What is a MT4 EA/Forex Robot
A forex robot is a piece of automated forex trading software that automates trading decisions. The most popular robots for retail traders are built around the Metatrader platform. These robots run on MetaTrader as "expert advisers" and they can do anything from giving you a signal to place a trade, to placing and managing the trade for you automatically.
If you have a forex strategy that is strictly mechanical and doesn't require a human in the decision-making process, you can program your forex robot to trade for you 24 hours a day.
There are many companies out there that create and sell forex robots. If you're in the market to buy one, be careful who you deal with. It's common for a company to spring up overnight and start selling an "instant riches" forex robot, including a money back guarantee, only to disappear in about 45 days or so.
The majority of made-for-purchase forex robots out there are not profitable. If you are planning on purchasing one, please do your research. It's best to be doubtful because there a great deal of curve fitting or data mining bias in the made-for-purchase offerings.
How does a FX robot operate?
FX traders want to use robots just because they hope to make easy money from the Forex market without having to devote a lot of personal time to it, or do anything manually. Those who use robots have to find a good currency pair and the perfect time frame to trade in it to maximise their profits.
Some Forex robots are capable of scanning numerous charts in a way that humans physically can't. In addition, robots are developed with particular parameters needed in making trade decisions. With implanted trading signals, they determine when it is appropriate to trade, or conversely not to trade.
The best Forex robots suggest solutions to find profitable trades even in unstable markets when the actual trending direction is unclear. Robots will follow the best trend to enlarge profits and perhaps eliminate the chances of potential losses. Trading against the trend will eventually lead to loss after loss, whilst trading with it increases profits no matter what method or robot is used to trade.
However, what must be remembered is that the majority of robots trade within a certain range. They make a particular amount of pips inside the tight range during the slowest time on the Forex market, and they regularly set a few pips target and may not even use a stop-loss. They can be classed as successful, as they do make profits in each trade even if it is only a few.
When an unanticipated and strong range breakout occurs, it just wipes out the small profits they have made. Some robots which are promoted as the best Forex trading robots, can gain profit in a positive trend, although they lose money in a choppy FX market, so the discovery of a great trend to follow is an essential task.
Data Mining Bias is the unspoken enemy of many traders who purchase Forex Robots. Data-Mining bias is the process of 'cherry-picking' the best backtest out of hundreds or more, and presenting that best backtest of they many as the likely outcome for the purchaser of the forex robot. One of the leaders of this fight to make investors aware of Data Mining Bias is David Aronson.
David Aronson wrote an excellent and detailed book called Evidence-Based Technical Analysis. His argument among many good arguments is that systems or indicators that are espoused to be best performers or most accurate predictors of future performance are likely a false conclusion. Rather, the finding of the outlier is often proven by looking at one data set and not testing that indicator over multiple cycles or environment.
There are successful robots out there, but one must be aware of the data-mining bias that is front and center of most made-for-purchase systems. I have seen some successful systems and continue to learn more. There are less about high win rates and more about position sizing and cutting losses quick.
If there was an application of 'buyer-beware' it's extremely applicable in Forex Robots. The most natural question to ask when proposed to buy a system is, 'If it works so well, why is it being sold for such a discount?' Typically, altruism is not the intention, but rather sub-par systems are sold as soon as a data-mined outcome can be put together so that an uneducated buyer can purchase the code.
We have attempted to describe the aspects of applying robots from a rational point of view. What we hope can be concluded from this article is that instead of spending your time and funds on things like automated FX trading software robots, it would be better to devote some time to learning a good trading system.
Eventually you may become a professional trader who relies on experience and knowledge, rather than using computer algorithms and codes by someone who is not a Forex trader at all. It is completely up to you whether Forex robots are worth your attention - and only you can answer the question of does Forex robot really work?
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