Forex Robot Trading explained: a Step by Step Guide
This article will explain which steps you can take before choosing a forex robot to automate your trading. Hopefully after reading this you will be knowledgable about forex robots to make a wise decision about which forex robot you want tot use. About 30 years ago, the foreign exchange market was characterized by trades conducted over the telephone. Investors operated with brokers who in fact had to call a counterpart to create a trade. Once the trade was done, a ticket would be made using a time stamp.
Today, technological advancements have transformed the forex market. Trades can be made quickly over your computer, allowing retail traders to enter the market, while real-time streaming prices have led to greater transparency. There is hardly any distinction between a retail trader and a professional trader. Another significant change is the introduction of algorithmic trading, which may have lead to improvements to the functioning of forex trading.
If you’re interested in a particular topic, feel free to jump ahead:
100% automated or semi automated?
Investment Goals and Risk settings
Which types of Forex Robot are there
Which time frames
Which currency pairs
How to test a forex robot
Do I need a VPS
What do I need to monitor
Choosing a forex broker
ECN or Standard account
What is the best forex robot in 2019
What is the investment goal?
Before you start to do this read I might disappoint you immediately. Forex robots will not make you a millionaire in a few months with a $3K account. For some reason many traders have a wrong perception of robot trading. Many times I am asked, “how much money will this EA daily?” … seriously?
Did you know that Warren Buffet had a break even year in 2018. Clearly his goals are long term and buy hold. In forex trading the difference is that you don’t want to keep your position for weeks or even months since you trade with a leverage. This would results in enormous swap fees and would erase your profits.
So what is a good target? Let me explain..
I prefer to set the same goals as if I would trade by myself. So the first goal is to save time second to create a passive income. A common rule is that the annual profit should be at least three times the annual drawdown. For example; if you use an EA for a year and the profit is 60%, i would like to see a drawdown not higher than 20%. So by adjusting your lot settings you can increase or decrease these numbers. A drawdown is nothing more than specific moment in a specific account and depends to a large extend on the account size and lot size. To understand it better if you see a drawdown of 20% in a $1K account, then most likely the drawdown would be 10% in a $2K account, assuming the lot size is the same.
For the record; if you make 50% profit using a robot, you can brag about it in the pub to all your friends!
100% or semi automated?
Before start forex robot trading you will need to decide weather to fully automate you trading or still trade manually using an customized forex indicator
Let me first explain what the difference is.
An expert advisor that works fully automated will probably mean that you will need a VPS. Your computer has to be online all the time. Now a VPS is not very complicated to set up and as I might add, we help you with it, but it comes with a price. Typically it will cost around $150 per year. However, once its up and running its as easy as riding a bike, since everything goes automated.
In case you are a busy person and have no time to trade the markets at all, you want to opt for full automation. Its a little bit more expensive, but surely the benefits are worth it.
An customized indicator is definitely a good choice for those who still can find time to trade. Specially if you never traded an EA before or if you like to keep full control, an indicator is the way to go. Indicators are not per se money generators, but will help traders to stick to a plan. That still is one of the main reason why forex traders lose money. I like to remind you that using a customized indicator typically means the learning curve is a longer. Some indicators look quite overwhelming once you installed it, where they light up your chart with a lot of data. So before deciding to use an indicator, consider that it requires more time.
Our selection of indicators is growing every month so let us know if there is one you wish to trade.
Is an EA riskier than an Indicator?
I cannot really comment on this, since a lot has to do with lot size, which pairs, settings etc. Basically it is a fact that an indicator gives you more control over your trading. For example, where an EA simply executes a trade, an indicator will “suggest” to make the trade. So in case you are not online, you will not make a trade.
Which type of forex robot strategies are there?
Before starting about forex robot trading explained, the first step is to define with what strategy you wish to trade. Since there are big differences let me describe what types of strategies are suitable for automated trading.
- Trend strategies
- Grid strategies
- Martingale strategies
- Price action strategies
- Scalping strategies
- Customized indicators (for manual traders)
Typical characteristics of each strategy
Pros: Usually uses stop loss, trailing stops and take profits. Lot size and pairs are variable. Cons: Not many trades – consecutive losers – stop hunting
Pros: EA does not care about market direction. Uses a stop loss, but it’s set far from entry. If used correctly it will sustain most market conditions. Stop hunting is very hard. Also, grid strategies are not too spread sensitive. Cons: Weak during big news events. Not enough margin. Most grids need 1:400 leverage.
Pros: dazzling results in a short time. Trades a lot. Cons: You need a lot of margin. Leverage must be high. Very weak during news events.
