pros and cons of Forex trading robots

 Lately, many traders have been using mechanical trading systems in their trading, and those who do not would like to know more about them. Let's see what it is and why are these systems needed? What good can they give a trader, and what are their disadvantages.


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Determining the terminology

 

A trading system is a clearly formulated set of rules for trading, i.e. to open and close positions. The term "trading strategy" is also used. If you have a clear plan under what conditions to enter and exit a trade, even if only on paper or in your head, you have a trading system. Go ahead.

A mechanical trading system (MTS) is a program (or a device, as the term "mechanical" implies) that automatically places and withdraws orders according to the logic pre-installed in it, in accordance with the trading system (trading strategy). It is also possible for the program to perform additional functions at the discretion of the author of the system - control of placed orders, monitoring of transactions, analysis of trade, with the provision of charts and reports, etc. I think instead of the word "mechanical" it would be more appropriate to say "automatic" trading system, but due to established traditions, market participants use this term.

There is also the concept of "trade advisor" or "trade expert". A trading advisor is, let's say, a semiautomatic device that collects data, analyzes it, performs calculations and reports the results to a person who makes decisions based on the data received. In the Metatrader program , which is used for trading Forex, trading advisors and experts are called programs that can not only issue signals, but also, if the trader wishes, carry out automatic trading.

Advantages of trading robots

 

Speed . A trading robot can track dozens, hundreds of quotations of securities, instantly perform complex calculations, make a decision and immediately place orders. A person would never be able to analyze so much information so quickly. Traders who use large volumes of complex calculations in their trading system, who have entrusted trading to a robot, get an advantage over their colleagues who trade in the old-fashioned way. Traders who do not use robots are forced to reduce the number of traded instruments, increase the used time intervals (timeframes) and abandon promising, but complex trading systems.

 

Accuracy. A trading robot does not make mistakes (unless, of course, an error crept into the program code when it was created), all input and output data can be calculated with an accuracy of several decimal places, if necessary. When placing a request, the robot will not accidentally pick an extra zero and put a comma in the wrong place. Traders who trade manually can sometimes make mistakes both in calculations and when placing orders. A well-designed trading terminal can protect against some of these errors, but there is still a chance for a mistake.

 

A trading robot is not subject to emotions. Many traders, especially beginners, having undergone an emotional impulse, make deals that contradict the logic of the trading system, and in most cases, such deals turn out to be unprofitable. A trading robot always strictly adheres to its logic. He does not listen to “gurus” in the smoking room who know exactly where the price will go, he is not afraid of three consecutive unprofitable deals, he does not have a bad mood.

 

The trading robot does not get tired, it is ready to work 24 hours a day. You can go about your business, work, sleep, rest, and your robot will trade. If you trade manually, you will not be able to spend 100% of the time at the computer, even if the trading session on the exchange is only 8 hours. By going away from the computer, a trader may miss an important signal to enter or exit and this can bring losses.

 

Scalability. If you want to add functionality to your trading system, you just need to add the code. For example, you can receive beautiful reports and charts at any time, you can set up alerts from the robot via SMS, you can endlessly complicate your trading strategy. When you trade manually, you need to spend more of your time if you want to expand your trading capabilities, or even hire additional assistants, or refuse to expand your activities.

As you can see, trading robots give traders great advantages, why still not everyone uses them in their trading? Do mechanical trading systems have no downsides? There are, and very significant ones.

 

Cons of trading robots

 

The complexity of making a robot (writing a program)... You can develop a great trading strategy but not be able to program it. Even if you are a programmer, you will need to learn a new language, and if you are not proficient in programming, then it will be even more difficult. You can order the writing of a robot, but you cannot be sure that the programmer will accurately describe the logic of your strategy in the program and will not make mistakes, and in the future you may have difficulties if you need to modify the code or expand the functionality. There is also an option with the purchase of a ready-made robot, but, in my opinion, this is the worst option - firstly, you must know exactly how your robot works, and purchased systems are mostly "black boxes", and secondly, I personally have raises suspicion why the authors are selling "money-making machines" and not making money on them themselves.

 

A trading robot can only use technical analysis. You will not teach how to read his news and company reports. The robot, in accordance with the signal, can open a position at the time when the news announced the beginning of a decline in the rate.

 

A trading robot cannot make decisions in non-standard situations. It only carries out the logic laid down in it, and in the event of problems, it cannot change anything. Of course, the program can include the robot's reaction to some situations, but it's impossible to foresee everything. For example, if the connection to the Internet is lost, the robot will not be able to continue trading or at least close an open position. A manual trader would then call the broker and close the position, or restore the Internet. The computer may freeze, the program may close with an error, the broker may not accept the application or accept, but with a long delay. A trading robot will not be able to react to all events and this can lead to unplanned losses.

 

Lack of emotion, one of the advantages of a trading robot, is also a disadvantage . The robot can drain all your capital in one day without any hesitation. Consider this when creating a robot, consider this possibility and do not allow it. For example, let the robot trade only a part of your capital, or make it so that when a certain threshold is reached, the robot notifies you and (or) stops trading.

 

A trading robot does not have intuition and does not use it in its trading. Some trading strategies are based on intuition or use an intuitive approach (although personally, I would not call it a strategy). For example, many scalpers make decisions based on their gut. They just look at the quotes and make a decision. It is impossible to program such a strategy.

 

Mechanical trading systems provide traders with new trading opportunities, giving them an edge over manual traders. In the stock markets, in forex or in the derivatives market, trading stocks, futures or currencies - a trading robot is always ready to execute its program. But when using robots to automate trading, traders should not forget that robots are not perfect, they are not machines for making money, they are just another useful trader's tool and must be used wisely.

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