Forex Robots Revealed

Now that you understand the principles of a Forex robot, you will be better able to make a decision on whether you want to use one of these, and what sort of robot you should look for. Without doubt, to think that you can set and forget a program, and let it make money for you while you are doing other things is very attractive.

Before making any commitments, you should be aware that there are many claims and misleading statements, particularly on the Internet, and it is up to you to check for yourself every claim on which your choice depends.

For instance, you may have heard that Internet forums are a good place to chat with other users and find out the truth about various topics. Certainly, you can enter various forums and look at the postings, but you may not know who is there out of a genuine spirit to help, and who is really trying to drum up business for their Forex robot. It is easy to assume another identity on the Internet for the purpose of posting good reports, and this is a practice used by many. After all, with the Internet, traffic is the name of the game and one way to generate traffic is to blog or contributes to forums. This is low cost and effective.

There are good robots, there are average robots, and there are probably robots which have been written by disinterested parties with little idea of trading, employed through a job site such as Rentacoder, Guru or Elance. While these job sites have a wealth of talent available, there is a bidding process for the job, and some entrepreneurs may choose the programmer on the basis of price without regard to their experience.

Having said that, there are several known names in the Forex robot field, such as FapTurbo and Megadroid, and you can be fairly comfortable that these are soundly based and effective.

If you see an advertisement for a Forex robot claiming 95% or 99% winning trades, then you should take care to investigate how they verify that claim. Bear in mind that the Internet is global, and the parties you are dealing with may not fall under the same legal jurisdiction as you, which makes any later claim of misrepresentation against them much more difficult.

The First 30 Days

The best companies tend to offer return guarantees with their Forex robot, where you may typically have 30-60 days in which to decide whether it will work and whether it will suit you. There are several aspects that you can check out in this time.

First, you can certainly open a demo account at most brokers, and set the robot to work to see what its current performance is. Typically, the vendor will have set the parameters that are adjustable, so you should see some profit “out-of-the-box”.

Secondly, you can check out just how easy it is to modify the parameters, and to use the program in general. For the expert advisors that run on MetaTrader, this is usually standard and fairly simple. You simply copy the advisor into the required computer directory, it shows up the next time you open MetaTrader, and you drag and drop it into the chart that you want to trade – having first checked which charts are recommended for it.

You will usually find that the parameters dialog box opens, and you can change any numbers you want to as directed. When the robot is correctly installed and working, there will be a “J” icon on the chart.

Back Testing

MetaTrader also has a built in strategy tester, which is available from the View menu. This allows you to select a historic period and run the robot to produce results.

There are two cautions about this. The first is that any back testing is subject to error, in that there are factors which make the results different from what would have been produced if the robot had actually been running during that time. The second caution is the standard one that past performance is no guarantee of future results.

This may be more than just a saying to prevent the robot developer from being sued if you lose money. In fact, depending how much the developer has optimized the robot to perform well on the back test, he may have actually harmed the more general performance. It is possible to over optimize the formulae to particular conditions, which will reduce the flexibility and performance on more general conditions. The desire to impress with historical gains can cause a little too much fine tuning.

You will learn a lot from observing how the robot makes its trades, and if you’re fortunate you may even see some losses, which will give you an indication of what you may need to be able to tolerate when you have invested your money on the market. This practice run will also let you appreciate what is involved in leaving the robot running continuously, and may influence your decision on using a VPS.

Consistent performance is one of the keys to selecting a Forex robot that will keep you happy and be profitable. Regardless of the type of strategy, if it cannot produce acceptable performance in both trending and ranging markets, then you will find that you will be disappointed. The Adaptive Robot is one answer to this, although to say it is the only answer would be to deny the excellent performance which some other robots have achieved before this concept was developed.

For instance, FapTurbo is based on scalping the market yet is designed to behave predictably with that method. The trading is concentrated in the period when the Asian market is open, which time is known for its low volatility and propensity for ranging movement. Couple this with use on the major currency pairs, which behave most consistently, and it turns in a decent performance.

One measure of consistency is the amount of drawdown that may be expected, and this is a figure to which you must pay special attention. Your account can be literally crippled if a robot exhibits wild fluctuations in performance, and knowing that it is not likely to do so does not help when conditions arise that throw it off beam. If you study the robot’s performance in a back test, you may be able to spot how good the robot is at this aspect.

Best v. Highest

When you are choosing a Forex robot, you will probably be impressed by figures that show how you could double your account in a short time. It is natural to believe that the robot which generates the most profit must be the best. However, the robot that produces the highest figures may not have the best strategy for you for several reasons.

The profits may have been generated by one or two high yielding trades, and this makes the consistency and repeatability of these results questionable. In turn, that means there may be less chance of a good performance in the future. An examination of the back test should reveal if this is the case.

Try to identify the worst string of losses in the back test. There are two measures of this – it may be the longest string of losing signals, or you may find the maximum amount lost in a bad trading period. It takes a long while to recover from a major hit to your account, however rare.

A system that appears to generate a good return, but does so through placing many trades may turn in a disappointing performance in the real world. This is due to churning and slippage. Churning is the cost of frequent trading, principally commissions if charged, or the spread, which is the difference between buying and selling prices. Any difference from the assumptions made in the test will compound up to have a big effect on the profits with a robot that trades frequently.

Slippage is the difference between the price you thought you would get, and what the broker actually achieves for you. When you trade, you can get around this by placing limit orders, although you stand the chance that the order will never be filled. You may not be able to specify this when the robot is placing trades for you.

NOTE: The Latest Rules

If you have recently looked into Forex trading, you may have been worried about rumors you have heard about rule changes which could possibly affect some Forex robots. When considering any robot, you should now check that the trading system will not infringe the latest rules.

The National Futures Association (NFA) regulates US Forex dealers, and they have issued a new Rule 2-43, which has been approved by the Commodity Futures Trading Commission (CFTC). It is basically a no hedging rule, or offsetting transactions as they prefer to call them.

The rule prohibits traders from carrying offsetting positions in the same account, and requires the dealer to close trades on a first in first out basis. This has caused many traders to overreact and claim that their livelihood is threatened. In fact, it may not affect most robots.

If the robot does not place hedging trades, then the rule will not apply to their trading. The other place where technically it could be an infringement is if the robot can place more than one trade in one currency pair. If the robots algorithm requires it to place an opposite trade, then this could be seen as an offsetting trade to the original.

You should be able to rapidly clear up any doubt by asking the Forex robot vendor the basis of calculation and advice, and whether their robot will comply when trading through the platform. If you receive anything other than a positive reply, you will probably want to go elsewhere. Certainly, if they don’t know what you’re talking about, then you will not have a basis for trust in their system.

Summary – you should look for –

• Ease of use
• Method of trading that fits into your trading plan
• Consistency
• Refund guarantee
• Good customer support
• Provide regular update
• Variables are adjustable