The forex market operates 24 hours a day, five days a week. Historically, traders have been scouring the market, looking for any opportunities to exchange currencies for profit. With the evolution of technology, it’s become possible to delegate this duty to a computer program. Such a computer program is called a forex robot. On the MetaTrader platforms, they are referred to as Expert Advisors (EAs).
What is a forex robot?
A forex robot is an automated algorithm that searches the forex market for trading opportunities satisfying a pre-programmed set of rules. Usually, a trader will adjust the parameters of the robot according to their trading strategy. This means they advise the robot what conditions must be met before a trade opportunity can be flagged as valid. These robots also allow a trader to define their risk management strategy.
In return, the robot runs for 24 hours a day, producing trade signals as they happen. You may choose to semi-automate your robot so that it only gives trade signals. Alternatively, you can opt to have the robot execute trades on your account in a fully automated capacity.
Pros and cForex Robotons of forex EAs
- These robots can trade 24/5. No human can keep analyzing price charts throughout the working week, but forex robots can. This enables them to flag more signals than most humans. Depending on the robot’s success rate, this could mean increased profits.
- EAs eliminate emotional trading. One of the leading causes of losing trades is a trader’s emotions. When traders trade out of fear, greed, anger, or FOMO, they tend to make impulsive decisions, which are often mistakes. In the forex market, a single bad trade could blow up your account. EAs, in contrast, follow the defined strategy without bias.
- Forex robots are excellent at multitasking. This means that they can follow complex trading strategies and analyze different price charts simultaneously.
- They are easy to back-test. With a forex robot, back-testing a strategy over years of historical data would only take a few minutes. Done manually, it would take several days, if not weeks. Even then, the chances of human error are high.
- They require fast and reliable internet. Any interruptions in your internet connection could cause glitches or make the robot erroneous. If given authority over your trading decisions, such a robot could easily lead you to loss.
- They lack intuitiveness and imagination. Some traders have gotten really good at trading on instinct, and such human traits cannot be replicated on a robot. For all their bells and whistles, these EAs cannot clone some human elements that give some traditional traders an edge in the market.
- They are susceptible to malicious attacks. Since these programs are connected to the internet, there is always the risk of getting hacked. If one were to maliciously access your fully automated EA, they could do considerable damage to your capital assets.
- Most EAs do not account for fundamental analysis. This could make them trade price movements caused by news events erroneously, leading to losses.
Factors to consider when choosing a forex EA
There are several forex robots in the market today, both for free and at a fee. Some are legitimate in the services they offer, while others are fraudulent operatives. For this reason, it is important to do your due diligence before deciding on any one robot.
Ideally, it would be best to create your own forex robot, whose capabilities and limitations you’ll be acutely aware of. With some programming knowledge, you could build an EA and customize it to your liking. However, if you cannot code or afford to pay a programmer to build it, here are some factors to look out for in off-market brands.
1. Online reviews
The best forex robots have been around for a while, hence their longevity. Over the years, several of their customers have taken to online forums, social media, or on the robot’s website to express their satisfaction or regret. Such reviews can shed light on the legitimacy of a potential EA. Additionally, several independent websites and analysts rank robots by their performance. Such ratings can help you choose a suitable, reputable forex robot.
Any reputable EA will have posted comprehensive results of their back-tests and their forward tests on their website. However, some EA builders have been known to cherry-pick only the positive results from these tests and sell them as conclusive results.
It is important to carry out your own research to avoid this. Most forex robots will offer free trials for new users. Take advantage of these free trials to carry out your own back and forward tests on a demo account. This way, you can test the profitability of your strategy and your robot without risking your capital.
3. Review their performance statistics
Usually, when EAs are tested by independent analysts, the results are usually produced in a number of different stats. For instance, the profit factor refers to the likelihood of your robot generating positive returns. The expected payoff refers to the approximate average value you can earn per trade. The drawdown is another important statistic figure that provides a measure of the risk factor of the robot.
Typically, robots promising higher returns will take greater risks. Therefore, it is important to manage your expectations when choosing a robot for its statistics. Remember, the forex market is not a get-rich-quick scheme – it’s a career with a growth curve, just like any other.
Forex robots are automated programs that take in detailed instructions and analyze different price charts to identify trade opportunities according to the pre-set conditions. They may be semi-automated, whereby they just provide trade signals or fully automated where they go as far as executing trades. Before choosing a forex robot, do your own testing, perform adequate background checks and review their statistics.