How to Choose the Best Forex Robot

Wing Leung

Are you thinking about using a Forex robot? Unsure how to choose the best Forex robot that will work for you? In this article, I look at the pros and cons of Forex robots, outline the criteria for judging Forex robots when picking one, and show you one of the best places to find Forex robots.

Forex robots cannot do everything a human trader can do, but they can do some things much better. For this reason, every trader should consider carefully whether their type and style of trading could benefit from being either aided or even executed by a Forex robot.

Why Use a Forex Robot?

Forex robots are basically computer programs designed based on a set of Forex trading rules and signals (maybe simple, maybe complex) that generate buy/sell entry or exit signals. Forex robots, apart from performing the task of giving trading signals with potentially highly profitable trading opportunities, also often have the advanced capabilities of being able to place and manage trades on behalf of the trader. The trader may choose to use these capabilities and let the Forex robot actually trade their account.

They say the best traders are those that can remove or eliminate their personal emotions from influencing their trading decisions  ̶  a skill that is not so easily accomplished. This alone is one of the reasons why Forex robots were invented: to eliminate or reduce the trading liability that is human emotion. 

best forex robot

The History of Forex Robots 

Forex robots became available as far back as 1999, with the transition from open outcry pit floor-trading to the screen-based trading which we are more familiar with today. It is from this precise point in Forex trading’s timeline that the age of computer science and foreign currency trading made their acquaintance and came together.

However, with popularity came the oversupply and saturation of brokers, vendors, platform providers etc. each willing to offer what they themselves claim to be the best Forex robot software. This is where individual needs and requirements come into play in choosing the best Forex robot for you.

Pros and Cons of Forex Robots

We can highlight a few key areas the individual trader should consider where the use of a Forex robot might be helpful. We should also look at potential problems.

Human Emotion

Forex robots can remove human emotion from the trading decision process, an element that may seem relatively easy to implement. Nevertheless, in reality, the majority of traders fail to navigate this successfully. In the ever-demanding modern world, the pressures of meeting social, domestic, and work challenges make it harder to eliminate the emotions which tend to crop up in trading. This is where fear and greed come into play, generating stronger emotion, and making decisions and execution very problematic.  Forex robots, provided that one has set strict and logical parameters, can greatly aid one’s decision making without inserting human bias. This is probably the strongest reason in favour of anyone using a Forex robot and letting it trade an account.

Speed and Efficiency

Speed of analysis and execution is another great advantage offered by Forex robots. Similarly, this added efficiency is the reasoning behind jobs being replaced by automaton  ̶  take a factory worker for instance, a skilled labour job that is easily replaceable by an automated machine that works at a much higher efficiency rate and at lower cost. The same can be true in the trading world – Forex robots can potentially increase efficiency and decrease the time you spend trading.

A human trader lacks the efficiency and speed that a Forex robot possesses. In a matter of seconds, or even milli-seconds, a Forex robot is able to analyse a particular market (according to its predetermined parameters), generate a decision and even execute it.

An example of this is MetaTrader’s Meta Quotes Language 5 (MQL5), based on C++, that incorporates the latest in technology and demonstrates why during the 2006-2012 Automated Trading Championships Forex Robots, in particular the MQL5 Robot, proved their trading and analytical advantages in comparison to a human.

A human trader will undoubtedly take longer to analyse a market and compute a trading decision  ̶  leading to a possible foregoing of a potentially highly profitable trading opportunity or even leading to an actively wrong trading decision which will result in the loss of capital.

Time

Forex robots do not encounter the challenges of time that human beings face. Humans need to eat, sleep, and relax. Human traders are also limited to geographical trading hours of where they are located. Practically speaking, if you live in Hong Kong you will probably miss opportunities which arise during European market hours, since these opportunities would come in the middle of the night in Hong Kong, and few people can stay awake and alert for such long hours in a given trading day.  

Multitasking

Humans are not regarded as outstanding multitaskers in comparison to the aptitude and intuitiveness of Forex robots. This is due to the potential of humans to go off-task or lack focus on a particular exercise or analysis. Forex robots are exempt from this inefficiency (provided there is enough RAM and Processing power to meet the demands), they can multitask accordingly to the parameters, rules and conditions set simultaneously, given the provision of concrete logic.

This paves the way for far more complex and sophisticated strategies that can be implemented more easily by Forex robots in comparison to a human trader.  Far more can be analysed or traded at any given moment in time. This is a major advantage of using a Forex robot.

 

Back Testing

In order to implement a successful Forex robot, a potential trading strategy requires the use of historical data in order to verify its probabilities and capabilities. This requires the analysis of a high amount of data in order to demonstrate whether a strategy has the potential to produce results or not. Forex robots have the capability to analyse large amounts of data to determine likely results prior to being activated in trading live markets. This is an aspect that would be very time consuming if it were to be performed manually by a human and is a clear advantage Forex robots hold over human traders.

Latency, Connectivity and Security

 Although there are many advantages to using Forex robots instead relying on your own market analysis and intuition, there are disadvantages and drawbacks. There is the significantly critical issue of latency, essentially ‘delay’  ̶  the amount of time it takes to send information from one point to another; measured in milliseconds and also referred to in common layman terms as the ‘ping rate’ during internet connectivity speed tests.

