward ratios.
Forex trading is very risky, you can lose all your money even with a robot that shows good statistics. Before using a forex trading robot with a real trading account, you need to know in advance what financial risk you can take. The most profitable robots tend to be the riskiest too. So you should also choose a forex robot based on your risk appetite.
Before investing your money, it is crucial that you test the robot with a demo account and backtest it with historical market data. Choose an STP forex broker that allows you to trade micro lots to start actual trading with minimal risk. And also to see if the trading robot works well with this broker.
How do I find the stats of a forex trading robot?
To avoid fraud, do not choose an Expert Advisor (EA) robot that has not been tested by an independent website. It’s best to filter offers for trading robots by looking at stats on independent websites like myfxbook or forexpeacearmy. Always remember that while results may look great, past performance is no guarantee of future performance. Automated forex trading, even with a simulator, carries significant risk!
If your goal is to buy a trading robot to run on your own, unsupervised, you will probably lose your money after a while. The perfect robot that performs well in all types of markets does not exist.
Profit factor: the decisive number
The profit factor is one of the most important key figures. With this, you can answer an important question: will the robot make money? The profit factor is essential because it shows the relationship between profit and risk. A robot that is profitable – but still risks all the money in your account – is not an ideal robot.
How to calculate the profit factor:
Profit Factor = Gross Profit (sum of all winning trades) / Gross Loss (sum of all losing trades)
If the win factor is less than 1, you must eliminate it immediately. Choose EAs with a significant win factor.
Expected profit per transaction (expectancy)
Expectancy is a statistic that tells you how much you could make on average on each trade. Obviously, these stats are based on trading history, so future results cannot be guaranteed, but they are a helpful indicator when choosing an EA.
The expected profit is calculated as follows:
Expected profit = [% of winning trades (average profit per trade)] – [% of losing trades (average loss per trade)].
A trading robot that makes money is no good if it takes too much risk on every trade.
Can you build your own forex trading robot?
Forex traders should consider building their own automated trading systems rather than taking a risk with third-party forex trading robots.
The best way to get started is to open a forex demo account with a forex trading broker that supports MetaTrader 5 and 4 and then experiment with developing MQL scripts. After developing a system that performs well in backtesting, traders should apply the program to paper trading.
It’s about testing the effectiveness of the system in live environments. Unsuccessful programs can be optimized, while successful programs can be ramped up with increasing amounts of capital.
In general, many traders try to develop automated trading systems based on their existing technical trading rules. Some of these systems are more successful than others. An example might be a trader who watches breakouts and has a specific strategy for determining a stop loss and take profit (T/P) point. These rules could easily be modified to work in an automated manner rather than being run manually.
There is no “holy grail” for trading systems because if someone had developed a fail-safe money-making system, they would not want to share it with the public. Not least for this reason, institutional investors and hedge funds keep their black box trading programs under wraps.