Price action strategy
Pros: Very easy to use in combination with manual trading. Furthermore these type of EA usually have sophisticated money management settings. Typically you can trade these EAs in smaller accounts. Cons: they do not trade often. Also you can expect consecutive losers, so sometimes hard to keep faith in the strategy.
Pros: These strategies can pick up many profitable trades where you can adjust the lot size. These type of strategies tend to be very active over night as well. Cons: You need an ECN account with good executions, which means these EAs are spread sensitive. Another disadvantage is consecutive losers.
Pros: You stay in full control. No VPS needed. Very helpful for manual traders. Usually indicators are better priced than EAs. Not sure why, but it is a fact. Con: You need to spend time to use them as well as learning how to use them.
As I often stated, regardless which EA or strategy you are using, it’s always needs your attention.
What is the best time frame?
The preferred time frames are mentioned when you receive the EA file. Most EA developers offer detailed information about their software. Grid and Martingale strategies use the M1 or M5 time frame. Trend, scalp and price action EAs usually aim for M15 M30 and H1 time frames. Always check each chart before activating the strategy.
What is a favorable currency pair?
Over 90% of all EAs run on the major currency pairs. They have the best spreads so why trading some minors where the risk is substantially higher. Eurusd is the easiest pick, low spreads, high volume and good data.
Does testing a forex robot make sense?
Yes and no. I recommend to always test a forex robot if you have no experience. This will make you feel more comfortable with the automated trading process. Also you can see if the trading strategy does what it is supposed to do.
But back testing is worthless, right?
Back testing is not worthless, but surely it’s not a guarantee that the EA will be profitable if the back test shows profits. Most EA developers and traders use a back test to see if the trading algorithm applies all the trading rules correctly. I wrote an interesting article about how to perform a backtest.
If you are interested in performing a 30 free demo test to see if robot trading is for you, sign up here
Does forex robot trading require a VPS?
Yes. A VPS saves you a lot of hassle with problems such as power cuts, WIFI problems, Windows updates etc. Now I know, its a $150 annual investment, but believe when I say it will be a game changer. For indicators its not needed at all. To read more about a Forex VPS click on the link. Our support is here to help you setting up your Virtual Private Server.
Do I need to monitor my account?
Oh boy yes you do! Most complaints about forex robots exist because traders think an EA is a matter of plug and play. WRONG! Always keep an eye on all trading activity.
A forex robot is not artificial intelligent. Why not? Because market conditions change. This means that an EA that you buy today could be worthless in a year from now. This is the reason why it is pointless to spend too much on any EA. Our tech team is constantly monitoring the trading algorithms. Not to see if accounts are soaring, but only to analyze if the trading rules still apply according to the original settings. This is the important factor why still so many lose whilst auto trading.
Which broker is EA friendly?
Before bashing many brokers out there I think it’s fair to say that choosing a broker is common sense. I would prefer to stay in the regulated territory, either FCA or ASIC. Since August last year the ESMA took a big hit on all UK and EU brokers by decreasing the max leverage to 1:30. This had a huge effect on the forex business. Because of this we prefer to work with Australian brokers who are still offering 1:500 leverage. Click the link about our article about EA friendly brokers.
ECN or Standard Account
Most brokers offer both account types. Although ECN has a better reputation the costs of both account types are merely the same. I have a slight favor for ECN since it should have better executions. Execution speed can really make a difference whilst trading. Specially when you are using a scalping strategy you want fast executions.
The past year we tested many broker price feed and they look similar. Not a surprise as all use the same liquidity providers. The ECN account we offer has all the benefits for trading with expert advisor, fast execution, true ECN, low fees, Asic regulated and top notch support. You can read more about it here.
What is the best forex robot in 2019?
This is always a hard question. Basically there is no such thing as the best forex robot. Maybe you prefer high profits with high drawdown, where an other trader prefers low risk with smaller profits.
To make it easier we created a monthly updated table with live results. Here you can select by clicking the top row which EA did what per month or per quarter. Click on the EA’s link to go to the strategy page. Here you can see more information, quick statistics and a link to either myfxbook or fxblue. These accounts are real and provide a lot of information.
The forex robots that are getting the most positive feedback we placed in the features robot section.
As I described in this article, forex robot trading is not a five minute thing. You need to understand some basics about forex robot trading. Furthermore it’s required in most cases to have a VPS. This can also hold you back. Bottom line, our website is not created to provide the highest returns (although it would be nice of course), but we want to make the whole experience easy. Therefore we selected the regulated EA friendly brokers as well as some good VPS providers. Our forex geeks are more than happy to assist you!
Feel free to contact us in case you consider to automate your trading.