The Truth about Automated Forex Trading Systems and Robots
You may have found yourself landing on a very convincing sales page recently for any one of the many automated Forex trading systems out there on the internet these days. Often referred to as ‘expert advisors’ or ‘trading robots’ when they are applied to the MetaTrader 4 trading platform, these trading robots are extremely marketable because of the pipe dream they give people.
The pipe dream of the fully automated expert advisor / trading robot system, goes something like this: “If you buy our system, you will be able to put your trading on autopilot and watch the profits build up in your trading account, nothing is required of you except buying and installing this amazing piece of software into your trading platform”.
Sounds (too) good right? On the surface, of course this type of thing sounds good and as a result, of course it’s easy to sell to unsuspecting newbies in the Forex market. However, as we will discuss in today’s lesson, a little savvy research on your part and a sceptical approach to these robotic trading systems will turnover a whole host of ugly problems that should make you RUN, not walk away from them….
What is an Expert Advisor or trading ‘robot’?
Expert Advisors are programs that allow automation of the analytical and trading processes in the MetaTrader platform. They typically do this via you buying and then downloading a file onto your computer and then installing it into your MetaTrader 4 trading platform as a plugin / add on.
After this, the ‘magic’ (supposedly) happens; the software will determine when to buy and sell various currency pairs (usually you have to only use the pair or pairs suggested by the software seller), it will also typically include a risk management script of some type.
The main attraction here is that there is little to no need for you to do much of anything other than install the software. You can even set the number of lots to be traded, although you can typically over-ride this input, so that essentially eliminates a lot of that “no human emotional errors” advantage that these systems try to sell you on.
In short, trading robots and expert advisors promise to fully automate the trading process with the main marketing attraction being that the human emotion and thus human errors are removed from the process, or so they claim. However, as we alluded to earlier, this is little more than a pipe dream when you dig down into the surface a little further…
Why you should stop falling for robotic trading systems that ‘look’ amazing…
Unfortunately, in the world of Forex trading systems and strategies, there are all sorts of people looking to sell you very expensive trading systems via very convincing sales pages that look and sound very professional. However, if you dig into them a little bit (literally any of them) and do some research, you will quickly find the systems are unsustainable and they are just showing you an ‘ideal’ looking track record over a fixed period of time. It’s also possible to make fake track records that look ‘real’, so take any ‘track record’ you see advertised as ‘proof of performance / results’, with a grain of salt.
These system-sellers (notice I didn’t say ‘traders’ because real traders wouldn’t sell these things) aren’t typically explaining to you that you will need very large stop losses on many of these robot expert advisor trading systems, so large that one losing trade will wipe out of much of your account.
When market conditions switch from favourable for the system’s rules to unfavourable (typically trending to non-trending), the system will result in losing trades, and as market conditions are never fully predictable, the only way to truly adapt to changing market conditions effectively, is with the discretionary capability of the human mind trading from the natural price action of the market.
Not only will you lose money on the cost of buying these robotic trading systems (many are $800 or more), once the system fails you, you will probably lose any profits you’ve made. Not only will you lose profits, you will have learned absolutely nothing about trading or how to read a chart’s price action, so you will be left in a frustrated and angry / desperate state of mind which will probably cause you to lose even more money in the market via over-trading / gambling.
Don’t be fooled by the modern day snake oil salesman approach to trading the Forex market; there’s no easy way to make money as a trader, and indeed I might be one of the few trading educators who will tell you that, but it’s the truth. The ‘easiest’ way to make money is by learning a sound and logical trading method that is either purely or mostly dependent on reading the price action in the market, proper trading psychology and proper money management practices. This basic formula has worked since the days of Munehisa Homma; one of the first price action traders, and through proper training and screen time, it can still work today.
Don’t underestimate the power of the discerning human mind
All you need to do is look back at the greatest traders of our time and of generations past. Were they fully dependent on automated trading systems? No. Sure, they may use some type of trading software, but behind any outstanding trading performance is a human being, more importantly to my point, a human mind.
The traders and investors interviewed in the market wizards books largely had a discretionary and discerning approach to the markets. In other words, when you boil it all down, they were making judgement calls in the market, and very good ones at that. They were not using ‘expert advisors’ or automated trading systems, and for good reasons.
The only way any computer program will ever be able to compete with the potential of the human mind in trading, is if (when) we develop true A.I. or artificial intelligence, which by most accounts is quite a ways off. Until then, your best bet is to rely on the best ‘computer’ of them all to make your trading decisions; the one between your shoulders. Your mind is your biggest and most powerful weapon in the market, make sure you develop it properly by getting a solid trading education that will help you build yourself into a skilled and successful price action trader.
42 Comments Leave a Comment
Excellent article and right on the money. I’m a semi-retired IT expert with 35 years experience designing database systems. One thing I have learned is there are certain parts of a process that are most effective when someone with years of background in performing the tasks is involved. Currency trading fits that model. There will never be a way to write software to read the trending news and analyze its impact on the market. Announcements by the Fed, rumors of war, political decisions, natural disasters, … all of these can affect the market, and a computer program wouldn’t have a clue.
