Do forex robots employment? The following are the main 3 major reasons why robots fail to deliver results
The first main cause why most robots are not profitable is since they risk a abundance for small profit. It is a proven circumstance that to become a profitable trader, money management is the key. Top traders have effective money management system in place and they stick to it. They only risk 1% – 2% of their trading capital per trade. Furthermore they employ trading systems with at least 1 : 2 risk to reward ratio. What this method is that in every trade they are risking 35 pips to potentially earn at least 70 pips. This doesn’t mean that in every trade they will always earn double of what they risk. However using trading systems with favorable risk to reward ratio is the best path forward to be profitable in the extended term.
Most robots capture the opposite approach. They risk a abundance for small profit. I have recently tested a robot where the stop loss was locate to 70 pips for a profit target of 10 pips. An extremely terrible risk to reward ratio. Some also come with no stop loss! A terrible risk to reward ratio is just the best recipe for blowing outside your trading account.
Immediately most robots developers boast with the accuracy of their robot. They claim numbers like 84% or 90% strike rate and alike large numbers. Intuitively you will reckon that “I will win most of the age, so it is not a difficulty”. However the inquiry you should inquiry first is, “How much the robot loses when it hits a terrible trade?”. How about 2 or 3 successive terrible trades? Does your account survive in this condition?
The second cause why robots fail is since they can’t feel the market. They are robots – a piece of software logically written to do specific tasks. They cannot reckon. They cannot analyze the charts the path you do. They cannot identify potential turning points for the market like strong resistance / support levels, trend lines and pivot levels just to designation a hardly any. They are not programmed to analyze these. If the developer has programmed a profit target of 30 pips, the robot will keep waiting until the profit target or your stop loss is reached.
Furthermore what if the market is slowing down and it seems that the go has no more fuel to go forward? The robot will keep waiting, however a trader will close the trade at a profit much if it is smaller than the normally targeted profit. In the meantime the robot is still waiting, and the worst that can happen is that the value reverses and hits your stop loss.
On the other palm, what if the go is so strong, that it reaches your profit target in hardly any minutes or hours? Your robot has closed the trade at the programmed profit target, however again the robot is not feeling that the go is so strong and the trade has more fuel to burn. A trader will close half of the position and leave the remaining part riding the go for more profits. In this condition, the robot could have made more profits, however it has again failed to do so.
Since robots cannot analyze the charts properly, they are not able to place stop losses and profit targets appropriately. They also are not able to stay outside of the market much though there is a trade setup. They just enter the trade blindly. This is the third cause why they fail.
If for example there is an entry setup to go extended and a daily trend border or one of the pivot levels or both are a hardly any pips away, a professional trader will simply wait and observe the value action of what is going to happen at these strong resistance points. It is very common that the value will reverse at these levels, hence the trader will go small however the robot will go extended. Then you wonder why a trade went incorrect!
This reasoning also applies to strategically place your stop losses and your profit targets. Your stop losses and profit targets most of the age must be below strong resistance levels for acquire trades and vice versa for sell trades.
This kind of analysis is done intuitively by a trader, however it is impossible for any Forex EA.
These are just 3 major technical points why most robots fail, and fail miserably. So before you acquire any robot, analyze the robot’s drawdown, see if any forward check results are provided and whether or not the EA will be updated in the prospect.
Jason Pace is a forex trader and also a Forex Robots developer and tester. He runs a popular website dedicated solely to profitable Forex EAs. Visit the site now at Forex EA Currently he is also testing thoroughly a new unique robot, Forex Crescendo and you can see the amazing profitable results at Forex Crescendo Review