If you want a strictly technical answer, yes, forex trading robots do work.
The thing is, though, they are tools. And like all tools, the outcome depends on what they are used for, and how well they are used.
So, there are FX traders who comfortably rely on robots for success, while others have problems. Let’s go over why.
What Exactly is an EA?
An Expert Advisor (EA, as they are known on MetaTrader 4) is a bit of software that follows price data from the market, then applies the analysis to it in order to decide when it’s good to enter or close trades.
It has some advantages. For example, it can crunch a lot of data that would otherwise take a human a few hours to review in a fraction of a second. It’s unemotional and will come to the same conclusion whether or not it’s had its first cup of coffee. And it’s available 24/5; it doesn’t need to sleep.
The disadvantages are also rather evident. It’s a forex robot, so it doesn’t think. It doesn’t adjust to changes in market conditions. It’s a purely technical trading device and doesn’t see market-changing news. And it can break; such as lose connection with the server and get bad data.
Types of Robots
You can manage some of these characteristics of robots by choosing among the two different types:
1.- Automatic: These are the forex robots that do everything; you just open them and they will enter and close trades at any time according to the parameters you set.
2.- Semi-Automatic: The robot will do everything short of actually opening/closing the trade. Usually, it will show you the details it has calculated and what you should follow in terms of entry-level, stop loss and take profit. But then you decide whether or not to take the trade.
Note that some people will include indicators as a type of robot, since they track price action, and generate entry and exit signals.
However, that’s usually only for more sophisticated forex trading indicators such as MACD. It’s interesting to mention that there is a blur in the line between trading indicator and robot because the latter relies heavily on the kind of market analysis that indicators do.
So… Do They Make Money?
A lot of forex traders when they are starting out are tempted to use EAs because they seem easy.
But. it takes skill, patience and learning to become really good at Forex. And budding FX traders can be more emotional than they should. EAs seem like an easy way to get around those two problems.
The thing is, though, EAs aren’t without their risks. As mentioned, they don’t react to market news. And they can get out of date as the trading conditions in the market change (ie, trading GBPUSD is a lot different now that before Brexit).
It also can be hard to tell the good from the bad. After all, the reason for beginners to start using an EA is the impediment to judging the EA for yourself: forex market experience and technical knowledge.
Trading with an automatic EA basically means handing over control of your account to a machine – if there is any problem, it will destroy your account.
So, it’s usually better to use a semi-automatic EA, so you can check the trade recommendation before committing.
You can verify the validity of the claims of an EA creator by backtesting it, a convenient feature on MT4. But, as always, past performance doesn’t guarantee future results. Even if you have an EA with a proven track record, you should exercise good money management principles.
EAs have advantages, and you can make money with them. But, you should be cautious and be as informed as possible before doing anything that involves money. As always.