What is a Forex robot?
An forex robot is some automated trading software that makes trading decisions automatically. The most popular retail robots are based on the Metatrader platform. Such robots present themselves as ‘expert advisers’ which can either suggest courses of action to you (such as when you should place a trade) or they can carry out the trade automatically. If your Forex strategy is strictly automated and needs no human input you can set up your forex robot to trade automatically 24 hours per day.
There are a great deal of companies that provide Forex robots, some of which are more reputable than others. Beware of vendors that pop up overnight and promise ‘instant riches’ and money back guarantees: such companies are often known to disappear after a few weeks. The vast majority of fx robots are not profitable so it is vital that you do your research before you commit.
How to choose a robot?
Forex robots have become very popular over the last five years or so but the majority of them are unsuccessful.
Anyone looking to buy a Forex robot is looking for profits, but profit has different meanings for different people. Some are happy to make an extra ?50 per week while others are looking for much bigger money. The bigger the risk, the bigger the potential profits (and losses).
Risk tolerance is a key factor when deciding which robot to purchase. You need to find a robot that suits your own trading style, which will mean analysing various factors such as expectancy and efficiency, profit factor and maximum drawdown.
Finding your ideal robot costs time and money as you research the different robots out there. It is absolutely vital to understand the fact that most fx robots will only work well in specific types of markets. Some perform better within range bound markets, whereas others work best in trending markets. The tricky bit is deciding whether the market is trending or in a range. To have success with a robot, you must never lose the gains made during a favourable trading market when the market becomes unfavourable.
So what does this mean in practice? Well, you need to make sure that the robot performs ‘robustly’ which means testing it backwards and forwards through the whole range of markets. If profits are sustained then the robot can be considered robust. Always bear in mind that past performance is no indication of future results.
So before you even consider purchasing a particular robot, make sure that the vendor has tested it backwards and forwards. You then need to test it yourself. If your own testing finds that the robot is not robust then you should return it to the vendor (if possible). If it holds up, you should then set up a micro account which will only risk minimal capital. If profits seem sustained then you can move up to more serious trading but do bear in mind that just because profits have been sustained so far, this could soon change, so you do need to keep a constant eye on your robot.