All You Need to Know about Automated Forex Trading
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All You Need to Know about Automated Forex Trading
We can all agree that while currency trading can be very profitable, it does not come easily to everyone. More specifically, it does not come easily to anyone at all. In order to become a successful professional trader one has to spend a decent amount of time studying the market, developing and testing various strategic approaches and commit to making extremely important decisions on a daily basis. Of course, studying and practicing is available to anyone and as long as you do not rush you’ll gain all the knowledge and skills you need. However, the never stopping decision making process combined with occasional setbacks can contribute to a stress level increase and forces a large portion of traders to quit before they even got to the first visible result. Reducing the stress of manual trading was one of the main ideas behind the introduction of automated Forex trading software. To provide you with a complete overview of the matter, here we have gathered some of the info covering:
What is a Forex trading robot and how it operates
How can you make money with Forex robots
Pros and cons of using automated trading software
Who can benefit from automated trading
How to choose the right Forex EA that really works
How to install a robot on MT4
Most common automated trading strategies
What is a Forex trading robot and how does it operate
To best answer the question of what is a Forex trading robot let’s look back into its history. The very idea behind automated trading came from 1949’s regulated trading approach described by an American futures and commodities trader Richard Donchian. Donchian built a set of rules, strategies and guidelines based on the moving averages. This later become recognized as trend following. These strategies only picked up their pace in the mid 80’s and in the early 90’s some of the early automated trading technology was introduced. Back then it was exclusively available to large financial brokers and banks making it impossible for regular traders to trade automatically, but to be entirely fair trading was not all that common either. Automated trading as we know it became available among a huge sprint of technology in 2008 with the launch from an Amrican business magnate Jon Stein. Since then the automated trading technology has grown and developed tremendously and is believed to control the larger portion of the market.
In the modern trading world automated trading software is a computer program designed to perform technical analysis of the market, develop and backtest trading strategies as well as entirely replace its user at the market. For traders who chose the automated path this means market presence without the need to be personally involved. Automated trading sounds like an attractive opportunity for both new traders and market professionals. However, in recent years the wide selection of available Forex robots got us asking: do Forex robots really work? And how exactly can I make money with a Forex robot?
How can you make money with Forex robots
To better understand the if Forex robots really work we need to start with how they work in the first place. We have already established that any automated trading software is designed to follow preset rules also known as algorithm to trade on behalf of its user. In simple words, the robot does everything that needs to be done when it comes to trading. All you have to do to start is to sign up with a trustworthy automated trading service and deposit an initial amount for the program to work with. The trading robots which are also often referred to as expert advisors (EA) then use the most effective approach to achieve your goals. Note, that most of the robots behavior is going to be written into algorithms and you will not be able to interfere much. The things that you will most likely be able to adjust are trading lot sizes, possible risk rate ranges and in some cases stop losses and take profits. With that said, in most cases the expert advisor will be capable of performing at a steady rate without any adjustments, so there is no need to worry about coming up with the right action plan for the robot - it will handle everything.
It is always good to know what kind of strategies are used by a specific robot to be able to comprehend the process of its operation. In most scenarios the automated Forex trading robot will be using one or several from the following:
Trends following is a basic Forex trading strategy based around the theory that you should buy assets as the price move upwards and sell when it goes down. In manual trading this is usually achieved by a number of trading indicators designed to locate and confirm trends. For trading robots this process is fully automated.
Mean reversion is built on the belief that all price values are heading back to their average values from whichever direction they took. The reversal is expected to happen overtime. Manual traders use specific analytical approaches to define the moments when the price will change direction.
Copytrading is a strategy of copying the trades that have already been opened at the market disregarding of which strategy or analysis was used to determine them. For manual traders the most common way of following this strategy is getting a source of trading signals and following them immediately.
What is important to keep in mind is that even the most advanced technology will have some flaws, so the most important part of switching over to automated trading is to fully acknowledge all the advantages and disadvantages that come along. As long as you have a clear picture and being honest with yourself, the trading expert advisor can become a great assistant in the process of conquering the chaotic world of Forex. So let’s get into some pros and cons that you should keep in mind when going for automated trading experience.
