A forex robot is software that is programmed to analyze markets using pre-defined trading strategies with little or no human interventions. The principle behind the functionality of forex robots is their ability to scan several thousands of charts and detect the best entry and exit points based on their algorithms. They can then either execute the trades on their own or send signals to the trader/investor to buy or sell. It all depends on how the robots are programmed to operate.
The idea of employing a robot to carry out complex analyses on several charts simultaneously is certainly enticing. However, with these superior abilities comes the risk of losing your money because of the rigidity that comes with the robots.
For every complex analysis of the market, there is always a lack of flexibility and inability to readjust to the unexpected changes in market fundamentals. As much as they have the super abilities to conduct technical analysis with great precision, the robots can simply not substitute the human touch for trading.
If you are unable to resist the urge of using fx robots, you should only use them as a support tool and retain the ability to make critical trading calls. Therefore, investors should engage robots to help in position readjustment as opposed to their ability to optimize profitability, which is limited.
Why should you use FX robots?
The main reason why some traders opt for robots is because of their inexperience. Typically, such traders have a misinformed mindset that robots can miraculously do all the analysis and execute trades to perfection because, after all, they are “highly advanced” software.
In addition, they see robots as the ultimate solution to the problem of extensive research and time-consuming aspects of manual trading.
Some investors also opt to use robots to eliminate the element of human emotions in trading. Emotions may cloud your judgment and lead you to make bad trading calls. Indeed, you cannot avoid feeling emotional when you are either making losses or generating good profits.
However, as you progressively gain experience, you will learn to manage your emotions. However, experience may not always make you immune to emotions. If you are innately over-emotional, you should consider hiring an experienced trader to do the job for you. Robots may trade without emotions, but their rigidity means that they can stick to a specific strategy even when you are losing money.
How reliable are FX robots?
Robots are inherently computer programs designed to carry out technical analysis and execute trades based on certain ideal conditions. However, markets are dynamic and conditions are never what we want them to be. Note that robots have different capabilities, depending on how they have been programmed and how efficient their algorithms are.
Typically, robots undergo backtesting to assess their ability to execute orders with accuracy, optimize profits and minimize risks. In backtesting, the programs are fed with historical market data, on which they employ their technical analysis to show how things would have turned out if the robot had been used.
It is important to note that because of the differences in programming methods used and analysis strategies integrated into them, robots have different capabilities. Therefore some robots are more profitable than others.
Traders should realize that regardless of the level of sophistication in an FX robot, they cannot replace the human experience. Therefore, a robot may be profitable in trading one asset but get it completely wrong in another one.
Strategies for successful use of robots
1. Research and due diligence
In a typical fashion, you will find several robots being advertised as the best in the market. However, beware that the vast majority of robots are incapable of doing what they are advertised to do. Do not fall for such traps. Carry out your research and peruse through online reviews on different platforms to know the different capabilities of robots.
Find out which ones are prone to hacking and susceptible to viruses. You should go for a robot that has been in the market for a relatively long time and has proven reliable and efficient.
2. Manage your expectations
Robots have their flaws and often get their strategies wrong. Therefore, you should use them as a tool to support you and not put all your hopes on them. Use your creativity and understanding of the market to get the robots to work for you only when you need them. Consider them as a complementary effort to help you in your technical analysis, but don’t be afraid to override them when you feel that their approach is wrong.
3. Utilize the trial software
While you will have to pay for the FX robot, it is advisable to use the trial software before buying. In most cases, you will be given a trial version of the robot for a limited period. Ensure that you try it out and understand how it works, as well as its strengths and limitations. If you are convinced that the robot can work for you, go ahead and buy it after the trial period.
4. Manage your robot
As intimated above, forex robots are not flexible and will not react to sudden changes in the market, such as news of an acquisition. Therefore, ensure that even as you leave the technical analysis to the robot, you remain alert to market changes such as fundamentals and that you be the one to execute the trades when there is a high level of uncertainty.
FX robots have been proven to work, but you must always remember that you are the boss. Always be in charge and only let the robot be a helper. If possible, learn how to trade first and acquire the right skills before you acquire a robot.