How to Choose the Best Forex Robot
When I look around the various forex forums, you almost always invariably see a post from a newbie asking, "What is the best EA?" or "Which is the most profitable forex robot?", in the vain hope that relying on a total strangers judgment will save them months of trial and error and reward them with instant riches. If only it were that simple we would all be millionaires without having to barely lift a finger. Since we are firmly entrenched in reality we know it doesn't happen that way unless you win the lottery.
So what do you need to look for in a Forex Robot? Here are some of the characteristics to look for or avoid when you are looking to narrow down the short list of Forex Robots to buy. This is based on my own experience of testing and developing Metatrader EA's over the last five years.
1) Avoid forex EA's that only offer back tests as verification of their profitability. Back tests are simulations only against tick data (price data from a broker or third party source), hence they are not an accurate or true reflection of trading in actual market conditions. Delays in trade execution and slippage can severely effect the profitability of the robot. Another great danger of back testing is that it is easy to "curve fit" or over optimize the settings on the Robot to suit the available data. So what you have is a robot that has been optimized to suit historical data, rather than one that is flexible enough to adapt to current market conditions. The forex market, like all markets changes "personality" over time and hence historical data is in now way a true indication of what will transpire in future.
To sum up the back testing argument, with the benefit of hindsight it is quite simple to optimize an EA to produce a profit, unfortunately in live trading we cannot benefit from this luxury. Hence back testing is not a good indicator of the future profitability of a forex robot.
2) Look for live trading statements of actual real money accounts. ie. Not demo accounts. not only do demo account data feeds sometimes vary in price and speed they also do not give an accurate representation of the speed and accuracy of trade execution, no matter what your broker tells you, even if the price data is the same, the trade execution will vary enough to greatly effect your profitability. The longer the period of live trading statements the better, but be aware of any gaps in the statements which might indicate "cherry picking" or selective use of trading statements for a particularly successful week or month or even 3 months.
3) Be aware of the trading conditions of your chosen broker, that is, be aware of any restrictions on minimum take profits and stoplosses, as well as spreads and leverage which may effect the operation of your EA. Also recent NFA rules regarding hedging and FIFO may also effect the operation of your robot, so be aware of this if you are using an NFA registered broker.
4) Avoid forex eas or robots that rely on a take profit that it too small, or the average win is too small. ie. the difference in the average win and the average loss. If the difference between a win or a loss is too small, relatively small changes in slippage and trade execution can severely effect profitability.
5) Be aware of the type of money management (if any) is used on the forex robot. Many robots use some form of Martingale Theory, which effectively stacks lots or doubles lot sizes when a losing trade occurs. If the robot uses this form of money management there is a very real chance of over leveraging in the event of prolonged periods of drawdown.
6) Avoid Forex Robots which have a win to loss ration of greater than 80%, some might suggest 70%, but we could debate that ad nauseum. The fact is that to achieve these very high win loss ratios you must also carry floating losses or losing trades for extended periods before they may or may not realize a profit. This usually indicates that trades either do not have a stop loss present or carry an extremely wide stop loss, either of which is potentially dangerous to your trading account. Time after time I have seen these types of trading systems come unstuck after the worst case scenario happens.
By observing these 5 rules you will be able to better identify forex robots that are more likely to produce a profit over a longer period of time, but like everything in life there are no guarantees. As mentioned earlier the forex market does change personality and just because a robot has performed well for 2 years it doesn't mean that it will continue to perform.
Article Source: http://EzineArticles.com/3131641
When I look around the various forex forums, you almost always invariably see a post from a newbie asking, "What is the best EA?" or "Which is the most profitable forex robot?", in the vain hope that relying on a total strangers judgment will save them months of trial and error and reward them with instant riches. If only it were that simple we would all be millionaires without having to barely lift a finger. Since we are firmly entrenched in reality we know it doesn't happen that way unless you win the lottery.
So what do you need to look for in a Forex Robot? Here are some of the characteristics to look for or avoid when you are looking to narrow down the short list of Forex Robots to buy. This is based on my own experience of testing and developing Metatrader EA's over the last five years.
1) Avoid forex EA's that only offer back tests as verification of their profitability. Back tests are simulations only against tick data (price data from a broker or third party source), hence they are not an accurate or true reflection of trading in actual market conditions. Delays in trade execution and slippage can severely effect the profitability of the robot. Another great danger of back testing is that it is easy to "curve fit" or over optimize the settings on the Robot to suit the available data. So what you have is a robot that has been optimized to suit historical data, rather than one that is flexible enough to adapt to current market conditions. The forex market, like all markets changes "personality" over time and hence historical data is in now way a true indication of what will transpire in future.
To sum up the back testing argument, with the benefit of hindsight it is quite simple to optimize an EA to produce a profit, unfortunately in live trading we cannot benefit from this luxury. Hence back testing is not a good indicator of the future profitability of a forex robot.
2) Look for live trading statements of actual real money accounts. ie. Not demo accounts. not only do demo account data feeds sometimes vary in price and speed they also do not give an accurate representation of the speed and accuracy of trade execution, no matter what your broker tells you, even if the price data is the same, the trade execution will vary enough to greatly effect your profitability. The longer the period of live trading statements the better, but be aware of any gaps in the statements which might indicate "cherry picking" or selective use of trading statements for a particularly successful week or month or even 3 months.
3) Be aware of the trading conditions of your chosen broker, that is, be aware of any restrictions on minimum take profits and stoplosses, as well as spreads and leverage which may effect the operation of your EA. Also recent NFA rules regarding hedging and FIFO may also effect the operation of your robot, so be aware of this if you are using an NFA registered broker.
4) Avoid forex eas or robots that rely on a take profit that it too small, or the average win is too small. ie. the difference in the average win and the average loss. If the difference between a win or a loss is too small, relatively small changes in slippage and trade execution can severely effect profitability.
5) Be aware of the type of money management (if any) is used on the forex robot. Many robots use some form of Martingale Theory, which effectively stacks lots or doubles lot sizes when a losing trade occurs. If the robot uses this form of money management there is a very real chance of over leveraging in the event of prolonged periods of drawdown.
6) Avoid Forex Robots which have a win to loss ration of greater than 80%, some might suggest 70%, but we could debate that ad nauseum. The fact is that to achieve these very high win loss ratios you must also carry floating losses or losing trades for extended periods before they may or may not realize a profit. This usually indicates that trades either do not have a stop loss present or carry an extremely wide stop loss, either of which is potentially dangerous to your trading account. Time after time I have seen these types of trading systems come unstuck after the worst case scenario happens.
By observing these 5 rules you will be able to better identify forex robots that are more likely to produce a profit over a longer period of time, but like everything in life there are no guarantees. As mentioned earlier the forex market does change personality and just because a robot has performed well for 2 years it doesn't mean that it will continue to perform.
Article Source: http://EzineArticles.com/3131641
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