A Forex robot is a trading system that provides all the necessary features needed to transact Forex transactions without manual intervention. The term robot refers to automated software that runs the entire trading process. You can purchase a Forex robot from a systems developer or create a robot developing the process your self-using the MT4 software that is offered by Rakuten Securities Australia. Whether you purchase a Forex robot or develop one yourself, you need to oversee the returns that are produced by the robot, making sure you have a risk management plan for the system you are invoking.
How Does a Forex Robot Work?
A Forex trading robot is a software that automatically generates transactions. The transactions could be entry or exit transactions as the robot handles the entire trading strategy. Most of the risk management is incorporated into the Forex robot programming. The entry signal, as well as the exit or partial exit signals, are pre-programmed and will be automatically executed without any manual intervention. A robot can be set up to work in conjunction with your broker’s software. The MT4 platform provided by Rakuten Securities Australia can work with most forecast robots.
Black Box Robot
If you decide you want to purchase a Forex robot, you might receive the software that is in the form of a black box. This means that you will see the returns but will not be privy to the criteria that are used to generate the trading signals and risk management. Some black box Forex robots provide historical returns that you can use to evaluate how well the system works before paying for the software. You should perform due diligence on the software maker and make sure there are favorable reviews before you make a purchase. New products that offer money-back guarantees should be a red flag. Only purchase a system if you can read several reviews on how it works and see what others have said about their return policy.
Evaluating Returns
You also need to be careful about the returns that are reported by a systems developer that is selling a Forex robot. They might be “cherry-picking” specific trades without providing you with the full breadth of the trades that occur. Additionally, you need to make sure that the forex robot is not “fitting a curve”. This means that the software developer set criteria that have worked over the past 1 or 2-years but are not showing you the results of the system with the specific criteria over a longer period. If the criteria are in-depth and for a short period, the system is fitted and might not work going forward. To protect yourself against a system that has either “cherry-picked” trades or is “fitted to a curve” you can ask to test the system using a demonstration account provided by Rakuten Securities Australia. You can then back test the system using a demo account on the MT4 platform to see if the system works the way you might expect. You also want to make sure that the results that are reported include the bid/offer spread. While the bid/offer spread supplied by Rakuten Securities Australia is very tight, there is still at least a pip or 2 depending on the currency pair. This needs to be incorporated into your returns. For example, assume the system is only trying to capture 5-pips per trade. If the bid/offer spread is 1-pip, you would lose 20% of the gains on a currency pair that has a 1-pip bid/offer spread.
Developing Your Robot
If you decide you do not want to purchase a robot and instead develop your own, there are two ways you can go about this. The first is to program it using MQL4, which is the MT4 programming language. Alternatively, you could hire a developer to program the criteria for you. Whether you develop it on your own or hire a programmer, you want to back test the criteria using historical data. Once you have determined that the criteria will provide a robust trading system, the next step is to forward test your system. You can also do this using a demo account. If your system works using the demo account, you can then begin to see if your system works using real capital. If you are planning to develop a trading system, you might consider using some of the available indicators that are pre-programmed in MT4, as opposed to developing new indicators.
Risk Management
While each trade that is transacted by a robot will have specific criteria, such as entry and exit levels, the overall risk management needs to be a manual process. You might have the capability to curtail trading automatically once there is a drawdown of a specific monetary figure. If this is not an option, then you will need to monitor your profit and loss to determine when you will pull the plug on a certain Forex robot. You should consider setting risk parameters before you start to let the Forex robot trade using real-capital. You also want to be realistic. If the returns seem too good to be true, they probably are. If you find a robot that can generate gains of 20-30% per annum, that is excellent. If you find a system that appears to allow you to double your money every month, then it’s likely too good to be true.
The Bottom Line The upshot is that a Forex robot can be a very good tool for a trader that does not want to trade a discretionary strategy. Robots take a lot of the emotion out of a trading strategy. Since the system is making all the trading decisions, you are unlikely to experience the anxiety associated with watching the ups and downs of each trade. Remember, not every Forex robot is above board. You need to perform due diligence before you purchase a forex robot. You also want to make sure that the criteria that are used are not fitted to a curve. If you plan to develop your robot, you can either program the criteria yourself into MT4 or hire someone to code the information for you. Before you begin to risk your capital, you should consider using the demo account that Rakuten Securities Australia provides. Lastly, you need to monitor the overall performance of every robot and set a limit to the maximum drawdown you are willing to experience.