Pros and cons of using an automated trading software
As we mentioned above, automated trading has been growing and developing for the last 70 years and it has come to a pretty advanced form. We also know that automated tardes take up more than half of the whole trading volume and this means that a majority of Forex traders are benefitting from this approach. Here are some of the unique benefits of using an automated trading robot:
Increased pace. Since any Forex trading robot is a computer program, the calculation process is its speciality. Needless to say, computers can handle larger amounts of data faster than an average human. This gives a robot a clear advantage in both the technical analysis and trading itself. While a manual trader is figuring out the next step by comparing the results from several indicators on multiple time frames, the EA has already opened the trade based on the analysis it ran in mere seconds. This way trading robots are capable to process more trades and therefore achieve the desired outcome faster.
Saving time. The trader does not need to be around for the robot to work. What’s more, you computer doesn’t even have to be on. The entire process of automated trading is happening online at the market itself. It majorly assists traders who have other tasks to tend to such as full time jobs, families or health related activities. A trading robot is also capable of serving around the clock at any moment of open market, so it will also be generating profit while the user sleeps.
Reduced stress level. This is important because stress affects traders at all levels of their productivity. High stress can physically exhaust and also cloud judgement. So in the scenario where the hectic nature of currency exchange market actually got to the trader, they are being both mentally affected and unprofitable. An expert advisor, on the other hand is not subjected to human emotions and can keep “thinking” clearly at any situation.
Convenience. The good Forex trading robots do not require much to operate and the entire process of their work is nearly seamless for the user. Because the expert advisor operated through your account on the trading platform, you still have an opportunity to check on the results of its work from time to time. But this doesn’t mean that you need to do it. As we have already established, the robots are fine running on their own, so monitoring them is not going to be one of the daily troubles.
Copytrading. Copying trades is a common strategy of placing the same trades as professional traders and services to avoid the analysis stage and get straight to the results. For manual traders the most important part of this approach is to find a reliable source of information about the tardes that are being opened also known as trading signals. More often than not the signals are provided for a fee by separate traders or organizations. So for a manual trader the process looks like this: find the source, pay the fee, get the signals, place the trade, wait for the results. And the automated trading robots that specialize in copy trading so straight to placing an order because they already have signals from multiple sources at once. This makes EA an ultimate tool for copytrading strategies.
Effectiveness. Last but not least, expert advisors are known to be result oriented and consistent. These qualities can benefit all kinds of traders disregarding of the level of their personal experience. By implementing a number of the most effective strategies, robots do not get distracted or distracted by unguaranteed opportunities, simply because they are not technically capable of doing that. Additionally, the robots are able to backtest their trading strategies which means they will calculate the possible outcome based on all the previous data of the market.
With all of the above, automated trading can surely seem a nice way to transition into stress free trading. However, nothing is perfect and there is a minor downside when it comes to trading with the assistance of an expert Forex advisor:
First and foremost, the modern market of automated trading software is infested with scams. This makes it sort of tricky to get to the genuine service that is not focused on misleading the traders. Further on we will discuss some of the things to look out for when choosing a trustworthy expert advisor.
No room for creativity. Although this should not really be considered a disadvantage, the lack of ability to keep your trading process creative and innovative is still worth mentioning. The robot operates according to its algorithm and does not get involved in questionable strategies. Manual traders often combine technical analysis with fundamental analysis to increase the chances for success, and the robot will not be able to do that. But on the other hand, the expert advisor with artificial intelligence will keep on perfecting their original skills which means they are simply good at what they are made for and this approach works just fine for many.
Over-optimization. We have already mentioned the robot’s ability to backtest strategies and while it is a well working method in many cases, sometimes a trick that has worked in the past is not good enough for a current situation no matter how similar it is. Simply said, the robot only builds from past knowledge and from time to time it is not good enough for a successful trade which might lead to a setback. The bright side here is that every setback ends up being a part of a robot's knowledge and it will learn to navigate in similar scenarios more productively over time.
Judging from all the pros and cons we have discussed, we are now able to establish who exactly can benefit from using an automated trading robot on their currency market journey.
