Following the last post where the description of forex trading robots explained key points about using such tools for automated trading, this article below will discuss tips for choosing the right forex trading robot.
In addition, another important aspect of considering which forex trading robot to use, is to first run the program in the present moment, and moving forward, known as forward-testing, ideally with either a demo account, or a small amount of capital in a live account, in order to see how the system will perform in real-time.
Such forward testing may last a few weeks, months, or longer, depending on the frequency of trading, and investment objectives of the program, and as discussed in the last post titled forex trading robots explained.
Choosing the Right Forex Trading Robot Explained
The results of forward testing should be treated more meaningfully than hypothetical back-tested results, however, forward testing also eventually creates historical results, which are no guarantee of future performance. Nonetheless, gauging the track record of trading results, whether that of a forex trading robot or actual human trader, is at the core of comparing trading systems on a quantitative basis, as well as understanding their qualitative properties.
A wide variety of performance rankings exist, which compare the risk versus reward of historical trading results that a trading system will produce, such as the maximum draw-down experienced over a given time frame, as well as the average return, or average geometric mean return, as well as the performance annualized, all of which can vary for the same period measured. The key is to understand the meaning behind such measures but to also look at the whole picture without over-relying on one statistic alone.
Making Sense of historical Performance Rankings
Since each such measurement of trading results can vary, it is important to understand how to calculate performance, and how much to value such historical performance statistics. In addition, the trading fees, or costs to operate a trading robot, also need to be factored into the planning, testing or research process.
Generally, the higher the return on average for a given track record of a forex trading robot, the higher the average loss may be, and vice-versa, for example a trading system that has a smaller average profit, may also have a smaller average loss (this is not always the case, but quite often systems with huge returns take huge risks).
Risk Management is Key Component of Successful Algorithmic Trading
This relationship of profit to loss, is only because risk is relative to reward in terms of when a quantity of risk is needed to be taken in order to have a chance to obtain a quantity of profit, and which are integral parts of any risk-management strategy.
However, some trading robots, or even human traders, who realize on-average a smaller profit, relative to their average net-loss, end up losing money, whereas those who can return a larger profit on-average relative to their average loss, will produce a net-profit.
For this reason, regardless of how aggressive or conservative a trading system is, and regardless of its time-frame and frequency of trading, an optimum risk/reward ratio must be applied in order to have close to the best odds possible for the specific goals of the trading program. This can be true for a very low frequency trading system, or even an ultra high frequency trading system, trading in as fast as several milli-seconds or less.
Therefore, whether trading manually or using a forex trading robot, the same basics apply, except with the robots the ability to automate many aspects make them both appealing and dangerous, like a powerful car that requires an experienced driver, preparation and research into the process is a must in order to be successful on not just one trade – but over a period of time- using forex trading robots.
Find and Compare Trading Robots: How to Get Started
Forex Blog recommends WorldWideMarkets (WWM) for traders looking to find and research forex trading robots. The MetaTrader4 (MT4) platform, available from WWM, provides access to the signals market, where traders can review 3rd party Expert Advisors (EAs), as well as develop and deploy their own, in a live forex trading account, or demo forex trading account. In addition, with regards to forex trading robots, WorldWideMarkets offer the ZuluTrade platform, a popular social-trading environment, where traders can find and deploy trading signals, both manual and automated, within a trading community.
WWM’s risk management team of Harvard-trained Astrophysicists bring over a decade of algorithmic trading expertise, including developing black-box trading systems, using super-computers and genetic-programming, as well as proprietary mathematical formulas, while developing smart-order routing solutions, proprietary trading modules, and price discovery solutions across a multitude of markets and asset classes. Several articles regarding this subject is available on forexblog.com, and WWM can be reached for any related trading inquiries.