What are Forex robots and do they really work?

What are Forex robots and do they really work?


17 Jul 2019

Forex trading attracts a lot of people, and every one of them have their own unique approach. Some people feel comfortable when trading long-term, others find day trading or active scalping more interesting. Some people enjoy an automated process, others prefer to open each deal by themselves. Automated Forex Trading is carried out by Forex robots – special trading software which can be used without the help of the trader. 

After you are done reading this article, you will have a clear understanding of what a Forex Robot is and how it works. You will also be able to identify whether or not it is effective for you, what the pros and cons are, and whether you should use such a program in Forex trading.

What is a Forex Robot?

A Forex Robot is a trading software which is installed on the trading platform. This program can independently open and close deals without a trader.

Each Forex robot is based on the trading system.

A trading system is a set of rules which dictates how all the deals should be opened and closed. 

Usually, this system only gives signals to the trader, who then decides whether he should open a deal or not. If there is a bot based in such a system, it could take over traders functions and replace him.

How does a Forex Robot work?

How does a Forex Robot work?

Let’s take a closer look at the principles of robot trading, using a simple trading strategy with one moving average. If a trade, based on this strategy, is conducted manually without using the auto trading program, then the process would look like this:

  1. A moving average with a period of 10 is plotted on the chart. This moving chart will show the average price for the last 10 time frames.
  2. The price moves more sharply than the moving average and crosses it periodically.
  3. If the price crosses the moving average from the bottom up – it is a signal to open a buy trade.
  4. If the price crosses the moving average from top to bottom – it is a signal to open a sell trade.
  5. An open deal is closed when the system signals in the opposite direction. Thus, the trade will be carried out constantly and the direction of the transaction will be selected depending on the direction in which the price crossed the moving average.

This strategy is given only for the sake of an example, as it’s the simplest and clearest. However, because of its primitive nature, it would be ineffective in real trading and would give a large number of false signals. 

In order to create a robot that trades on this system, you need to create a program that will take all circumstances into account. Even a novice programmer can easily complete this task.

It is quite simple to write software for a trading strategy with one moving average: you just have to state several conditions in the program code, as well as assign the execution of the opening and closing functions to the robot. 

It is a little more difficult to create a robot based on a fully-fledged trading system with 3-4 indicators and the separate conditions for exiting the transaction with the help of stop loss and take profit. However, both of these programs should be similar in principle, only the number of conditions and lines of code will change.

When the robot is ready, the only thing left is to add it to the trading terminal. It can be done quite simple using the platforms of the Meta Trader family – they provide special functionality for robot trading. After that, the only thing that remains is to press the start button, and the bot will start working (meaning opening and closing the deals based on the trading system embedded in it). You can stop trading with one single button.

As a rule, the trader can always interfere with the trading of the robot. For example, if a trader believes that it is time to close a deal, even though the terms of the trading system require it to stay open, he can close it. After, the robot will simply wait for the signal for the next trade to be opened and continue trading in normal mode. However, this possibility has both pros and cons. Although the trader may notice factors that are not available to the robot, his decisions can be affected by human emotions, which always harms the trade and worsens its result.

How Effective Are Forex Trading Robots

How Effective Are Forex Trading Robots

It is hard to say whether Forex robots are effective or not. Every robot is based on a system, and system trading is the basis of success in Forex. However, it is not always enough to simply open and close deals on system signals to make a stable profit. Often, the trader is also required to conduct an additional analysis of the situation and make quick decisions, taking new factors into account – and the robot does not have this ability.

Indeed, patterns can be found in the financial markets. After studying these patterns, the analyst can create a system that will generate stable signals, and most of them will be profitable. That means that trading on such a system will bring more profit than losses, and the trader will be able to receive a stable income. You can make a robot that will also effectively trade and make a profit using this system.

However, there is one significant problem with this formula of success: the market is constantly changing. 

A system that worked flawlessly yesterday could become unprofitable tomorrow. And since any system generates both true and false signals, it will not immediately become clear that the system has just stopped working. The robot, based on such a system, can continue trading for days and weeks and increase the loss of the trader until he realizes that this is not just a “black line”, but the final “death” of the system.

If the robot is launched quickly, then in theory, it may have time to bring enough profit that will cover the losses of its last days of trading, before it becomes clear that it is no longer effective. However, the market changes unpredictably, and sometimes a robot, which was based on a fresh system, will give more false signals than the right ones after just a couple of days of being created and implemented.

All of the above only applies to a situation where a trade, that is using a robot, analyses the market, creates systems, and writes software. Or if it’s all done by a team of professionals working together on a common project. If a trader buys a robot from third-party developers, chances of profitable trading with such a bot are minimal. Moreover, there are too many risks in such a scenario. First of all, only the creators know the true “age” of such a robot, but you have no idea of its expiration date. Additionally, most traders are not strong programmers, so it is unlikely that they will understand whether they’re buying a working tool, or an appealing fake that doesn’t contain real statistics.

Pros and cons of Forex robots

To assess the effectiveness of trading robots better, let’s consider their advantages and disadvantages. We will also compare them with manual trading.

 ProsCons
Robot trading
  • Automated trading process.
  • Large amounts of data are processed.
  • No emotions during the trade.
  • A robot cannot think creatively.
  • The bot operates within the limits of the system.
  • Any system becomes obsolete and loses its relevance.
  • Development of a high-quality robot requires a lot of resources.
  • Buying a robot is a big risk and there are no guarantees.
    Manual trading
    • It is easier for the trader to control the situation
    • The trader is able to make decisions outside the system.
    • A trader can quickly make adjustments to his trading strategy if the market changes.
    • No need to rely on other people’s developments.
    • A man is subject to emotions.
    • A man can only analyse a limited amount of information.

    As you can see, all factors considered, robot trading is not as effective and convenient as manual trading.

    Conclusion

    Trading with the help of Forex robots

    Trading with the help of Forex robots has its pros and cons, but the number of disadvantages exceeds the number of advantages. Although robots allow you to remove emotions from the equation and are able to process a large amount of information, their artificial intelligence is not enough to compete with human traders.

    As a compromise, you can consider trading with expert advisors. This is a type of trading software. Its main difference from the robots is that it only gives signals to the trader, but does not make decisions and does not trade independently. In fact, the EA is a complex indicator that combines several formulas and gives the clearest and specific signals.

    However, regardless of whether you are going to trade with the help of an expert advisor or decide to study the charts yourself, you will need a certain base of knowledge and skills. On the Internet, you can find enough information about Forex, binary and stock market trading. To practice and perfect your trading skills, consider using the Libertex trading platform. You can open a completely free demo account there. It has a user-friendly interface, which is designed for both expert traders and novices.

    Why trade with Libertex?

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    • technical assistance to the operator 5 days a week, 24 hours a day
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