Latency can be a huge problem in a world where transactions and trades are conducted in just milliseconds. It could be the difference, for instance, during the release of the Nonfarm Payrolls monthly jobs report (a monthly report measuring the total sum of job increases or decreases in the United states economy over the past month, usually published on the first Friday of every month at 08:30 New York / 13:30 London time), between buying nearer the lows or nearer the highs, as illustrated in the below chart:

Non-Farm Payrolls Price Volatility

(Source: Bloomberg.com)

In a further example to illustrate the crucial role latency plays in an individuals’ trading activities, below is a chart showing just how wildly fast the price moved when the Bank of England (BOE) cut interest rates and added 200 billion in Quantitative Easing (QE):

BoE QE Volatility

(Source: Bloomberg.com)

Would you want to be amongst the Forex traders in front of their screens with good enough connectivity to allow them to trade such events within milliseconds of such economic publications? Well, if so, latency is a key area that needs to be constantly attended to and monitored; a primary factor that needs to be weighed up properly prior to employing a robot. Can your Forex robot cope with latency?

Along with latency also comes security. Unfortunately, today cybercrime and online hacking is rampant. Just like any other computer software, Forex robots are prone to viruses and online attacks, so security precautions need to be taken in order to preserve your intellectual property from falling into the wrong hands. There are even scams directly involving Forex robots themselves.

Forex robots may be subject to faults, glitches, or delays. This is an area that needs to be monitored constantly to prevent any mis-trading, incorrect trading, or any outright maverick trading: all important issues to consider when choosing a Forex Robot. You never want to wake up one morning to find that your Forex robot had a bug and traded away your entire trading account while you were asleep.

Forex Robots and Fundamental Analysis

Forex robots are efficient when it comes to rules and conditions based on technical analysis. They are well rehearsed in analysing and scanning price charts, historical data, and market statistics. However, when it comes to fundamental analysis, Forex robots generally lack the definitive logic to decipher and analyse such information. Fundamental analysis involves assessing news, external information, economic as well as geo-political events in order to evaluate the impact upon an instruments price action/movement.

This is usually a task performed more successfully by human traders than robots, as robots lack the intuitiveness and instincts possessed by humans. If your trading is based upon fundamental analysis, you might find Forex robots of little help, even though there are some robots used by institutions which have been programmed to react to the news. However, the techniques used here are very difficult to implement and are not really available to the retail market anyway.

As an example, let’s imagine that misleading news is released in order to influence market participants in a certain way. A human trader might be able to use common sense and intuition to decide whether such news is genuine or fake.  A Forex robot may find its logic satisfied in the same example and act accordingly.

Forex robot software

Reflection, Contemplation, and Consideration

Human traders have the ability to encompass a whole array of knowledge and skills acquired from experiences in order to reflect upon market conditions. It is this kind of “big brain” reflective ability that sets humans apart from Forex robots.

In the final analysis, a Forex robot ultimately requires input from a human being in order to form its logic, rules, and conditions. Without human input, Forex robots would not have a basis in which to apply research, analytical thinking, creativity, imagination and ultimately vision in order to visualise and envisage what the “right hand side” of the chart may look like in the near future.

You might find a way to combine your human capabilities and the forensic ability of a Forex robot. Yet if your trading is dominated by “left brain” thinking, it could be that a Forex robot is not for you.

Where to Find and Evaluate Forex Robots

I have considered what to look for when choosing the best Forex robots, and what they might lack in comparison to their human counterparts. So, if you now decide that you want to look into trying a Forex robot, how can you find and evaluate them?

Forex robot

I mentioned MetaTrader’s Meta Quotes Language 5 (MQL5). MQL5 Robot is MetaTrader’s take on Forex robot offerings for the retail market, with its ease of use and intuitive user interface.

MQL5 is a computer programming language that allows users to create MQL5 automated trading strategies, even users who are far from experts in computer programming can get something built here, utilising the functionality offerings of the MQL5 robot. It is the leading Forex robot software.

MetaTrader also has an MQL5 market, basically an online store with pre-built trading robots, technical indicators, and thousands of trading applications available to use within the highly popular MetaTrader platform. The MQL5 Market is an open market where community members can exchange ideas and even sell their pre-built Forex robot programmes to other members within the community in order to gain a wider audience, dynamic feedback, and constructive criticism.

It is within this community that individuals can measure their track record against other community members with similar outlooks and ideas, track their progression against members of a similar experience/knowledge level and really record their progress. This community environment is key to progressively gaining further knowledge and expertise in Forex robots. It is via sharing of ideas and information and of course criticism that individual robot building and robot using traders can grow.        

Bottom Line

If you decide that a Forex robot could benefit you, do not assume that the answer is to spend a lot of money on some Robot which is claimed to be the “holy grail” of profitable trade signals. Chances are very high that if you are able to back test the robot’s algo over many currency pairs over several years and thousands of trades, the results will not be great. Here is a key tip: do not buy a robot trading algo without verifying it over such a back test. What you ideally want to see is long-term profitability as well as meaningful losing streaks. If the back test does not show losing streaks, something is wrong and probably fraudulent.

FAQs:

Do Forex robots really work?

Some Forex robots are capable of generating profitable trading signals over a long period of time, but any real algo robot strategy will always have serious periods of drawdown.

Are Forex robots profitable?

Many Forex robots are profitable over the long-term, but certainly most are not.

How much is a Forex robot?

Forex robots can be obtained for free at various sources on the internet and have also been sold even in the retail Forex industry for more than $15,000.

Wing Leung
Wing is an experienced financial derivatives professional. After beginning his career in fixed income, he moved to foreign exchange, then equity indexes, then to commodities, and is now currently trading in the Crude Whole of Barrel Energy space.

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