Do Forex robots really work for everyone
Due to automated expert advisors being both highly effective and convenient they can benefit a trader with any level of experience as long as they last one of the following three: knowledge, confidence or time. The knowledge part is crucial to successful Forex experience, and having as much information as possible is an inevitable criteria for becoming a profitable Forex trader. Luckily, there are many ways of growing your knowledge base when it comes to trading. Starting with basic Forex learning courses and continuing with limitless videos, podcasts and blog about trading, anyone can become a genius of currency trading over time. What seems to be the biggest obstacle for most new traders is that learning might take up a significant amount of time and they cannot afford to stay non-profitable why getting smarter. This is when the automated trading comes in handy: as soon as yo make a decision to make Forex your source of income there is an option to start trading immediately with the assistance of an expert advisor. Later on as you understand the market better, you can always start trading manually using the money made through the automated trading for the quick start.
Knowledge is important, but many will agree that it is also not enough. For many the best way to learn is through practice and without it they feel like the knowledge they have is much to theoretical. There is an option to leap into actual trading and apply the newly gained knowledge in the conditions of the actual market, but this is both risky and nerve wrecking and we already know that stress is not something we want during trading. So the more convenient solution is to accumulate confidence through a demo trading account. In demo the trader gets access to all of the features of the MT4 platform and can trade with virtual funds in the simulation mode. This is a great way to practice various skills as well as work out which of the trading strategies fits your personal trading style best.
And then there is time. Some traders monitor the market all day every day while others only have a few hours a week available for Forex. Both of them deserve to get income through trading one way or another. This is when traders with limited time tend to use automated trading software to attend to the market when they are not able to. For the same reasons professional traders implement automated trading techniques to cover up the market hours that do not match their schedule (for example, at night). This way the market is constantly looked after and the traders can comfortably go on with their day or night.
So basically, all traders can benefit from the assistance of advance trading software as long as they choose the right one and use it properly and consciously. Next let’s talk about the things to look for when choosing a Forex EA that really works for you and your trading style.
How to choose Forex EA that really works
The offer at the market of Forex trading robots is wider than ever. Unfortunately, with the spread selection came ungenuine companies who only profit by scamming their clients. In order to avoid dealing with the dishonest service providers, look out for the following when choosing an expert advisor that really works:
Sign up fees are usually the number one red flag for a scam. Just like the manual traders, automatic traders will pay a commission from their earnings, which means that there is no reason to charge for registration with the service. Companies that require a payment for access to what they offer are usually not real and do not offer anything at all after the fee has been processed. So remember, the only money a genuine Forex trading robot will ask for is an initial deposit that will be reflected in your account.
An unreliable broker partner also indicates that the robot should not be used. Expert advisors have to work with Forex brokers to gain access to the market, so as you are looking at the descriptions of various robots find out which broker are they using and how trustworthy the said broker is. And if you are already trading with a broker ask a representative for advice on the suitable automated trading option.
Try to focus on finding a robot that prefers stability over profit. These usually are robots that offer lower risk rates and base their analysis on more long term timeframes. As a general guideline look for an advisor working within 1 hour to 4 hours tange for the multiple time frame analysis. Plus, avoid using the robots who focus on way too many currency pairs at once. A robot that pays attention to 2-3 most popular pairs will do just fine.
After you stopped the search and set your eyes on the automated Forex trading robot that seems to be the most optimal option it is time to put it to work and add it to your Metatader platform.
How to install a trading robot on MT4
With the right expert advisor all the processes are as simple and approachable as could be. The installation process to your MT4 platform may vary, however the general procedure usually remains the same:
Open an account with a broker partnering with the chosen robot. Start by getting to know different account types and select the one that fits you best.
Confirm your registration and provide all the required documents to activate your account. This will include a copy of your most recent picture ID and a document confirming your current address.
Deposit the initial amount to provide the robot with the money to start from. The minimal required amount is normally around two thousand US dollars, but for more effective results it is widely advised to go anywhere between 10 and fifteen thousand.
Request the broker to connect your trading account with one of the automated EA’s accounts. The accounts vary depending on the currency pair you are planning to trade.
At this point everything is ready to go and you can give into the fully automated Forex trading without causing yourself any stress.
What is a Forex trading robot: conclusion
We have discussed what are automated Forex trading, how it works and what kind of traders can benefit from it. To sum up, it is important to say that the automated trading software is most productive when used as a supportive tool. Which means that you should always consider learning more about the Forex market and the ways to trade it effectively. No matter if you do end up switching to manual trading or not, the knowledge will never hurt.