The fact that computers are faster than humans when it comes to processing speed is a well-known fact. The emergence of automated trading systems known as Expert Advisors and forex robots in the market is a testament to that fact. By harnessing the power of computers, many in the trading world have amassed huge profits, thanks to automated trading software.
Some Common Mistakes to Avoid When Using Trading FX Robots
In the forex market, people often consider automated trading software to be a gateway to easy profits. A trader can easily get enticed by seeing live trading results which show an increase of 100 to 1000 % in just a few months. However, most novice traders have no idea what they are getting into. Some of the common mistakes that they commit when handling automated trading systems are as follows.
New traders tend to apply excessive risk when trying to earn profits within a short time. It is very easy to get carried away after being influenced by the advertisements made by some of this software. You are prone to increase the risk of the trading system being used if you have unrealistic expectations from the service. Without understanding the potential drawdown as well as the risk of the trading systems involved, a trader can easily make hasty decisions that can lead to their account being wiped out.
Expecting a Paycheck
Many new traders think of automated trading systems as a replacement for their existing 9 to 5 job. Because they think that automated trading is a guarantee of cash flow, they can easily get disappointed when they realize that it is not a risk-free affair. You must take in the potential drawdown and when the profitable months of the software are before you can expect any profits. Most long term profitable systems have profitable months which make 50 to 100% of the profits. However, these come few and far between.
Using Unsound Trading Techniques
This is a direct consequence of not gathering enough knowledge about the market one is going to trade-in. The complete lack of understanding which many people have when it comes to using forex robots and expert advisers often leads to their accounts being wiped out. Many people are enticed towards using systems that use trading strategies such as martingale or grid trading. However, they instead generate an un-capped market exposure rather than building the grounds for a higher return.
Not Knowing How the System Works
Many new traders invest heavily on expert advisors and forex robots, simply because they want to get rich by using someone else’s system. However, what works for one trader might have radically different results for another. It is vital for your success that you understand how the EA or trading robot in question works. Grasping this concept is essential for realising the real reasons behind profit and drawdown cycles that a trading system goes through. Never trade something blindly simply because it works for someone else.
Incorrect or lack of Risk analysis
Not conducting a proper risk analysis is one of the major reasons why traders get their accounts wiped out. Not analyzing the risk levels of the trading system they are using can have devastating consequences. Many novice traders make the mistake of calculating risk-based on invalid evidence. They can also make the mistake of assuming the historical maximum drawdown is the worst possible case. Remember, that in trading, we must assume that the worst is yet to come, regardless if we trade manually or using automated trading software. Because of a lack of risk analysis, you could also mistakenly discard good EAs and forex robots because of their normal drawdown cycles.
Only Focusing on Short-term results
It is a sad fact that the majority of traders who acquire automated trading software are allured by the prospect of short-term returns. While the short-term profitability should always be considered, your major focus should be on long-term trading and profitability. It is quite common to see traders getting excited about a system that has seen profits for the previous few months, only to end up losing substantially in the long run.
Underestimating Live Execution
New traders often make the mistake of underestimating live execution. Often this applies to novice traders, especially those who want to use scalping systems profitably. They often get excellent results when running these systems via demo accounts or after backtesting them. However, back-testing can also be prone to mistakes such as one-minute interpolation errors and the system can give negative results when used in a live trading environment. Another thing to consider in the live market is that spread widening and requotes can also reduce the profitability of most individual trades.
Pros of Using Automated Trading Software
Although automated trading software like forex robots and expert advisors do not guarantee profits, it does increase the chances of profitability by a large margin. The success percentage of beginners in the forex markets are low indeed, However, using an EA or forex robot can help them get a certain edge compared to manual trading.
Preventing emotional response
In trading, the various ups and downs of your fortune can have emotional responses from your end. Emotions such as fear, greed as well as anger can cause you to over trade, pulling the trigger earlier out of a trade, causing you to miss trading opportunities. By using an automated trading system, you eliminate this, as the software executes trades according to pre-set rules.
There is a limit to what the human mind can do. In manual trading, this comes as a limitation. However, if one uses automated trading systems, they can simultaneously employ different strategies for earning increased profits. Automated trading robots are also infinitely faster than normal manual traders when it comes to scanning the market for trading opportunities.
Last, but not the least, automated trading software programs do not take any breaks like manual traders. They constantly run if there is power, a decent internet connection, and money in the trading account. As the forex market is a 24-hour operational market, this increased ability ultimately proves to be advantageous.
Automated trading systems can be a blessing for many novice traders, provided they apply them correctly. The success of your automated trading system will also depend on the vendor or developer from where you are acquiring. You should always prefer acquiring EAs from legitimate, reputed, and experienced developing and marketing teams.