The traders are always using the EAs and bots without doing the complex market analysis. Many people have made a fortune by using the Forex bots. But to find the best bots, you need to have precise knowledge of the Forex market. For instance, the naïve traders don’t know the importance of risk to reward ratio in trading. So, if they purchase a bot that executes orders with 1:1 risk to reward ratio, chances are high it will blow up the trading account. But such things can easily be adjusted. In fact, by bringing some minor changes to the trading bots, you can create high-quality bots.
In this article, we will discuss some of the key faults which you must fix in the trading bots. Let’s dive into the details.
The risk to reward ratio
The first that you should check in the trading bots is the risk to reward ratio of the trades. If the trades are opened with 1:1 risk to reward ratio, there is no reason to use such EAs. Most of the time, the advanced trading bots have customization options to define the risk to reward ratio. Make sure you use 1:3 risk to reward ratio since it is one of the most efficient ways to reduce the risk exposure at trading.
Some of you might not understand how it can reduce the risk since the risk exposure will not be changed. As long as the winners are bigger, you are going to have an edge in the recovery factor. And if the Forex bot is designed to trade with 1:3 risk to reward ratio, it can easily cover up to three losing trade with one winner.
Trend identification policy
The bots are usually designed to trade in favor of the trend. But do you know the bots often execute the trade based on the lower time frame trend line? Trading the lower time frame trend line is one of the key reasons to lose money at trading. Even if you use a manual trading strategy, you can’t expect to make a big profit by trading the lower period trend line. Things might be tough at the initial stage since a higher time frame trading strategy requires huge patience. Based on the demand of the amateurs, the skilled traders often develop the Forex bots based on the lower period trading strategy.
If this is the case, you might have some big winners, but in the long run, you are going to lose money. Try to use such EAs or bots that can analyze the data in a higher period. The robots should have the ability to make intelligent decisions based on multiple time frame analysis. So, adjust the period which is used to find the potential trades. Using a lower period strategy which might be default settings won’t be helpful for the retail traders.
Trade scaling process
The smart Forex bots have the unique ability to scale the trades based on the market movement. Most of the time, the default settings don’t work and the trades are partially closed based on the minor support and resistance level. But this is not how the professional would trail the stops in the real market. To become skilled at trading, you have to create unique features that will atomically calculate the pivot points and trail the stops once the market moves a certain portion.
Most of the advanced bots have these unique features but still, you need to bring some change based on the average true range or daily price movement. Things might be tough but you can easily fix these issues by using the demo account.
Analyzing the fundamental details
The naïve traders think bots can’t analyze the fundamental data. It’s only true for the cheap bots but the advanced bots can easily analyze the statistical data. But analyzing the statistical data and relating to the real-time price feed is a very complex process. At times it needs to be manually adjusted and most of the bots have such features. However, the new users should disable the automated trading process during the high impact news.
The traders need to understand how this market works in the event of such major news. Once they realize the complex process of news trading, they can adjust the trading parameters in the trading bots. For instance, some of the traders often reduce the risk exposure for specific trading hours when the major news data are released. But this needs to be done manually and it often requires revision. So, focus on the default settings and bring necessary adjustments in the trading conditions so that the EAs and bots can take care of the volatile market condition.
