Trading with the help of Forex automated trading systems looks simple and profitable, but it hides not only advantages but also disadvantages. Learn more about the pros and cons of Forex robots.
Recently, many traders use automated trading systems in their daily trading, and those who are not using them would like to know more about it. Let’s see what it is and why we need these systems. What good they can give the trader, and what are their shortcomings.
A trading system is a clearly defined set of rules for trading, i.e. for opening and closing trades. The term “trading strategy” is also used. If you have a clear plan, under what conditions to enter and exit a trade, even if it only exists on paper or in your head, you already have a trading system.
An automated system is a program that automatically places and withdraws orders according to the logic previously provided in it, following the trading system (trading strategy). It is also possible for the program to perform additional functions at the discretion of the author of the system. Such as control of submitted bids, monitoring of transactions, analysis of trading with the provision of schedules and reports, etc.
In the MetaTrader program, which is used for trading on Forex, expert advisors (EA) are programs that can not only issue signals but also, if the trader desires, carry out automatic trading. Recently, the term “trading robot” has been used to refer to automatic trading systems. So, we know what a trading robot is, now let's figure out why we need it and what advantages it can give.
BENEFITS OF TRADING ROBOTS
An EA can track dozens, hundreds of quotations of securities, make instantly complex calculations, make a decision and immediately submit orders. Any humankind would never be able to analyze so much information so quickly. Traders who use large volumes of complex calculations in their system and entrust trading to a robot, gain an advantage over their colleges that trade in the old-fashion way. Traders who do not use robots are forced to cut down the number of trading instruments, to increase the time intervals used (time frames) and to abandon promising but complex Forex systems.
The trading robot does not make mistakes (unless of course, the error has crept into the program code when it is created), all input and output data can be calculated within a few decimal places, if necessary. By applying, the robot will not accidentally pick up an extra zero and will not put a comma in the wrong place.
The robot simplifies monitoring and analysis of the market, quickly finding transactions that are suitable for the trader’s trading style. The capabilities of the robot greatly exceed the capabilities of man. A program can simultaneously monitor multiple currency pairs and financial instruments, and thus not a single profitable opportunity will be lost that fits into the trader’s strategy.
Besides, the robot can be configured for different strategies depending on the style of trading which gives even more possibilities for a trader safer or aggressive trading, percentage of the risk, leverage amount, etc.
A trading robot is not a subject of emotions.
Many traders, especially beginners, having undergone an emotional impulse, make transactions that are contrary to the logic of the trading system and in most cases, such transactions turn out to be unprofitable. A trading robot always strictly adheres to its logic. It doesn’t listen to the “guru” in the smoking room, who knows exactly where the price will go. It doesn’t afraid of three lost trades in a row. It doesn’t have a bad mood.
The Forex robot doesn’t get tired, it is ready to work 24 hours a day.
You can go about your business, work, sleep, relax and your robot will trade instead of you. If you trade manually, you will not be 8able to spend 100% of your time at the computer, even if the trading session on the exchange is only 8 hours. When leaving a computer, a trader can miss an important signal to enter or exit and this can cause damage to the account.
Manual traders can sometimes be mistaken both in the calculations and in the bidding process. A well-designed trading terminal can save from some of these errors, but there still remains a chance for an error.
The Forex robots are smart.
Since the best Forex robots are made by smart and responsible developers, there’s no secret that the systems on the market are smart. The developers use only the best thought out strategies and algorithms that have been tested far and wide before putting them out on the market. Even if sometimes some unexpected troubles happen, there is always a plan B and C for each kind of situation on the market.
As you see, trading robots give traders great advantages, but why then not everyone uses them in their trading? Don’t automated trading systems have cons? They do and very significant.
DISADVANTAGES OF TRADING ROBOTS
The complexity of developing a robot (writing a program).
You can develop an excellent trading strategy, but not to be able to program it. Even if you are a programmer, you will need to learn a new language, and if you’re not familiar with programming, then you will have even more difficulties. That's why traders come to the point where they buy a ready-made robot such as the robots on the ForexStore Forex robots market.
A trading robot can only use technical analysis.
It is impossible to teach the robot to read news and company reports, which often becomes a reason for price movement. The robot, following the signal, can open a position at the time when the news was sent about the beginning of the depreciation. But it is not the same as if the robot would read the news and placed the order, not after the fact, but ahead of the curve.
A trading robot cannot make decisions in non-standard situations.
The robot only performs the logic embedded in it, and in the event of problems, it will not be able to change anything. Of course, the program can lay the robot’s reaction to certain situations, but it is impossible to foresee everything. For example, if the Internet connection is lost, the robot will not be able to continue trading or at least to close an opened position. A manual trader would then call the broker and close the position or restore the Internet if possible. The computer may freeze, the program may close with an error, the broker may not accept the application or accept, but with a long delay. A trading robot could not be able to respond to all events and this might lead to unplanned losses.
The absence of emotions is one of the advantages of trading systems but it is also a minus.
The robot could lose all the money on your account without any embarrassment. That’s why every good Forex robot should have a limit for the drawdown during trading. The risks level has to be provided before the start of the work of the robot.
Analyzing all that's been said we should conclude that automated trading systems provide traders with new trading opportunities, giving them advantages over manual traders. In the stock markets, Forex or futures market, trading stocks, futures or currencies — the trading robot is always ready to carry out its program. But, using robots for automated trading, traders should not forget that robots are not perfect, they are not making-money-machines. They are just another useful tool for a trader and you need to use it wisely.