So, let’s get started by describing what a forex robot is! Forex robots are the same as auto-trading systems or EA systems,
Expert Advisor systems. Favorite children always have many names J. A forex robot is an automatic trading system that
based on a script (software) is executing trading orders. The script itself is based
on a pre-defined trading strategy. The orders are executed without any human
interaction, which gives advantages such as:
·
Consistent
trading. There is no subjective human biased interaction. No “subjective
feelings or thoughts” are involved that can affect the trade
·
Immediate
trading. The trade is executed automatically and directly when the trading signal
from the forex trading script is created
·
The
investor saves time trading. Since the system is following the market and
executing orders based on the pre-defined trading strategy, the investor does
not have to spend time constantly monitoring the market, waiting for the best trading
opportunity to occur
·
The
investor needs little knowledge about how the forex market works and how to
trade since the trading is done automatically. (even though every investor
should know what they (or the script) is doing and how it works - in order not
to have any unpleasant surprises by the robot’s actions!)
Trading
robots operate based on some kind of “trigger”. The trigger tells the trading
robot when to execute the trade, and the trigger itself is based on a
mathematical algorithm. The algorithms are often based on technical analysis
(such as candlesticks, MACD), but can also be based on other trading patterns
such as market implications from news events.
Read
more about trading strategies here:
http://www.aboutcurrency.com/strategies/forextradingstrategies/forex_trading_strategies.shtml
There
are tremendously many forex robot options available and the difficult part is
to know which ones actually work - most of them seem awesome and promise great
results, but I doubt this is actually the case! It is important to bear in mind
that a robot trading script often works better in a specific trading climate -
some can for instance work well in good economies and some in bad. Also, once a
popular robot is being employed by very many users, the trading strategy risks
to be “diluted”, i.e. because so many people are using the trading strategy it becomes
less effective. So there is always a risk that a robot that performed well
recently will not do well in the future. The robot trading script often has to continuously
be updated in order to meet the new trading climate.
If
you see good results from a robot the past six month there is unfortunately no
guarantee that it will continue delivering good results, depending on issues
such as the trading climate and the “crowd/volume” problem.
Picture
above is from: forexrobotandtrick.blogspot.com
What
kind of forex robots are out there, and how do I get a script working?
In
order to start forex robot trading you need to find a robot script that you
believe in. I am sure there are people out there making money by using forex
robots – or at least companies making money from people using their robots J. So if you won’t
become too discouraged from the reading of the next section below I have found
some interesting web-pages analyzing the performance of forex robots. Check
them out if you feel like it:
http://www.forexrobotstest.com/index.html
http://www.expertadvisorsforex.com
http://bestforexea.com
http://www.camforex.com
Once
you have found a robot script you will have to install it, which often can be done on
a MT4 trading platform. Once this is done the robot can start trading on the
global forex market. Note that the robot will only be trading when your
computer is on and when the MT4 platform has been started on your computer. A
way to get around this is to implement the robot on a server that is operating
24/7. Some companies do offer this
service.
Picture above
illustrates the robot script with the forex trading strategy being installed on
the forex trading platform, which executes trades towards the global forex
market
If
you are a good computer programmer you can actually create your own trading
scripts in MT4 based on your own favorite technical analysis!
Enough of the robot introduction! I am sure you
wonder how I did with my choice of forex robot…
After
too many hours spent looking for a great investment opportunity within a forex robot
I finally found a local player (forextrade.se) offering an automated robot
trading product which was based on so called grid-trading.
This
grid-trading script strategy was based on the assumption that historical
patterns between two very strongly correlated currencies will repeat over time.
The currency pair can over time reach high levels both upwards- and downwards
but has historically tended to go back to the middle of the chart (like a
rubber-band), following a certain pattern. This forex robot product used this
theory by dividing the historical development of the currency pair in two
halves, based on the average currency pair’s movements over a long time period.
Below the average line only buy-positions (trades) were created, since over
time the currency pair will work its way up towards the average line again. Thereby
the purchase positions would be locked in with a small profit. In a similar way
only sell-positions were created in the area above the average line.
The
trading robot created the grid with pre-defined buying /selling intervals
between the grids. When the currency pair reaches a grid, a buy- or sell position
was opened. Once the next grid was reached, the position closed. Several
positions could be opened at the same time.
The picture
illustrates where the forex trading robot opens sell- and buy positions
The
largest risk with this forex trading strategy probably occurs if the currency
pair breaks out from its historical patterns with many open positions, which
would require a higher amount of invested capital than the recommended minimum
employed capital for this forex robot. Unfortunately I invested in this forex
robot in 2009 when the markets still were in kind of a chaos so the historical
patterns did not really occur for the traded currencies... After having a good
start with a profit of about 40% my beginners luck disappeared. So what
happened was that I lost all my money
- every single nickel and dime! (the forex trading platform automatically sold
off all my open positions once my equity* reached zero. It is a built-in safety
mechanism in the trading platforms so people can’t lose more than the invested
capital. A very important feature as trading is most often performed with
leverage!)
My
only comfort was that I only lost half as much as I could have lost… Since I
didn’t want to invest alone in this for me unknown and quite dangerous territory,
I had persuaded a friend to split the investment and risk (and potential
reward) with me… I don’t think he will be very keen to do another joint investment
venture with me J
forextrade.se
has stopped selling this grid-trading forex robot. I wonder why… J I haven’t tried any
other forex robot trading after this adventure, but I have tried stock market
robot trading. I will talk about this in my future postings. So
stay tuned and subscribe to my blog (at
the top right on my blog) - don’t miss out on more interesting stories!
*
Equity = Balance minus open positions. Balance = total capital in the account
(initial invested amount of money plus any profit made)
