Forex trading has grown exponentially in recent years giving rise to a vast and booming new industry including the advent of numerous new banks and brokers, software platforms, trading methods, and other related tools. With the gradual ubiquity of high-speed internet, Forex trading has become ultra-popular due to its flexibility, low cost, high liquidity and long operation hours. In Forex trading, there are primarily two main methods of trading – manual and automated. When you trade manually you open and close market orders yourself. You can still use a variety of functions such as pending orders, stop-loss, take-profit and trailing stops, but the trading decisions are always yours. In automated trading you delegate all your trading decisions to a computer program which is also known as a robot or expert advisor. Surely, you can control it by entering some parameters or changing various settings, but all orders are carried out by an automated system.
In recent years, the rapid development of “robot” or automated trading in the Forex market has received an incredible amount of attention. There is no doubt that the dream of having an investment that creates untold riches on its own with almost no outside interference or interaction from anyone is extremely attractive to most people. A cursory review of major Forex related websites and their associated forums, blogs and ad columns reveals that robot traders are a fast changing, highly active and intensely competitive business. However, what it also reveals is that many of those creating the robot traders are the same authors and supporters that extol the virtues of using them.
On the surface, the advantages of robot trading appear to be many. Today, computing and information technology has developed to a very high level. Computer calculations can be thousands of times faster than humans and can perform without error at incredible speeds with flawless accuracy. Furthermore, robot trading can be more efficient than an average human trader as it is not limited by fatigue nor prone to mismanagement or negligence and can never be affected by the onset of frail human emotions such as greed or fear. In addition, a robot trader can take a high number of trades more frequently and is able to manage multiple, even unrelated, trades simultaneously as well.
While these seem to be very impressive and persuasive arguments for the use of a robot trader in reality the performance is mixed. Surely, there are many robot trader programs that can have amazing performances over relatively short period of time. Many marketeers profess to have found the ‘holy grail’ and promote their products as “easy money” and a way to “earn while sleeping”, but we have found through a great deal of thorough testing a number of various robot traders that claims like these are dubious.
The fact is, most robot traders are very simple. A robot that is designed to take into account long term probabilities, historic support and resistance, master fibonacci levels, market structure, macro-economic fundamental events, volume, systemic disparities (such as ebb and flow of risk appetite and fluctuations in the carry trade, etc..), detecting divergence and setting dynamic (an realistic) stop losses are definitely few and far between. Due to this fact, most robots cannot survive the long run without major draw downs in account equity. Some operate with questionable money management and many remove stop losses altogether (if that is actually a way to prolong or perpetuate success).
Automatic trading appears to have great potential but their ‘intelligence’ is limited to programming. Certainly, while many of the weaknesses of human manual trading are seemingly eliminated with robot traders most robots manufacturers know that robots cannot solve all the problems associated with trading. Discretion and judgment are some advantages that humans may possess over their robot counterparts, although even these can be subject to errors. We have tested numerous robot traders and have yet to find one that can be consistently profitable for any appreciable period of time. All have lost money in the long run. Perhaps, the best automatic system has yet to be developed and that the answer is only a matter of time. Currently, the market is full of empty promises and even emptier computer codes which cannot truly offer a reliable and valuable automatic Forex trading system. Perhaps, the combination of a robot trader and a manual trader could combine the best characteristics of both. In any case, without good money management neither can succeed for very long.
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