Do Forex robots actually work?

The Rose family is abuzz with talk of robots …

I’ve just finished the development of my first professional Forex robot.

Meanwhile, my six-year-old son (with the help of his granddad) is currently building his first robot.

The two robots bear little resemblance to each other.

My son reliably informs me that mine is ‘rubbish’ and ‘doesn’t actually DO anything’.

For my tastes, his is a little heavy on the duck tape and electrical conduit piping.

But I’d say that we’re both equally proud of our achievements.

So, do Forex robots actually work?

My robot is, as you’ve probably guessed, a Forex EA – an expert advisor that trades on your Metatrader4 account for you.

Now, I need to come clean on two important points …

I have not built this robot myself – I don’t have the skills – I’ve had it built for Thames Publishing.

Secondly, until recently I’ve been very dismissive of Forex robots.

So, I’d like to explain here exactly what I’ve had against robots … and why I’ve now turned around and built one myself.

When Forex robots first began appearing, many traders believed they were the answer to our prayers …

… no-effort trading … all the technical analysis done for us … what’s not to love?

But there were two big problems with EAs …

1. Curve fitting

Back testing is a very important part of trialing any trading strategy, but it’s only part of the job.

The problem with many, many EAs was an overreliance on back testing.

‘Hindsight is always 20:20’ – and nowhere is this more true than in trading histories.

Back testing is the process of applying a trading technique to historical data in order to verify how it would have performed in that period.

Sounds fair enough … but then you can start fiddling with the parameters of that strategy … adding extra rules that would remove losing trades … fiddling with profit targets and stop levels …

The result is that we end up with a strategy that has a stellar track record – but has never placed a live trade, and would never survive in the real market.

And this is exactly the kinds of systems that are too often marketed as fantastically profitable Forex robots.

2. Overtrading

The second flaw with most robots is that they simply trade too much. If you can watch the markets all the time, and have constant access to your trading account, the temptation is to grab at every opportunity.

If you’re trading lots, then you can make wild marketing claims of several hundred percent gains each year. But there’ll be a downside to this – and too often people found that their Forex EA had suffered a losing run and rapidly dented their trading account.

Why I hated robots so much that I had to build one for myself

The problem with my two objections is that neither of them is really an issue with robots themselves – it’s about how they are built.

So, earlier this year, when a well-regarded trader and Forex coach approached me with a trading strategy, I knew that the moment had come for me to confront robots head-on.

The system he showed me had solid results (by solid, I mean they were consistent and could be maintained long-term, rather than the eye-watering big numbers that marketing men like!) But the rules of the system were fiddly, and you had to trade it between 9.15 and 9.30 in the morning, when most people are just starting their day’s work.

This was the perfect system to build into a robot.

It already had a track record of live trading (no curve-fitting).

And this system is so particular about taking trades (the conditions have to be just right), that it trades on average about 15 times per month (no overtrading here).

This was my perfect opportunity to develop a Forex robot that would be free from the problems that I saw in other systems out there.

How robots work

An EA is a piece of software that’s plugged into your trading account. Once in place, it can do all the technical analysis for you, and when the conditions are perfect, it will either give you the signal to trade, or (if you prefer) it will even place the trade for you.

All you need to do is switch it on, and tell it how much you’re prepared to risk.

As I said earlier, I didn’t actually build this robot … nor did I develop the system behind it … I can’t claim any of the credit. But that hasn’t stopped me being very excited about it.

If you fancy giving this robot a test drive (Trader’s Bulletin members are getting first dibs) – please watch out for full details on Tuesday next week.

Related posts:

Do Forex Expert Advisors work? Does automated trading work?