forex trading bot
Traders can use their expertise not only to their own work but also to a variety of computer programmes, such as auxiliary scripts and algorithms that can initiate and conclude trades on their own and provide recommendations. They will be covered in great length in this essay, along with their types and applications.
Ai Forex Trading Bot: What Is It? Is It Real?
It is computer code that functions in accordance with the built-in algorithm. Regarding the trading system that is implemented in them, there are numerous varieties of forex bots. They may operate according to indicators or a particular approach to risk and money management.
How do bots for forex trading operate? It’s really easy. It is actually an automated approach that performs the identical tasks as a trader would, but without the trader’s involvement.
Assume that the bot operates on the premise of leaving overbought and oversold areas (70% and 30% of the indicator scale, respectively) and is based on the Relative Strength Index (RSI) indicator. The bot initiates a transaction on its own whenever it sees a scenario like this on the chart (Figure 1). If a trader used such an indicator, they would act in the same manner.
A computer-aided programme of this kind may consist of one indicator or multiple algorithms that are comparable. Moving averages can be used in conjunction with other indicators, such as the well-known Stochastic Oscillator or the MACD indicator. The bot’s algorithm will be set up in this scenario to receive signals based on two indicators, and trades will only be opened—for example, to open a long position—when these two indications provide the same order.
Table of Contents
Main types of trading bots
Two primary categories of trading systems exist.. The latter operates entirely on its own. Such a system is launched by a trader on his trading platform, and it evaluates the market and decides for itself.
It is challenging to determine which strategy is superior. Every one of these kinds has benefits and drawbacks. Semi-automatic advisers, which require the trader to be present at the terminal when the signal arrives, do not offer the trader entire independence. Instead, trades must be opened manually.
The “plug and forget” approach is used by fully automated trading bots, yet there are disadvantages as well. These bots can’t consider, for instance, the impact of basic issues on the market because they are designed to operate with a specific set of tools. And the work of such an advisor may result in losses as a result.
Completely autonomous bots offer benefits and drawbacks, as we have also previously discussed. It is not advised to use such algorithms unattended for an extended period of time, at the very least. We’ve included some helpful advice below for anyone planning to work with these kinds of bots.
1. Take a closer look at the trading system built into the bot.
If you purchase an Expert Advisor or obtain one for free via the internet, you should thoroughly examine the inner workings of this type of trading bot. The truth is that the so-called “Martingale” is the foundation of the vast majority of Forex bots. What’s that? . In the event of a loss, the subsequent transaction will open with 0.2 lots if you started with 0.1 lots. Additionally, if there is no profit from this trade, a new one with a size of 0.4 lots will open, and so on, until the transaction is closed profitably.
With this strategy, your very first profitable transaction will let you cover all of your losses and turn a profit. However, using such a tactic carries far too much risk. The trader’s deposit is, in fact, always capped. The trader will forfeit all of the money he has already put in the creation of the martingale steps if there is insufficient funds to open the subsequent position.
2. Pre-settings.
This holds true for capital and risk management functionality as well as strategy. A sample of these settings can be found above.
Indicator and strategy settings may be comparable. It is possible for certain Expert Advisers to control the algorithm they employ. You can choose, for instance, which moving average period the bot uses for trend trading.
The majority of automated trading systems contain settings for managing money and risk. For instance, you can programme the bot software to recognise when to place a stop loss or take a profit. and whether or not to put them wherever. Furthermore, it determines the lot size that the bot will use to trade in the financial markets. In order to prevent sending an order to a broker at a loss, some expert advisors establish extra parameters when opening a position, such as the maximum deviation or spread. To lower your chance of losing money, you can also set a maximum restriction on the number of positions that can be opened at once.
The amount of parameters available to forex trading bots varies greatly; some computer programmes may have two or three, while others may have up to twelve. To cope with them, the NordFX brokerage company’s clients can use the MetaTrader-4 (MT4) trading platform, which includes a strategy tester. Â
3. Paid vs. Free Trading bots.
These days, the Internet has both free and paid advisors. Since there are no extra financial expenses involved in the buy in choice number two, many traders choose it.
Free forex trading bots have the benefit of not really requiring the trader to make any investments. That being said, there’s a crucial detail to take into account here. You frequently don’t know the creator of a free forex trading bot or the trading technique that is built into such an algorithm. Consequently, you will need to test the work of such an assistant trader in the MT4 strategy tester in order to comprehend how it operates, compute its benefits and drawbacks, and ascertain whether or not there are flaws in the computer programme.
A customisable system of settings, a history of working with different parameters and trading instruments, and complete technical assistance from the developers are just a few of the characteristics that set paid trading bots apart. The developers of this trading bot, which the forex trader recommends, may occasionally be open to changing how it operates.
How Forex Trading bots Are Created
To begin with, trading bots are not compatible with all trading platforms. As was previously said, MetaTrader-4, also referred to as the trading terminal, is the most extensively used platform worldwide. The special MQL4 programming language has already been used to create thousands of automated Forex trading software.
A trader can access a plethora of unique scripts, indicators, and bots on the MetaTrader-4 platform by using certain tabs. They are available for purchase, rental, or just taking tests. Additionally, you will have access to hundreds of skilled programmers that are prepared to build an automated trading system using the trader’s chosen algorithm. Simultaneously, it is critical to accurately draft the technical task so that the programmers fulfil your expectations.
Myths about trading bots
There are many myths that are actively spreading on the Internet. We decided to dispel them and provide objective information to those who want to try using trading bots in their trading. Here are the most interesting points:
1. Brokers are against the use of trading bots.
This is untrue. For instance, the broker NordFX makes no effort to stop its customers from utilising these automated solutions. Furthermore, the relationship between the customer and the business is unaffected by the bots. The client agreement is not broken by using forex trading bots, and their use is entirely lawful.
2. Only paid bots give results.
This is untrue. Furthermore, a free programme might frequently be just as good—if not better—than one for which the owner demands thousands or even hundreds of thousands of dollars. Furthermore, it is not completely ruled out that this “super-expensive,” “super-professional,” and “super-profitable” bot is merely an exact replica of an antiquated, well-known model or that it was taken from the original developers through hacking.
Thus, it is imperative to thoroughly inspect a bot’s “stuffing” and comprehend its operation before utilising or obtaining one.
3. Bots completely free the trader from making any decisions.
This assertion is untrue. Regardless, before launching the bot, a forex trader evaluates and configures it. Furthermore, it is advised to closely watch the bot’s trading activity and, should the market conditions change, to either temporarily halt operations or make the necessary adjustments to the settings.
So, is it acceptable to trade using trading bots? This is a very personal question that relies on your choices, background, expertise, free time availability, and psychological traits. While using bots does not ensure success, it is a truth that they can be a significant help to traders in their profession.