But a lot of hedge fund, and traders are being replaced by computers and algorithms. Because they can analyse much more data. So human is still better in trading?
High frequency trading algo’s are not the automated robots/ea’s I am talking about in this article.
I am not talking about HFT, I mean just analyzing and trading by quant overall. So human don’t stand a chance. Some people said AI is not fully developed yet. But soon or later it will…
Nice article Nial, you are the Guru…
I agree in some ways. If you buy or use someone else’s EA… You WILL fail at some point. But, if you make your own and monitor it closely while making changes that you need to them it is possible to do better with a robot than manually trading. Make no mistake though that this is NOT easy and is not get rich quick. Hard work, research, testing, testing and testing is what it takes to make automated trading with while.
You’ve spoken well Brandon…. hard work and more research
ea’s are for traders who have given up,by the time you re program an ea to a different market condition the markets change again doing it yourself is the only way.
expert advisors CAN fully automate the trading process and remove the human emotion and thus human errors are removed from the process … however it is better to learn the process manually first and then program your strategy into the EA … and yes some monitoring and occasional intervention may be required …. personally I would never buy a black box EA because you never know exactly what it’s doing and that’s not a good way to invest your money … I have a very simple RSI strategy implemented into an EA which works quite well …there were some issues which I had to iron out along the way (ie RSI failure swing, one trade per candle, one trade per pair, only trading Mon-Fri, only trading during London/NY session etc etc LOL) but all those things can be programmed and eventually you have a very solid EA performing quite well and quite consistently … so simply saying that all EA’s are useless and they don’t work is simply not true …. there are different methods and different tools and they all can work if you’re consistent and know how to use them properly
Paul. If it’s working for you, then I hope it continues. That said, I have been around long enough to know that the kind EA your talking about will work for a period of time and then when market conditions change it won’t be as effective and will eventually experience major draw down, furthermore when you start talking about using automated RSI indicator strategies It raises alarm bells. The argument is machines vs humans, and I firmly believe that alot of the trading process can’t be automated. You can’t give a machine artificial intelligence, you can only give a machine instructions.
Nial you are right there are quite a few so called “expert systems” that are SCAMS. Companies whose only objective is to SELL SELL SELL… be careful with the guys behind “Trading the Markets” they disguise themselves as educators where the real objetive is to sell their “expert system” and when you want to quit your account they do not answer the phone, emails, or any kind of communication… being there :-(
Its always better to learn how to catch fish rather than sit down and expect someone to do it for you
Nial you are all right about that my boss, no much comment
I completely agree with you Nial.Some years ago,i used different types of EA(robot) but they all failed at the end.What really made me choose your price action strategy is the money management.Robots fails at money management.why would one say dicide to choose the money management that will give you little profit and wipe all yoyr profit
This seems like a rather blinkered view of view of trading activity in the larger market.
I can’t disagree with the idea that most of the EA offers that land in your inbox are not going to be successful, they are mostly very simplistic tools and in the hands of the inexperienced, dangerous to your account.
Most of the hedge funds and CTA’s using technicals as the basis of their trading will use software to some extent, many of them use software exclusively to create all of their trading activity in all time frames from the very fast to the daily and longer.
Of course these systems are not considered ‘magic’ and are handled and managed by professionals. Trading using algorithms is already here, and already controlling a great of trading activity in all online markets.
Thank for your sincereity but make sure that those of us who want to know more and learn more of this trade are getting the rigth information no just reothorists, i always want to know and leaen more about this trade
There’s No free lunch.
Putting in the necessary screen time, learning a logical, profitable “edge”, developing the right trader psychology and practicing proper money management are all required skills to be a long term profitable trader.
Thanks again Nials for your honesty.
All over the web we can read, that today almost 70% of all trading is made by robots, so auto trading. Surely humans need to tell those robots, where major levels are, but still, biggest banks use auto trading software, which they develop it for a great amount of $$.
How about those EA’s still going well more that 6 years without any margin calls history and still developing its progress. There also lot of supporters. Will their claims be all fake.I agreed manual trading is the best but sometimes programming also requires as we can’t have the opportunity anytime we want in the Market. I can’t agreed totally disagreed EA”s and there is both advantage and disadvantage of it.
Abraham.. where are all these amazing ea’s and robots your talking about ? I doubt there are many supporters to be honest.I speak to tens of thousands of traders each year on email, from those conversations It is clear to me that ea’s and robots are 99.9% absolutely bogus. There are so many horror stories from people who buy them.
So true Nial. It is so sad how so many people get caught in this glits and glamor adverts on how to make millions on the forex market. A friend of mine tried to convince his son not to buy into one of these systems, and even I tried to explain to him that he will start off with a huge loss (the cost of this ‘wonderful’ system), and will never make a success, yet he still went out and bought into it. I gave him all the details of your program, and how I have benefited from becoming a member with you, but the promises of this false system lured him in.
I learned one big valuable lesson since joining you – There is no such thing of becoming rich overnight, trading forex. This was after trying all sorts of methods for 10 years, having no success.
I now treat this as a serious business, with a solid money plan. I got rid of all the old cluttering indicators, focusing on price action only.
