Home Forex Articles Forex Automatic Trading Robots - Things You Must Know Before Using Them. The popularity of forex automatic trading robots keeps increasing, in spite of the dubious returns generated by using them.
Forex robots are automated systems that enter trade orders in the place of a human trader. They are programmed to generate returns by the application of mathematical rules which are decided by their creators.
In other words, the intelligence and skill of a forex robot is entirely dependant on its creator. The commands executed by the robot are based on the tools of technical analysis, but sophisticated programmers will also use back testing to optimize the results of their robots. This process can be automated itself, and involves tweaking of the program to ameliorate its performance with respect to maximum drawdown, the placing of stop-loss orders, and other aspects of money management.
There are important problems with the logic behind the creation of the forex automatic trading robots, and the actual results generated by them.
The first and obvious issue is the fact that the robots have never been tested in actual market conditions. In almost all cases, they are tested on historic data, and non-trade related problems, such as connectivity issues, or problems that originate from the broker which would not be reflected on market data, are ignored.
For example, even the best robot will be useless if during some inevitable technical problem originating at your local ISP a brief blackout wipes out your account. Similarly, if, for whatever reason, spreads of your own broker widen to levels much greater than that prevailing in the vast majority of the market, even the best automated system will be useless.
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Only good money management methods, through the use of proper stop-loss orders, and preparation and willingness to admit and recognize losses can ensure survival against such periods. It is programmed to run according to a set of rules at all times, and has no ability to adapt itself to changing circumstances, regardless of the severity and importance of the changes in question.
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This is perhaps the most important disadvantage of using a robot in the forex market where change is the only constant. Finally, and in relation to the above, we should remember that the robots are only as smart as their creators.
Do you really believe that the peddler selling you the robot is a market-busting genius at the level of a Warren Buffet, or George Soros, who, after all, have had their own fair share of disastrous trades over the years?
The only kind of forex robot useful for you would be one which you could use to automate your own trading strategy, or one that you understand and are confident about, having examined the inner mechanism, and design of it. But many of us lack the confidence and the experience necessary for creating and customizing these tools ourselves, which is why the robots are so popular on the market these days, advertised by extravagant claims, and hyperbole.
In short, the forex automatic trading robot is an alluring, great idea that promises a lot, but delivers little due to the random nature of price action in the financial markets. If in spite of all the information in this article you still have confidence that some of the robots out there deliver the incredible returns promised by their creators, consider the obvious.
If the owners of these systems have achieved the Holy Grail of trading, why would they peddle it to you online for meager sums? They would not even need to advertise them, as financial institutions all over the world would compete with each other to acquire these products from them.
Instead, large firms and broker ignore the robots and creators. Your invested capital is at significant risk.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you.
Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. No information or opinion contained on this site should be taken as a solicitation or offer to buy or sell any currency, equity or other financial instruments or services. Past performance is no indication or guarantee of future performance.
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