Automated Trading - Does It Work?

trading robot

Using automated trading on your Forex account may turn your trading career into a money making venture. Traders from around the world use trading robots to manage their accounts, and some are very profitable!

The Future is Here Now

Technology has now made it possible for the smaller retail Forex trader to use the same type of trading program that institutions have used for years.

Trading robots, or Expert Advisors (EA's) are actually small software programs which enter and exit trades based upon certain rules. Many different styles are available and prices range from free to hundreds of dollars or more.

The Trading Platform

The most common platform used for automated trading is the MetaTrader solution. There are hundreds of brokers offering trading with this platform, but as usual, do your homework before sending your hard-earned cash to anybody!

The trading programs are copied into a special folder within the software and once activated, execute trades based upon how their parameters are set. Most of these robots allow a small amount of adjustment to suit your risk level.

There are a few things you should consider before you jump onto the robot trader bandwagon. There are pros and cons to automated trading and you need to be sure they suit your circumstances.

Why Use Auto Trading?

If you have done any trading at all, you know the emotional roller coaster ride you take while trading... profits appear, then they're gone, maybe some losses, then profits again, back into loss and on it goes.

Our emotions are usually what gets us into trouble while we are trading. We have a plan, but once we see profits or losses, our fear, greed and confusion take over and we abandon the plan we spent all that time preparing.

Trading robots on the other hand, are programmed to execute specific actions based upon certain events. Their complete lack of emotion makes them the (almost) perfect trader. They don't get caught up in the excitement, but simply do what they were designed to do... time after time.

The Flip Side

This type of trading does have limitations. Probably the largest one is the robot's inability to know what is coming in the way of news and data.

The trading action is often based upon indicators, which are based upon historic prices. As soon as a new tick is made, the previous one is history. By this measure, the robot is unable to predict the future of prices.

Add to this the robot also doesn't know the NFP or interest rate numbers are about to be released, which could easily result in a major blindside to it's trading plan. This is usually overcome by switching off the automatic system during news times.

Since these programs are running on your computer, your system needs to be left running and connected to the internet for the entire time the market is open. Usually a broadband connection is also required or desired to ensure the data stream remains constant.

Some automated trading robots offer a hosting option so they will actually run it on their server, which will free your computer from this requirement. More and more hosting services are appearing all the time, so check to see if you EA is suitable if you have issues with your computer running all the time.

Something you should consider is that some robots don't put out a hard stop-loss order when the trades are taken, but rather monitor losses internally and act when necessary. Should your system happen to go down for any reason, you would be left without any stop-loss protection on your trades with this type of robot. Of course you can manually enter a stop order for safety sake when a new trade is opened, but what if it's 3:00 am and it just happens to be a night when you can sleep! Just beware.

The Bottom Line

I think automated trading robots are the future for us. We all know that to be successful, we have to put our emotions aside. It's much easier for your computer to do that and it also doesn't mind working 24 hours a day!

We do need to hold their hands during news times, but that issue will be cured by smart programmers. Some trading programs boast earnings of 1000% per year and more. Timing and dealer intervention play a large roll in your results, so they may vary.

Always use conservative settings with any new EA's until you are completely familiar with how they perform under all market conditions.

Wishing you trading success,
David Stevenson.

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