What Are Forex Robots & How Do They Work?

Forex Trading Using Automation

There is a myriad of forex exchange trading strategies and styles. Traders of differing levels of experience will have different ways of working. There is a divide between those who want to trade manually and others who wish to trade using automation.

Traders who go down the root of automation will need to undertake plenty of research to find automated software that matches their trading style and correctly carries out trades according to the strategy.

What is A Forex Robot?

To undertake automated trading, a trader will need to purchase or develop a trading robot. A forex robot is computer software that uses technical signals to establish if a currency pair should be bought or sold at a point in time.

As part of an overall FX strategy, a robot helps take away the emotion out of trading. Emotion can sometimes result in traders opening trades that are not based on logical decisions and out of line with an overall strategy. Psychology can amplify in fast or volatile markets or the temptation to trade quickly after a losing trade.

How Do Forex Robots Work?

A significant number of forex trading robots build using the Metaquotes, MQL scripting language used exclusively with Metatrader Software. Metatrader is a leading forex trading platform used by many online brokers through which their clients trade. The ability to integrate a robot with MetaTrader allows the automatic generating of trading signals and placing orders according to the trade indicators.

Some robots are programmed to scan and interpret charts. Additionally, they can program with specific parameters needed to make a trading decision; using trading signals, they decide when it is appropriate to trade or to hold back.

Forex robots work best when employed with a specific currency pair and use a defined range or time frame as part of an overall strategy. They typically design to make a certain number of pips within a trading range. They can identify profitable trades even in unstable markets, which for a human has an unclear trading direction. They can also follow a clear trend to maximize profits.

Forex Robots: Research is Essential

It is essential when researching robot software to look for authoritative online testimonials and reviews. There are proficient forex robots available on the market, but extensive research needs undertaking to ensure implementing the software as part of your trading style or strategy will be successful. Once purchased, testing robot software on a demo account is vital to establishing a trading system’s statistical expectancy.

Forex robots have, at times, received bad publicity due to their association with promises of guaranteed profits which have not materialized when used to trade in live markets. There have also been problems with robot software providers selling automated software with a money-back guarantee and disappearing just a few months later.

Robot Effectiveness

Traders using robots should never entirely depend on them to undertake the full range of trading activity. Forex robots can carry out sophisticated tasks, but their functionality can be limited to how they were initially programmed. Forex trading still requires extensive human observations and research and digesting current news and economic developments that robots cannot do.

A criticism of forex robots is they generate profits over the short term, but their performance over the long term is more mixed. It is primarily because they are automated to move within a specific range and follow trends. As a result, sudden price movements can take out profits made over the short term.

Develop Your Own Forex Robot

Technically capable traders may consider building out their forex robot. The advantage of this is developing an automated system based on their own technical trading rules. Demo accounts that use Metatrader allow experimentation with MQL scripts, and after backtesting, it may be possible to develop a capable robot. A simple example of a robot could be one designed for GBP USD, where a trader has a strategy for take-profits and stop-losses following a technical break-out. A robot could be programmed with rules to place trades automatically rather than the trader having to place orders manually.

Final Takeaway

It is essential to remember that forex trading robots work at their best identifying a narrow set of parameters to which they program. They are a useful addition to a defined trading strategy but should not be used on their own as a stand-alone trading system.