How Do Trading Robots Work?

Trading robot (Expert Advisor) is a special program for trading on the Forex market, which simplifies the trader’s work. Many robots analyze the market independently, find the entry points, and follow the transaction.

There are many advisors, and they all show different efficiency in trading. To choose a suitable assistant, the trader should understand the operation principles of such programs.

Fundamentals of the Work

The work of experts is based on the same methods used by traders. Only in this case the human factor is excluded, and robot takes all decisions based on the clear calculations. Also, the program never goes beyond the strategy set by the developer.

First of all, the advisor analyzes the price dynamics with the help of built-in indicators. Developers can include many indicators in the algorithm, adding extra functions. So the program can independently check the signals, compare them with the algorithms of the strategy, and decide whether to open the positions.

Depending on the strategy used, robots can be divided into several types:

• Trend advisors - this class uses trend indicators, finds a new trend on the chart and opens deals in the trend direction.
• Countertrend - this type is suitable for trading in flat conditions. Typically, the work of such experts is based on oscillators that capture small fluctuations in the value of the asset.
• Scalpers - scalper robots open a large number of short-term deals with a low-level profit. In this case, the success of trading depends on the number of positions and time spent on trading. Some traders consider this type of advisers the most risky ones, but there are programs among scalpers, that bring a stable income, and have gained great popularity.
• Combined - this class includes the advisors that can use several strategies. As a rule, these are several advisors, which it’s possible to switch between, depending on the conditions of the market.
• Experts on the Martingale method - these robots use the popular method of doubling. Many robots of such group involve a high risk.

After the program has analyzed the graph, it automatically determines the favorable points for opening the positions, and then sends the application to the broker. Many experts support various types of orders, such as opening orders, requests for checking the deposit balance, etc. Thanks to the automation, the speed of applications processing is measured in a split second, and the trading process is much faster than with the manual control.

Advantages and Disadvantages

As already mentioned above, the main advantage of experts is the exclusion of the human factor. The robot has no fear, nor excitement, and always exactly follows the trading system.

However, the difference between a robot and a human being is also the main disadvantage of such programs. They are not able to make the non-standard decisions and respond to the unpredictable situations. Even the best experts rarely distinguish the flat condition from the origin of the trend.

For example, if the expert is based on the RSI indicator, it will effectively trade on a quiet market, based on the overbought and oversold zones. However, over time, the situation on the market will change. If the price channel breaks down, the RSI indications will no longer be fair, and if the robot continues to open the transactions against the price movement, it will lead to losses. Also, robots are not able to do the fundamental analysis.

Obviously, any software becomes outdated and loses its relevance with time. In particular, the expert advisors are getting outdated too, because trading strategies are losing effectiveness constantly, and need further development. In this case, you have to buy new robots, which may not even pay off.

Results

To avoid risks, you can use the semi-automated advisors, which will simplify the process of finding the right moments for opening the deals. However, the decision to enter the market will remain yours.

On the other hand, there are effective and proven programs that give a small but stable income. They can be used around the clock, providing a great advantage of the non-stop trading. The user only needs to regularly check his deposit, and withdraw the money earned from it.