What Are Trading Robots and Are They Effective?

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What Are Trading Robots and Are They Effective?
What Are Trading Robots and Are They Effective? Image source: Supplied

Everything today is being automated to avoid having to do things manually and to improve process efficiency. This is particularly true in the trading sector. Thus, the advent of trading robots is inevitable. They are supposedly capable of performing tasks that humans cannot easily accomplish and can help traders get rich quickly. But traders are divided on the effectiveness of these trading robots. 

What is a trading robot?

A trading robot is a computer program designed to generate trading signals to help traders determine the perfect time to buy or sell. In the Forex market, most of these robots use the MQL scripting language and are developed with MetaTrader. They are designed to eliminate the psychological element in trading transactions. 

They can be easily purchased on the Internet. Most of them are user-friendly and provide reliable customer support. Alternatively, some traders go an learn to code on their own so that they can develop their own systems.

How do trading robots operate?

Trading robots are designed with specific parameters that can help in making trade decisions. They determine the best time to trade or not to trade with the use of implanted trade signals. These robots can help find profitable trades even without a clear trending direction and even in unstable markets. They can follow the best trend to maximize profits and reduce or eliminate potential losses. 

Some robots can scan more charts than any human to analyze trends and trading patterns. This is advantageous for traders who do not want to do anything manually or devote a lot of time analyzing the market. Sentiment analysis is gaining popularity and some robots will scan headlines from websites that publish analysis on gold or another commodity like oil and then make decisions based on sentiment.  

But it is important to remember that these robots are designed to be effective only within a certain range. They can help traders make profits in a positive trend but these profits can be wiped out when a strong and unanticipated market breakout occurs. The use of robots can also result in losses in unstable markets because some of them are not able to recommend stop-loss action. 

The effectiveness of trading robots

There are some benefits in using trading robots such as speeding up trend or market analysis. But many of them do not meet traders’ expectations and some of them are even considered scams by some regulatory agencies and federal governments.

They are often promoted by false claims of traders who made money using them. But they are only a few compared to those who lost lots of money with trading robots. In some cases, even whole accounts were wiped out. You will not find advertisements of these robots in reputable news sources such as “The Wall Street Journal” or “Forbes.” If it is really possible to make a huge amount of money using trading robots, their developers would not even think about selling them to others. 

Trading requires experience, analytical and skills that can never be programmed into trading robots. Only an experienced trader can determine the right time to enter or stay away from the market. These robots cannot keep up with the financial and economic developments. They are also vulnerable to viruses and hackers and their functionality is negatively affected by false information or jittery trends. 

Conclusion

Most trading software robots cannot replicate the skills necessary in making trading decisions. It is better to learn a good trading system and gain sufficient experience than to buy computer code and algorithms designed by people who might not even be a trader. Alternatively, finding a good course to learn algo trading and building your own robot is in most cases better than purchasing a ready made one.

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