You have opened my eyes to a lot, and I am now having success.
Truly grateful for your guidance !
I am a trader since 2007 but inIndonesian
local market stock..it has been a month i always come to your blog and read as much i can each articles..i would say you give me a enlightment more and many thanks to your hospitality and kind contribution….
Thanks Nial. It has been truly tempting to try Robots but your article has had me put on my bast running shoes. I get hundreds of emails every week wanting to sell me these Robots.
Nial, you are really one of the best trader. Only my mind will help me in trading and nobody else.
Very true, Nial. Very true indeed! :)
As usual things are not black and white. If you trade using a set of rules, and you don’t change/adapt those rules as the market changes, you will lose too. After all, a good EA is purely a program that has been written to trade according to those rules. And it will follow those rules irrespective of any emotions that a human might have. But yes, if you don’t change/adapt the rules from time to time in the EA as the market changes, just as you would when trading manually, the EA too will start losing.
And for those of us who are asleep when most of the market action occurs (London/New York sessions) and hence miss out on many trading setups, a well-programmed and customisable EA can be of real benefit.
Just remember who is the boss and who is the slave/robot; the boss still has to decide how and when the slave will work. So it is not a question of either/or. The human makes the strategy and the decisions; the robot executes them. That is what they are good at. If the human designed strategy is bad, the robot will be too.
Andrew, interesting comments. The only way an e/a or robot would ‘adapt’ to ever changing market conditions is by human intervention. I don’t see any benefit in an e/a or robot handling any part of the trading process.
In fact, trading manually and making money is fun. I started trading because I love to trade. It doesn’t matter to me if any EA makes money or not….
I believe that certain strategies can be “programmable” and transformed into an EA.
However, I also believe that the ever-changing dynamics of the market calls for human intervention to adapt the EA when market conditions change (such as trending –> consolidation).
Nothing substitutes study, practice, discipline, and chart/screen time.
I am a strong believer of the 10K hours to mastery…
Thank you Nial,
Just want to thank you for your comments. For sure you love trading and love what you do. thank you.
Your articles are very interesting and informative to read. Most of the trade system are
scam based on my experience. They allure you in a very convincing manner with all
the guarantee of making profits but you lose all the money instead. I wonder if those
people who speak good with the system are paid actors.
Please continue writing relevant articles about trading it helps everyone who are in..
In a free enterprise system people are free to sell anything they want as long there is a demand for the products/services and am not against people trying to make money but If those trading robots work so well as the sellers touted them to be, why sell them? Why aren’t they using the robots and raking all the profits themselves. Besides if they really work don’t you think the institutional investors/traders like banks, hedge fund firms etc will be using them ?
I totally agree with your article today. Several times I received invitations to buy a ‘ so called auto-trading system ‘. It looks like attractive and convincing, but with thousands of scams in the internet I have doubt in my mind if this is real. With your article I am now fully warned to stay away from it.
Moreover, aside from the profit that I aim, trading is full of fun and I enjoy doing it. If I let a system to trade for me, I don’t think trading will still be enjoyable as it is.
Thanks for article I like it I enjoy trading for myself yes it is difficult but because its not just for today but for the rest of my life I will finally get there. Thanks for the advice
$800 for EA or systems? I paid more than 50K for various indicators, systems, end up, I am looking at plain chart and make more money than all fancy thingy on my chart.However, it is just a process of learning
If completely mechanical trading is so bad, then how do you explain the Turtle traders success?? Keeping in mind that to this day some are still very successful following similar methods?
Danny, EA’s and trading robots are a completely different subject to the ‘Turtle traders system’. I will correct you on 2 important points here. 1 – The turtle trading system no longer works the way it once did, in fact it simply doesn’t produce consistent profits at all in todays market conditions. 2 – The turtle traders where humans executing trades based on rules, they where not trading a purely automated systems. In my 14 years of trading experience so far, I am yet to see any automated systems or robots perform consistently. The exception is when a system uses a high risk money management system like martingale or some kind of progressive lot sizes (these always blow up eventually). The only trading methods or systems that I have ever seen work consistently have always required a human decision maker in part of the process.
thank a million for you effort to make the world of forex better.
I used a software for automatic Forex trading. But the results were worse than with normal methods of trading. Another significant loss for me was a cold shower. I have abandoned this method of trading and have no regrets.
I do agree with you that most EA’s are only good in the story of those slicky salesmen.
And also the automated systems.
10% a month and more. But be careful, especially when you have to use their broker. Even with “myFXbook certified” trading history can be manipulated.
But I don’t agree that only humans can trade. Big banks like Deutsche Bank make their decisions partly based on trading systems. Or better, these systems trades and the human watches it over.They do this for a long times (5-10 years).
No 10% a months systems, 1% net a month max. No 99% winning months also.
I absolutly agree with your article but with this small nuance.
reading this article I remembered a time (about a year ago) when used one EA. First month it gave me a profit, but from the second month it started loosing the whole account. But now I personally don’t beleive in EA that can be profitable for a long time. Since I started reading your posts and strategies I see that my account is constantly growing for four months.
Thanks Nial for opening up our eyes once more and that the price action is a “Holy Grail”.