To use or not to use trading robots? This is a difficult question. This trading approach has many supporters and adversaries. As usual, the truth lies somewhere in between. In other words, any process should be balanced. For example, the autopilot is used only when there is an urgent need for that. However, we should take into account that the world of robots is evolving really fast, with machines getting “smarter”. It allows people to give routine tasks to robots.
So, what advantages do trading bots have over manual trading?
Why do traders use trading robots?
According to the experts of , there are many reasons for that. Let’s name some of them:
Traders are subject to considerable mental and emotional overload when monitoring dozens of charts and indicators and making sophisticated calculations over and over again. Sooner or later a trader asks himself/herself: How to increase my trading efficiency and performance? What is more appropriate in the contemporary trading environment – a trader’s logic or a trading algorithm used by a robot? The market is constantly changing. So, it is getting more and more difficult to spot all the changes and adapt to them.
Moreover, one should forget that a person’s efficiency can decline because of chronic fatigue. So, sooner or later, any professional trader starts thinking of some external help. Yes, I mean help. Professional traders don’t expect anyone or anything (including trading robots) to do all of their work for them.
Every single day is full of events: macroeconomic stats, reports, news, commentaries made by politicians and analysts etc. All these factors influence financial markets around the globe. In order to be successful, traders have to constantly adapt their trading systems to the changing environment. Moreover, trading robots do not feel any doubt, emotional overload or fatigue. They simply implement the algorithm written by the trader.
Moreover, robots make more accurate calculations (as long as they have the right formula). Yet the can do it way faster than a human trader, which is a significant edge when it comes to making major trading decisions.
So, these are the major distinctive features of using trading robots:
· Unlike a human being, a trading robot is not subject to feelings and emotions, so it just implements the algorithm.
· A trading robot is much faster when it comes to monitoring, spotting signals and making trading decisions.
A trading system as the base of a trading robot
According to Igor Vasev, Chief of Market Trading Department of , most traders use various testing software to create and optimize their trading systems. The most popular tester is integrated into MetaTrader 4 (or 5). However, they do not take into account an important thing: this trading software is useless for stock traders.
However, there are such testers that allow traders not only to check and optimize but to build their own trading robots. That is why ’s new training on “Sniping TS” includes lectures on one of the most popular trading methods (read also “Will trading robots replace human traders?” ).
This software allows traders to test various (even sophisticated) strategies on any timeframe without having programming skills. However, the major advantage of this tester is the possibility of testing a whole portfolio of stocks and derivatives.
Moreover, the developers (Market Trading department of ) offer a free bonus – 20 trading strategies with the profit factor above 2.0 for the daily timeframe. They were back-tested for 30 stocks included in the Dow Jones index. The testing period was equal to 10 years. Each $1 loser gives at least a $2 winner. For example, let’s take a simple profitable strategy - Keltner’s Trading Strategy:
The given variation of the trading system based on Keltner’s channels cannot be called fairly profitable (its profit factor is 1. 63). However, it has proven itself resistant to crises and stock market shocks. Its recovery factor is 6 (it has nothing to do with the “buy and hold’ strategy).
experts forward-tested 650 liquid US stocks (the testing period was 5 years). The system gave 63% winners. Winning trades were held 2 days on average:
Very often trading robots sold all over the Internet are based on a single strategy: arbitrager, scalper, spreader etc. Such robots have a major drawback: they cannot adapt to market changes. So, there are risks that they may become unprofitable.
The bottom line: Trading robots can make you money so they are worth installing and using. However, a trader needs a profitable trading strategy and a “flexible” (easy-to-adapt) trading robot to succeed in automated trading. Moreover, trading robots need to be checked and tuned regularly, which means traders should stay in control of the situation.
Market Leader and would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
Do you trust trading robots and why?
