A trading robot can provide an automated trading solution for those who don’t have the time or knowledge to trade or invest in the global markets themselves. However, it can seem like there is an overwhelming choice of trading robots to choose from which makes it a daunting task when trying to find one that meets your specific requirements. Automated trading robots come in all shapes and sizes, from the strategies they use and the financial markets that they trade. In this guide we will look at some of the key features to look for when choosing a robot.
The trading strategy is the algorithm used by a robot for analysing the market to find entry and exit signals. This can be a combination of the following:
- Technical Analysis
- Fundamental Analysis
- Sentiment Analysis
- Price Action Analysis
Some robots will use one method of chart analysis whereas the more professional robots may use a combination of all. It can be considered beneficial to use as much analysis as possible to help filter out trading signals for those that only have the highest probability.
Trading strategies can be short term, medium term and long term. There are scalping robots which look to quickly get in and out of the market whereas swing trading robots may hold positions for days or weeks. You can therefore filter down the trading robots according to your own preferred trading style.
Money management is the stop loss, take profit, trailing stop, break even and other important trade management settings that the robot uses. Risk management can sometimes be the difference between a winning and losing trading strategy.
You will want to consider what stop loss the robot uses to make sure it isn’t too wide. Bad robots can have poor risk to reward ratios where one losing trade can wipe out the gains from multiple winners if the stop loss is greater than the take profit. On the other hand, if the stop loss is too tight, this may cause unnecessary losses.
Check to see if the robot uses any potentially dangerous martingale money management or grid trading strategies. It is important to be aware of how these types of trading robot’s work and the increased risk that they can have compared to other robots. Martingale and grids involve increasing the position size to try and recover from losing positions. The problem is that if the market continues to go against the robot, it can more often than not lead to a margin call or blown account.
Every trader and investor will have a different level of risk tolerance. You should make sure that you only use a robot that you feel comfortable with and adjust the money management according to your own preferences. Never risk more than you can afford to lose because no robot can guarantee results.
There are all types of automated trading strategies including forex robots, stock robots and crypto robots. Deciding the financial markets that you want to trade can help you narrow down your search for a suitable robot. There are even trading bots which can simultaneously trade on multiple instruments.
Consider what chart timeframes that a robot runs on. If it has been developed for short-term chart timeframes such as the 1-minute or 5-minute charts, there is a chance that it may be more susceptible to market noise. In this instance, you might want to ensure that you are using a trading broker that has low commission fees, tight spreads and rapid execution speeds.
The vast majority of trading robots will let you customise important settings so that you can setup the robot in a way that works for you. This can be everything from money management, entry criteria, exit criteria, market hours, trading days and more. That being said, most robots come with default out of the box settings that have already been optimised by the developer. On most occasions, these will probably be the best trading robot settings as the developer would have spent hours testing the robot. However, you should always check to ensure that the position (lot or risk) size is set to a level that you feel comfortable with as every trader is different.
When looking for a trading robot one of the most important things to check for are any real live verified accounts showing how the robot has been performing recently. As the markets are constantly changing, it is important that results are up to date. They should be verified by a third-party such as Myfxbook or FX Blue. If the developer is not sharing recent results than you should ask yourself why this is the case and perhaps consider an alternative option.
When looking at results some of the key statistics to analyse include:
- Average Win
- Average Loss
- Profit Factor
- Expected Payoff
- Best Trade
- Worst Trade
Always keep in mind that past results (even verified) do not guarantee future performance. Anything can happen in trading.
Backtesting is the general method for seeing how well a trading robot may have performed in the past through various market conditions. Backtesting can help to assess the viability of a trading strategy by discovering how it would play out using historical data. If backtesting shows potential, traders and analysts may have the confidence to employ it going forward.
However, backtests do have some limitations and results are not always accurate. They may not account for things such as spreads, slippage, liuqidity and commissions. These are all important factors that can have an impact on trading results using any strategy.
Again, be aware that good results in backtests does not mean good results moving forward. Never risk more than you can afford to lose and make sure you are aware of all the risks involved with any automated trading strategy. You should always try any robot only on a risk-free demo account to begin with until you familiarise yourself with how it works.
Have a look at what trading platform the robot has been developed for to make sure you will be able to use it. Although you don’t need to already have the platform installed because you can always follow the instructions that come with the robot that explain how to install it.
Before purchasing a trading robot, you could reach out to the developer to ask them any questions and see how responsive they are. Ideally, you will get a quick and helpful response whereas not hearing back could be seen as a red flag. Find out what support is offered and if updates are included free of charge.
Check what the vendors refund policy is. You will want to see how many days do you have to test the trading robot and if you will be eligible for a refund if it isn’t suitable for your needs.
A trading robot is an automated trading system that can buy and sell various trading instruments on behalf of the user. They use unique trading algorithms to automatically enter and exit the global financial markets with a range of customisable settings including money management.
When choosing a trading robot, you should make sure that it has all of the features and functionalities that you would expect. Things to consider include the strategy, risk management, settings, instruments, timeframes, results and support.
There are different types of automated trading robots including social trading signals, MetaTrader robots, robo-advisors and customised strategies. If you are looking for a robot, you can see our robot ratings and robot reviews for some inspiration. You can also download our free trading robot to familiarise yourself with how automated trading works.