Automated Trading Software – otherwise known as Expert Advisors or Robots – can mean trading without emotion or hassles…
This is the second of three methods of hands off trading that the forex trader may consider, the others being Forex Managed Accounts and Forex Signal Service.
Forex trading software doesn’t have to be automated; many successful traders only ever trade manually. But I am assuming that you have an interest in automation if you are reading this section.
So, just exactly what do people mean by automated trading software? Simply put, a trading robot is a software program that executes a trading strategy automatically, with no need for ongoing input from an external source (i.e. the trader). They are also sometimes referred to as Expert Advisors or EA’s .
Some years ago I was speaking to a broker about EA’s and said something like “we all know they don’t work”. In the next 5 min that broker managed to persuade me to take another look at forex robots.
Of course, I was thinking “hey, you’re a broker, you get paid every time the software trades. And we all know they trade a lot, a nice little earner for you!”
Nonetheless, my curiosity had been roused so I went and did some research. What I discovered completely changed my mind.
Since then I’ve taken an active interest in the subject. While not claiming to be an expert in the technicalities, I have observed the results of auto trading systems enough to convince me that there are a handful of robots that actually can be trusted with your money.
I don’t say put all your faith in any one forex ea; of course the usual risk management and diversification issues apply. However, I now devote a portion of my own personal trading account to forex robots.
Why?
There are many reasons for adopting a hands off approach to your forex trading. These mainly centre around the following issues:
- The benefits of absentee trading. Being able to walk away from your computer knowing that a piece of software is doing the job for you frees you up to live your life any way you like.
- As a human being, it is impossible for you to trade 24/7. Robots do this without complaint You’ll never miss a trade again…
- Emotional issues in trading. Automated trading software is totally unemotional. You can set it up to trade the way you would like to trade (as an ice cool trader, presumably) and entrust the job to it. The robot will do exactly as you had planned, without any of the distractions of niggling thoughts, doubts etc entering into the decision. It’s a good option for dealing with the trader demons of fear and greed.
- Entry cost. The market for robots is extremely competitive and this has driven the price down over time. Considering the performance of some of the better robots, the money you pay upfront can soon be recouped if you trade it on a reasonably sized account. (Disclaimer: always trial the forex ea in a demo account first until you are comfortable with its performance)
- Research edge: you pay a small amount of money upfront for a piece of software which has been thoroughly researched and tested, with a proven performance track record. No need to spend months or years developing your own system.
- Proven performance. You simply do your own research on the available offerings, and select the robot that both suits you and has a proven track record. Again, a big timesaver, if you get it right!
- Automated trading software can be a great way for beginners to observe how a professional traderapproaches the market.This gets back to emotional issues, the plague of all forex currency trading beginners. If you select wisely, and only place the robot on a demo account or small live account, you can sit back and “see how it should be done” at your leisure.
This was one of the first things that struck me when I started using robots. I would be watching the behaviour of the EA during a trade and contrasting the way it managed to trade to the way I would be tempted to manage the trade. The robot usually did a much better job than me It’s like having a mentor do your trading for you while you stand behind them observing and learning. - Many vendors of forex robots offer a money back guarantee, enabling you to get a refund inside a certain trial period. This can be anything from one to three months, as a rule. This should be seen as a bonus when considering selection of an EA, not a dealbreaker. It may be that one robot is excellent, but gives no money back guarantee, while another robot that is absolute rubbish cheerfully refunds your money if you’re not satisfied. The reasoning is obvious: the vendor of the rubbish robot knows that a certain percentage of customers will for one reason or another (laziness, didn’t know about the guarantee etc) fail to redeem their money.
- Last but not least, and taking into account all the above, you may prefer spending time with family and friends than watching charts!
But what about the downsides to using automated forex trading software?
- You will most likely want to have a VPS service on which to run the forex robot. This is an extra ongoing, albeit small cost. See VPS services
- The very utility of having a robot trade for you without your input can be a source of constant low-level tension for some people. You may find yourself worrying “What is it doing now? God I hope it hasn’t lost me any money!” There are some people who just have to CONTROL every aspect of their trading. Automated trading software is probably not a good fit for these people.
- There can be a difficulty in locating a robot that trades the way you want it to, while meeting your other requirements with regards to cost etc. For example, a great many robots scalp the market, and are not suitable for someone whose vision is longer term.
- The performance of forex robots generally degrades over time as market conditions change and the code for the robot is “cracked” i.e. stolen and mass distributed. It’s important to monitor performance against your initial expectations, and be prepared to stop trading at the first sign that the robot is no longer doing its job. This can be temporary while you continue to run the EA in a demo account, or permanent in the event that the software shows no recovery in its performance over time.
- Last but most definitely not least, anyone thinking of using auto trading software must understand the risks involved. There is a good reason why most robots return a very high win to loss rate (often above 80%, sometimes even 90%). That reason is that simply having such a high win rate means that when you do suffer a loss, that loss is substantial. You must be able to psychologically absorb the occasional such loss in the face of a streak of much smaller wins. It is simple mathematical probability that an automated system that wins 90% of the time has wins that are much smaller than its losses.
If you have lasted this far I guess you are still interested in the possibility of using forex robots. In that case, you may wish to consider the list below under the link to Automated Forex Trading Software. Please note that the usual disclaimer applies to these recommendations: Do Your Own Research and remember that past performance is no guarantee of future results:
Click the following link to go to Automated Forex Trading Software
Got an idea for something you’d like coded into a robot?
Click the following link to go to Expert Advisor Coding
The second approach to automation of your trading covered is Forex Managed Accounts.