Hey! What is this about trading robots? Do they work? Are robots bad? Many questions are those that usually roll in the head when the word “robot” is heard. In this article I am going to explain what Forex robots are and everything that affects them, as well as some myths and facts. Let’s go there.
1. How do Forex robots work?
Before we start talking about how they work, do you know what a Forex robot is? A robot is neither more nor less than a few lines of code with clear rules for entering and exiting the market that are executed automatically. All this applied to the Forex market would simply be an automated strategy that buys and sells in the currency market. They are also called EAs (Expert Advisors).
By telling you what it is, I have explained how they work. But hey, can you make money with robots or are they a scam? The performance or results of these automated strategies will depend on these previous strategies and their supervision, so if they are not profitable to begin with, no matter how much they are automated, they will not be. But if the strategy that is programmed is good, the result can be better.
2. What are the advantages of using robots?
One of its great advantages is being able to quantify performance of the strategy that has been programmed. With a scheduled strategy you can perform a backtest and evaluate how that strategy has performed before. If you have traded discretionary or manually, you will surely have tried different systems without having statistics or results on whether they have worked or not in the past. Come on, you’ve been gambling with your money without knowing if what you were doing was profitable or not. Think for a moment, if you don’t quantify, how will you know you’re making progress?
You need objectivity in decision making when you make your decisions. Otherwise, your results are going to be affected by your interpretation and here’s a nice extra factor for being wrong. How are you going to correct it? Systems or robots allow an objective approach to the market.
As you know, the precision in terms of execution when trading is key. When you trade manually, you analyze, wait for the moment and execute the order. When the process is automated, the order is launched in less than a second with no hesitation, analysis or thought.
Another more than considerable advantage is that to execute the operations you do not have to leave your eyes looking at charts for hours. You can do it in a way uninterrupted in time, even if you are not in front of the screen. If you are traveling for a week or have to do anything that prevents you from being present, your operation may be running simultaneously. Of course, be very clear that they must be supervised and that the creation of automated systems requires time and work.
Closely related to the previous one, with robots you can trade in different assets simultaneously. Manually we are limited in this aspect. So you can diversify without problems.
And yes, the psychological approach. As you know, in this trading the psychology It is important and affects a lot. When the strategies are carried out in an automated way, you reduce the psychological component quite a bit since your buying and selling decisions are not biased by your psychology. I say that it is reduced because you have to know that when the robots have a negative or positive performance, it will still affect you. But the main difference is that the results affect your psychology and not your psychology as it usually happens when operating discretionally.
3. Disadvantages of using robots
Although the advantages are clear, there are disadvantages. Most of the robots that are marketed on the Internet are based on martingales, grid… that reflect very good results and almost perfect performance curves but that one day they break. Why? Because of the aggressive risk management rules they use. If you don’t believe it, try downloading some for free and see their results over a long period of time.
Why does this happen? Create a good profitable automated system for real is not easy. Programming a martingale or grid yes. So before buying any robot, make sure that they don’t use these techniques and that there is no one hiding under a brand that may disappear tomorrow. I leave you an article on how martingale strategies work if you are not familiar with them.
As disadvantages when trading with robots something important is any technical failure that may arise and cause it not to be executed in a good way. It is advisable to use VPS (a virtual private server), if it fails it can affect your operation
Although it has never happened to me to date, it is something that can happen. But it’s like the internet connection fails. Also failures or errors when programming the strategy (before executing it in real try it in demo or with very little capital).
Disadvantages are anything you can think of that might affect something running remotely. Today there are already many such tasks in different areas.
4. What are the limits of robots?
We could say that robots do not work (always). Let me explain, there are systems that work perfectly for many years, but the vast majority die before then. Then? The solution is to have clear rules to deactivate these robots. If you don’t have a set plan, what are you going to do if your robot won’t stop losing money? Learn to manage them.
Another limitation when using automated strategies is the overoptimization of the parameters. What’s that? Adjust your variables so that the past results are very good. What is the problem here? That in the market we do not know what will happen tomorrow, so it is very likely that this robot will not work well with new data when you apply it. Solution? Create a strategy and then validate it. Not the other way around. Remember that it is not about looking for perfect results, it is about getting real results.
The robots do not do magic, they have an added value with respect to manual trading that is quite clear, but it is something that you connect and sit down to see how the money falls. To take advantage of them is to be intelligent, but to ignore the limitations is to be naive.
5. How to choose a good Forex robot?
Earlier we talked about an important point. By all means avoid robots that apply aggressive risk management. If you are going to choose a robot, spend some time contacting the person who created it, their background…
Most Forex robots are created to be used on the Metatrader 4 Metatrader 5 platforms. In this video I explain about this trading platform:
Do not buy in pages that you do not know, in fact, I would tell you not to buy a robot as such if they do not have expert supervision. As we have already seen, robots need to be managed. You can teach yourself to do all this simply.
6. How to program a Forex robot?
Nowadays there are many tools to do it. From my experience, do not complicate yourself and use those that allow you to start with a short learning curve. Some tips to create a good robot:
- Set clear market entries and exits.
- Try to make it as simple as possible. You don’t need a thousand lines to make it work. Use the rule that your logic fits on a post it.
- Always use stop loss unless you don’t use any leverage.
- Do it in assets that have liquidity so as not to pay an extra cost.
- Schedule them to run at hours where there is volume in the market.
7. Most suitable account types for trading with robots
The most suitable accounts for trading with robots are the same as for manual trading. accounts with low spreads, with direct execution to the market and with tight swaps. Forex brokers there are many, but with these features not so many. It is very important that you do not use standard accounts or the behavior in the results curve that you are going to obtain will be very different.
8. The best Forex robots.
The best robots are the ones you know and create. Those that you can build in a simple way and also do different robustness tests to know first-hand their weaknesses and strengths.
For me there are no good robots or bad robots. There are robots that work and robots that don’t work. I try to apply those that do and discard those that stop doing it. I use over a hundred strategies that I monitor daily and follow up on. Thus, everything is dynamic and although there are always strategies that do not work for a limited period of time, what it is about is that there are others that generate more than those.
9. Manual trading or robots?
Within the world of investment and trading there are defenders of manual trading against robots and vice versa. To say that manual trading does not work seems very bold to me. In the event that it hasn’t worked for a person, why won’t it work?
After all, a robot can be a manual trading system that runs automatically. As long as there are clear rules and a methodology, it is clear that both can be valid. Now, a robot as we have seen has a series of advantages over manual trading that it does not have.. If we have the capacity and criteria that a person can have and the means to carry it out by means of robots, why not use both?
Leave me your opinion below about your experiences with robots and doing manual trading,
I would really like to know it and know that you have come here to read this post,
A hug!