Good Trading Automation vs Junk Robots

Anyone who has ever done a search for Forex has seen the ads: “Make a million dollars while you sleep!” or “Turn $100 in $1,000,000 in 5 months with our Forex robot”. My earlier article regarding EAs garnered a great comment from my friend Nathan about the difference between good automation and “the 47 dollar crap people see online”. I loved it. First I want to say that just because it may make extraordinary claims or sell for only $47, that doesn’t necessarily mean it’s crap. With that having been said, unfortunately, sometimes the only way to determine if it’s crap is to buy it. It’s difficult to tell from the sales information that can easily quote only the few weeks or even days that the robot was profitable.

Many of the junk robots were not completely junk at the time they were written and tested. The market changes on a daily basis and if the robot in question doesn’t adjust for periodic market changes, then it may appear to be junk at times. So it’s important to know exactly the robot’s strategy and how to adjust it for market changes. Additionally, brokers have been rumored to “break” popular robots by increasing the spreads at the last second or swinging prices just a pip or two too far in the wrong direction for the robot.

There is such an animal as Good Automation. But, like any other profitable trading situation, you have to start with a successful strategy. For a trading strategy to be fully automated, it has to be completely quantifiable. In other words, the rules of the strategy must be such that there is no un-programmable discretion taking place. There have to be firm rules in place that can be “explained” to a computer. Computers see things in black and white, so if your strategy has shades of gray, those shades have to be defined in terms of the quantities of black and white. As I mentioned, the EA must also allow for the changes in the marketplace and adjust automatically, or allow the trader to adjust to continue to be profitable.

Other uses of automation in trading can also be extremely helpful to the active trader.  If the automation is only used to alert the trader of potential trade setups and conditions, the trader can use his discretion in entering the trade. A good trader will recognize changes in the market that pertain to his strategy and can adjust themselves manually to the changes. Because of the computer’s speed, it can be used to track dozens of pairs for many different conditions and alert the trader of the current trading conditions. Some traders use correlation between pairs as an indicator for a trade. The computer can identify those situations in the blink of an eye.

In conclusion, don’t reject computer automation just because of the negative backlash. And don’t judge automation by the price, high or low. Find a reputable review site (don’t be drawn in by review sites that are actually managed by the seller’s of the robots) and research the results of the robot before you spend your money. And remember that automation can also provide assistance in manual trading as well as acting as a trading robot.

 

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  • Hi Andrew,
    Indeed you are correct. In fact the price of an EA is absolutely no indicator of the profitability of it.

    Tim

  • Excellent points, Tim. The converse of your point about low prices is also true. Just because you pay an arm and a leg for an EA doesn’t mean that it is worth even $47!