forex robot hand

Forex Robots and how do they work. Step by step guide

Forex robot trading… is that a good idea? How many times have you visited a website of forex robots sellers where they promised you the holy grail and all you have to do “to get rich quick” is spending a few hundred bucks.

Really? You did this already? 

Ok, so you probably lost some money and you ask yourselve “who is there to blame?” Well dude, it’s you! 

This article will give you a complete insight of the Pro’s and Con’s of forex robots and you will learn how to identify a scam (liars). Also, you will understand that using a forex robot takes time and that it’s not a matter of just plug and play – what most developers will tell you.

I will discuss the following topics. If you’re interested in a particular topic, feel free to jump ahead: 

What is a forex robot or expert advisor

a “forex robot” aka expert advisor is a computer program, mostly developed in the computer language “MQL” that uses technical indicators and/or mathematic calculations to enter into trades. Robots can trade fully automated which allows you to spend time camping while your robot “makes” you money.

So simply put; they run automated, whether or not the user is in front of the computer or not.

An Expert Advisor runs on the Metatrader platfrom (MT4 or MT5) and you can backtest a strategy in this platform using the strategy tester. Just be aware that the tick data is not optimized, thus you will probably not have a very accurate test result.

The problem is that forex robots and their pre-wired thinking do not compensate for ever-changing market conditions and therefore robots needs to be monitored constantly. 

Why do so many traders use forex robots

It is estimated that 60% of all forex traders use any kind of forex robot or forex indicator. This proves that automated trading is HOT! But still, if I go to forums or dig a little deeper into a track record, I notice most strategies are not any good.

 

So why is it then that traders still buy this trading software?

Every trader, regardless if it’s a stock trader, option trader or forex trader…they are all looking for the ultimate strategy spending the minimum time.

Before we dive in a little deeper, let me give you a simple explanation of the time factor versus making money. This might change your perception of becoming a full time trader!

Let’s take Peter, a home trader. Peter did some courses and decided to become a day trader. He funded his account with $3,000. After the first year Peter achieved 100% profit! He is part of the elite group of traders that make annual triple digits.

Even Warren Buffet would be impressed.

Now, how much time does Peter spend on his trading venture?

Would you agree that a good trader needs at least 5 hours a day, reading, analizing, monitoring, calculating… is 5 hours enough? Let’s assume it is;

So how much money does Peter make actually?

The total hours he spent in one year is 5 hours x 5 days a week x 52 weeks = 1300 hours.

$3,000 / 1300 hours = $2,30 per hour ( what??) Flipping burgers at Mc Donalds will make you more!!

Being profitable makes you $2,30 per hour, plus all the stress. You still fancy a day traders career? Imagine if you would only make 50% profit…

The number one reason why people are attracted to automated trading is because they think that a robot can make them rich the easy way.

Just keep reading and hopefully I can change your perception.

Being profitable makes you $2,30 per hour, plus all the stress. You still fancy a day traders career? Imagine if you would only make 50% profit…

The number one reason why people are attracted to automated trading is because they think that a robot can make them rich the easy way.

Just keep reading and hopefully I can change your perception.

What types of automated forex strategies are there?

The most common forex robot strategies are:

Scalping strategy
Grid strategy
Martingale strategy
Price action strategy

Scalping strategy:
Typically a scalping strategy aims for as little market exposure as possible and take profits are small and trading volume could be high. Exposure is considered risky and a scalp trader therefore tries to minimize it.

In the chart above you can see how this strategy “scalps” little profits using the stochastic indicator. 

 

 

Grid strategy:
Probably this is the most loved and hated strategy at the same time. A grid strategy is the best suited algorithm for automated trading, since it doesnt care if markets go up or down.

A grid forex strategy starts trading from a certain entry point, usually based on a macd ,stochastic or moving average indicator, from where it starts building a “grid”. Basically if the entry was wrong and thus the market goes into the wrong direction, it starts adding more position in the same direction as the opening trade. If this next position keeps doubling in size (1, 2, 4, 8, 16 lots) we are talking about a Martingale strategy (don’t burn your money with that!). This will most likely blow up your account. There are some sophisticated grid strategies out there there show steady results and use proper money management tools.

As you can see the grid strategy builds a so called “grid” where the starting point typically the first entry is. From that point the grid will take trades if the market either goes in favor of the opening trade or when the market moves in unfavourable direction. 

Martingale strategies:
These are definitely the notorious ( and maybe loved) strategies.  They show amazing results in a few months and then suddenly you wake up with no account balance You blew up. Be very careful when using these kind of  strategies. The trading rules for these EAs are rather simple. Enter a trade and if the market is against the position it increases the lot size. This process keeps on going until all margin is used. To some extend a Martingale strategy is very similar to a grid strategy, however with a martingale strategy the lot size will increase drastically for each consecutive trade. That is the reason why many accounts are blown during volatile market events.

Price action stragey:

Pro's and cons of a forex robot

An automated trading strategy seems like a good idea. For example, it takes hardly any time… or at least, that is what traders think. 

Conclusion

Conclusion

Trading with robots (or bots) has become extremely popular in the last decade. It is estimated that over 60% of all forex traders use some kind of algorithm or bot to improve their skills and or results. The question is why? I think that deep down we are all guilty of having an excessive desire to find the holy grail strategy. Many times we visit the website of the robot developer and we simply can’t resist the 1000% per annum results. We want to think we found the holy grail!


Guess what…if their would be any out there, I would not be writing this article.


No, its our job to prevent traders from making bad decisions and foremost to not always believe what they see.


Over the years I have used a lot of expert advisors and I can honestly say that many of them are not bad. However, I also noticed that if I would manage the bot, the results were going up drastically. Conclusive I can recommend to be extremely careful to trade any bot in your account without exactly knowing what the strategy does.
So the most important tips to use any robot are;


– Track records should be published from a live trading account
– Check which broker the developer uses.
– What are the trading conditions
– Does the developer explain in detail how the strategy works
– Does it look too good tob e true? It probably is.



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