Using forex robots or what some people refer to as ‘automated trading’ isn’t new. The traders on Chicago Mercantile Exchange have been known for using automated trading strategies since late 1970’s, right from the time when computing became ‘personal’. The real jolt in automated trading came in the early 2000’s, with internet spreading its wings and computing power (read – processors and software) becoming cheap.
So what exactly is a forex Robot? It is a computer program (also referred to as an algorithm) that scans the forex market for profitable trading opportunities based on pre-set parameters or trading strategies and depending upon your preference either places trade on your behalf automatically or gives you an option to enter the trade manually. Nearly all of these forex robots use trading strategies based on technical indicators for finding profitable trading opportunities in the forex market, the difference between them lies in the trading strategy they use. You would have definitely encountered a lot of websites and forex brokers promoting their ‘sure shot’ or ‘95% profitable’ forex brokers, but as with anything that is sold on the internet, they can easily be just a scam.
Knowing whom to trust can be a difficult problem when money is at stake. Instead of making suggestions, let’s help you in figuring out how to choose a great forex robot by yourself –
Back-testing – Regardless of what forex robot you are going to use, if it hasn’t been back-tested on various currency pairs and various market conditions, you are effectively putting your money in the drain. Running a back-test on it lets you know how the program would have functioned in various market conditions – high volatility, low volatility, important news, announcements etc. It will also show you the kind of losses, wins, risk/reward, maximum drawdown etc. A genuine seller won’t mind you running back-tests, if they do then that’s the first sign that their robot is worthless.
Live Trading Results – Most sellers promote their product as having a winning ratio of 90-99%. Its only when you look the bottom of the page, that you find that these results have been found on ‘simulated’ trading and not on ‘real time’ trading. There is a vast difference between achieving results in simulated trading, where the parameters are controlled and achieving results in the chaos of real time trading. Moreover, simulated trading doesn’t consider ‘liquidity’ as an aspect, which is crucial when trading in real-time. Finally, Simulated trading can be manipulated to let the forex robot win all the time but real-time trading can’t and effectively shows you the ‘real’ capabilities of the robot.
Order Size Limitation– Some trading robots work magnificently while they stick to a particular order size but things might go awry when the order size is changed. Before buying a robot, test it for how it handles various order sizes, does it gives the same results for an order size of 20 lots as it does for an order size of 2 lots. If the profitability or win/loss ratio of the robot decreases with a change in order size, you will have to reconsider your decision of buying it.
Drawdown – Not every trader is the same, while someone can bear a drawdown of 50% on their portfolio, others will consider even a 25% dropdown as end of their trading career. Before choosing a trading robot, look at how much drawdown it can have and not just drawdown on per trade basis but consecutive drawdowns. If the forex robot can have drawdowns which make you uncomfortable, it’s better to leave them aside.
Credibility of the System – See what type of reviews or testimonials the trading robot currently has. Ready around and do some research. At the same time, how long has the system been running for? Has it been around for at least 2 years? Doing a little research before buying a forex robot can ensure that you don’t have to lose your money like others had.