An Introduction To Forex Robots

Forex Robots

If you have done any research regarding forex trading, you have likely come across forex robots. These are very popular in the forex industry and have somewhat of a cult following. There are forex traders who swear by forex robots whereas others believe they are a fad that simply cannot compare to trading manually. Regardless of what you may think now, here we will take a detailed look at these controversial bots to help you get a better understanding of the advantages and disadvantages of automated trading.

What are Forex Robots?

In a nutshell, forex robots ae fully automated trading systems that can scan the forex market looking for trading signals. These trading signals are predetermined by the robot’s built-in algorithm that is usually a combination of technical indicators and price action analysis.

When it finds a signal, it will enter the trade on behalf of the user and manage it according to pre-set parameters, such as stop loss, take profit and lot size.

For example, the bot may have a condition where it will enter a long (buy) trade if the price is above the 21-day simple moving average (SMA) and the Stochastics is under 20 but showing an uptrend. The stop loss may be placed a few pips below the SMA and take profit be set to x3 the stop loss distance for a favourable risk to reward ratio.

A forex robot can contain a single trading strategy or a combination of multiple strategies. There are bots that will have a strategy for when the market is trending and a strategy for when it is ranging. You also have grid, hedging and martingale robots. These are considered riskier due to the fact they try to “trap” the market by trading in whatever direction it is moving. If they get on the wrong side of the market and do not use sensible money management, things can get ugly.

When you use a forex robot, you should be able to specify the input parameters. Some of the most common parameters that you can adjust according to your own needs include the money management (max risk, lot size, stop loss, take profit, trailing stop, break-even), trading hours, trading days, trading strategies true/false, etc.

Forex robots tend to be developed for the ever popular MetaTrader desktop platforms, MetaTrader 4 (MT4) and MetaTrader 5 (MT5). These platforms are free to download from most forex brokers and even include a few built-in bots. It is worth noting the technical term used by MetaTrader for a forex robot is actually “expert advisor” or EA for short.

The MetaTrader platforms have a programming interface where users can create customised forex robots based on their own trading strategies. Then there is the MetaTrader strategy tester where you can back test forex expert advisors on various trading instruments and timeframes using historical data. Whilst back testing can give you a rough idea on historical performance, they are limited as they cannot accurately represent real market conditions. That being said, there are third-party integrated solutions that have helped to improve the overall quality of back tests within the MetaTrader platforms.

What are the advantages of Forex Robots?

Fully automated

The man advantage of forex robots is that they are able to trade automatically, making them a set and forget trading system that can be used by traders of all experience levels. They do not require staring at charts all day and constantly monitoring the market for trading signals. This gives the user free time to do other things whilst the forex EA constantly monitors the markets, 24 hours a day.

Fully customisable

The majority of forex robots are fully customisable and thus, can be adjusted according to your own individual needs. You should be able to choose your desired lot/risk size and set money management according to your personal preferences. This flexibility enables users to experiment with different settings, timeframes and currency pairs. You can even use the MetaTrader strategy tester to back test and optimize for your own bespoke settings.

No emotions

Forex robots also remove the human emotion from trading. Sometimes emotions such as fear, anger and greed, can have a negative impact on the performance of a trading strategy. Forex EA’s are not capable of showing such emotions and will therefore automatically trade systems that they are designed to. This can help to avoid mistakes and ensure consistent trading.

Community

Forex robots have been around for so long now that there are literally thousands upon thousands to choose from. You will find them online, in trading blogs, in forex forums, commercial websites and the MetaTrader marketplace. This means that there is plenty of feedback from users who have experience in developing and testing forex EA’s. You can see past demo and real account performance which can help you to decide which are the best forex robots for your trading needs.

What are the disadvantages of Forex Robots?

Rigid

One of the main criticisms of forex robots is that they can tend to be rigid. This is because they will always follow the built-in algorithm and therefore may not give consideration to what is actually happening in the market at the current time. E.g. a manual trader may avoid trading a few hours before and after a major news release, in order to try and avoid volatile market conditions. However, a forex robot may not have a news filter and could end up trading around the news when there may be a greater risk of volatility. Some bots overcome this lack of flexibility by implementing additional features to make sure they dynamically change according to the current market conditions.

Resources

This is not really a disadvantage that is unique to forex robots as the same can apply to manual trading. However, it is worth mentioning that a forex robot will need to be up and running on a trading platform in order to be able to scan the markets and trade. This means your computer will have to be switched on all of the time unless you use a Forex VPS. A virtual private server (VPS) will allow you to remotely run a forex robot on your trading platform 24/7 without needing your computer switched on. What’s more, they are relatively cheap, with an entry Forex VPS available for around $10 per month.

Scams

Unfortunately, just like with nearly every industry, there are forex scams. Whilst there are plenty of honest forex developers whose goal is to provide good software, there are always going to be those who try and take advantage of traders by selling bad or pirated software. One of the ways you can try to avoid such forex scams, is to check for user feedback and make sure any forex robot you are considering has a verified trading account so you can see its historical performance. Of course, historical performance is by no means any indication of future performance, but it is better than nothing.

How to choose a Forex Robot?

If you are in the market for a forex robot, you will want to consider a few things to pick a suitable option for your trading goals. Things worth considering include:

  • What trading strategy does it use?
  • What is the money management like?
  • Are there any verified trading accounts?
  • How good is the customer support?
  • How long has it been running for?
  • What currency pairs & timeframes does it trade?

How to use a Forex Robot?

The great thing about forex robots is that they can be used by anyone with a computer and internet connection. All you need to do is follow these steps to get started:

  • Download the MetaTrader platform
  • Choose a forex robot
  • Load the robot on the MetaTrader charts
  • Track the performance

Whilst these are the basic steps, keep in mind that most forex robots come with step by step instructions and once you learn how to setup one, you can follow the same process for others. Some traders run multiple robots on the same or different trading accounts in order to compare performance.

Are Forex Robots profitable?

How long is a piece of string? Look, nobody can 100% predict what the markets will do. If they could, the markets would probably cease to exist. Whilst forex robots can and have made profit, there are equally as many that will not make any profit and can cause losses, just like any forex trading system. It is therefore important to make sure that you do your own research and ensure you are well aware of the risks involved with trading. You could try a forex robot on a demo account to begin with to see if it is suitable for your needs and as the old saying goes, never risk more than you can afford to lose.

Summary

Hopefully you now have a clearer understanding of forex robots. Truth be told, there is so much more you can learn about them, but one of the best ways to improve your knowledge is through experimentation. Thankfully, a demo trading account and free forex robot can be a good way to familiarise yourself with the crazy world of forex robots!

Good luck!

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