The use of ‘Automatic Trading Robots’ (also known as ‘Expert Advisor; EA’) in Forex market becomes popular. A forex trading robot is a software that automates trading decisions by opening and closing trading orders according to particular set of pre-built trading conditions, without human intervention.
Previously, to be a successful and profitable forex trader, they need to spend their time sitting at the computer to keep their eyes on the movement of the currency markets, world economics and news that happen all over the world. Manually trades can be distorted by many factors, including emotion of the traders themselves and impossibility of keep watching the prices for 24 hours.
Precise entry position, exit position and money management rules can be set into automated trading robots which allow computers to execute and monitor the trades automatically whenever certain criteria are met. This article will discuss some of the advantages and disadvantages of using automated EA in forex market.
Advantages of Automated Trading Robot
There are several advantages of using Expert Advisor (EA) to monitor the market, waiting for trading opportunities and executing the trades, including:
★ Minimizes Emotions. Fear and greed are the greatest obstacles to successful trading. After suffering a losing trade, traders may ‘fear’ of taking necessary trades or closing out a bad trade with a loss. On the other hand, ‘greed’ can cause traders to make random trades or carry positions longer than their trading system dictates. Trades can even be distorted by humans’ ego and bias, in which traders will see what they want to see from the chart and indicators and try to find unreliable reasons to support their opinion.
EA helps minimize emotions throughout the trading process by getting you in and out of the market based on historically tested trading strategies. All preset strategies will be followed exactly.
★ Less time-consuming. Human traders have severe restraint on their time. It is impossible for a trader to trade the entire 24 hour-forex market. Instead, a trader often wants to trade during his waking hours, by doing so, he is missing out any entry and exit opportunities offered during other time sessions.
In contrast to human trader, the EA does not need to sleep and rest; it can work the entire 24 hours of forex trading market, searching for trading opportunities. Using safe and good money management EA definitely makes you feel secured; seeing your money grows.
★ Ability to Backtest. Backtesting allows traders to test the preset strategies in the EA on historical market data to determine the viability of the trading criteria, before risking their money in live trading. With backtesting, the systems’ expectancy will be determined, including maximum drawdown, relative drawdown, profit factor, total net profit, etc. This expectancy helps traders to decide whether that EA is worth for trading your real money.
★ Achieves Consistency. Most human traders do not have a clear trading plan; some traders may have designed trading strategies but fail to stick to them. The EA allows trader to achieve consistency by sticking to the preset strategies without any exceptions.
★ Diversifies Trading. You no longer need to be glued to the screen, switching the graph to keep your eyes on the movement of your favorite currencies. Automated trading EA is able to scan for trading opportunities across a range of forex market which allows traders to trade various strategies at a time. With various strategies, the EA is able to run and generate profit from any market conditions – uptrends, downtrends and sideway.
★ Do not require in-depth knowledge of Forex. With EAs, traders do not need to be an expert trader or talent programmer. Instead, traders need to carefully decide which EAs are reliable by backtesting and tracking the forward test to see whether it matches to your performance and risk criteria.
Disadvantages of Automated Trading Robot / EA
Besides many advantages of automated trading robot, there are some downfalls and realities in which traders should be aware of, including:
★ Need to be updated. No matter how good trading strategies they were in the EA, the fact that we cannot avoid is that the market keeps changing over time. It is quite necessary and recommended to choose the EA that has free update to ensure that those strategies are up-to-date and still able to generate profit in the current market.
★ Risky trades. Some EAs were built on the purpose of maximizing the profit gain without concerning on money security. The EAs are made up of risky trading strategies, i.e. martingale, hedging and scalping, which can generate huge benefits. With these strategies, orders will not have any stop loss, means that your money are at risk and readily to be blown anytime.
In conclusion, automated trading robot allow traders to trade in Forex market for 24 hours from Monday to Friday with greater consistency of trading strategies. Whether you borrow, buy or create your own EA, you are required to test it on plenty of historical and forward data. Using EAs, traders no longer need to physically sit in front of the screen. You are free to focus on your main job, relax and do whatever you want to. Let the EAs generate you consistent profit!