It's commonly known that most forex traders fail. In fact, it's estimated that 96% of forex traders lose money. Overtime, this trend tends to improve, but for many, it is too late. After posting a series of losses, many new traders will give-up, believing that forex trading is simply not for them.
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Forex trading - like any new initiative - has a learning curve. Learning about the currency markets and basic trading principles solely on a trial and error basis is not a recommended approach for gaining the skills necessary to be a successful forex trader.
2. Unreasonable Expectations
First off, stop believing all the “get-rich quick” hype still perpetrated by some forex dealers. It does not happen overnight and it might take years to gain the experience and insight to turn forex trading into a full-time, successful occupation.
3. Absence of a Sound Trading Plan
A common mistake made by new traders is the lack of a forex trading plan. You must have an overall objective for your trading activities and an exit strategy for each trade.
4. Lack of Discipline
A plan is only of value if you actually have the patience and the discipline to follow it. While this can be very difficult but necessary, if you want to be successful. This is the very reason why discipline to follow through the plan is so fundamental.
5. Failure to Include Stop-Loss and Take Profit Instructions
When you place a market order and leave it open – that is, enter a trade at the market price without instructions to close the order – you are in effect, gambling. For this reason, you should consider adding stop-loss instructions to all open positions.
6. Excessive Leverage
Depending on your experience level, trade leverage can be a powerful tool to help you maximize returns, or it can be the cause of your downfall. You do not trade until you understand how it works.
7. Holding Too Many Open Trades
This happens when too much is happening around you too quickly for you to react. You will en up broke.
8. Holding Losing Positions Too Long
Seasoned traders have the ability to determine when a losing trade is not going to reverse the trend. Rather than “hold and hope”, disciplined traders will take the loss and get out much more quickly.
9. Ignoring Rate Spread Fluctuations
Exchange rate spread is the difference between the bid and the ask price. Spread differentials can fluctuate wildly during the day – sometimes to the point of turning a profitable trade into a losing one.
10. Too Much Greed
Always thinking about the “Big Win” more than effective cash management. How greed can cause you to enter into ridiculous trades.
Make Use Of Forex Robot - An Effective Money Management Solution
Investors certainly need money management programs so they could be further guided when deciding to buy or sell for greatest possible profit. Thus, money management capabilities are deemed essential in forex trading.
It should not be surprised that a forex auto trade system (Forex Robot) may also serve as the best available management of your capital program. This type of system could appropriately apply stop-loss, retracement, and several other real-time parameters that could facilitate not only market timing. Being an ideal money management tool, it might also facilitate using mathematical algorithms and modeling (e.g. Fibonacci formula) for sequencing, analyzing, and automatically placing purchase and sell orders.
No more worrying about market timing when making forex currency trading transactions. The foreign exchange market literally does not sleep since it might be open 24/7 because of different timezones and market trade hours all around the world. The forex auto trade system will ensure sound and timely investment, where ever you are, through its automated trading feature.
What is a Forex Robot?
Very few people have the combination of programming ability and trading skills, most people buy Forex robots from system vendors and are being marketed very aggressively.
You can get lucky to find a Forex robot that works for you and make a lots of money. However since Forex trading is risky, you can also lose all of your money if trading a bad robot. Here are some key factors to focus on that will help you find the best Forex robot for you.
Why use a Forex Robot?
The main purpose of most people wanting to use Forex robots is to make money. However, there are differences in what it means to various people. One person may be satisfied making $20 per week while another may have big ambitions of making millions of dollars.
Finding the best Forex robot is very much dependent on the risk you are willing to take. So you need to decide what you are hoping to get out of your Forex robot and how much you are willing to risk. These numbers or statistical factors such as maximum drawdown, profit factor, expectancy and efficiency.
Normally the robots are designed to take more risk. Someone that wants to make 20-30% per year may not be necessarily looking for the same robot that a person that wants to make 1000% per year. Therefore it is essential to test your robot in a demo and live account to make sure that it works with you. Let see how to do this with minimal risk in this text
What to look for in a Forex Robot?
Let's focus on one very important criterion called robustness.
Generally most Forex robots only work well in certain kinds of markets. This means some work better in range bound markets while others work better in trending markets.
Take for an example you have a robot that does well in a range bound market. If the market is range bound the robot will do well but as soon as the market starts to trend you will start losing. To be successful with this type of robot you must not lose money during the trending market that you made during the range bound market. This is the opposite for robots that do well during a trending market.
To ensure that your robot is sustainable you must perform back and forward testing through all kinds of market conditions. The robot can be considered robust if it sustains it's profitability. You must keep in mind that past results are never an indication of future performance.
Why Test for Robustness?
Next we need to determine the best way to test for it. There two methods testing; Back-testing is testing out the robots success on historical data and forward testing is testing the robots success in real time.
Before purchasing a robot make sure that the robot was back tested and forward tested by the vendor. Also before using the robot, run a back test in Metatrader. A good Forex broker can show you how to do this. Finally run the robot on a demo account to forward test it with play money. If any of these steps fail, you should stop here.
If things look good then test the robot with real money. But run the robot with a micro account by trading micro lots to reduce the risk. This will get you the experience of trading real live money without risking too much.
So the first test is the back test. A back test will hold better value if it has at least 100 trades and covers at least 10000 data points on the chart. For example, if the robot trades on the hourly chart, you need to test at least 10000 hours worth of data. If this back test shows a positive result, do make sure that it was done over a robust period of time that includes a down market, a sideways market and an up market. A easy way to do this is to pull up a chart of the time period you just tested. Go to the frequency that is 1-2 intervals higher than where the test conducted. For example if the test was done on an hourly chart, look at the 4 hour chart or the daily. To make sure that the robot is robust you must see a clear up trend, a clear down trend and a clear sideways range-bound market on this chart. If you see this, it gives better confidence that the robot will not give up a lot of its losses during the market type which it is not conducive to it. However, do keep in mind that past performance is not indicative of future results.
Live Testing
Forward testing is first tested on a demo account. However with many brokers the demo and live price feed can vary. Therefore some robots may do well on a demo but not so well on a live account. Also if the robot trades in a short time frame, execution may be a problem, if it stays in trades for under 2 minutes.
In testing with a live account, you can be extremely aggressive you can use leverage as high as 200:1. However if you want to be conservative you can trade extra small and open up an account with $250 where the value of every pip is only 10 cents.
To make sure that you complete your testing before putting a lot of money on the line, you can set up a micro Forex account on Metatrader 4 and trade every pip at only 10 cents. Many brokers offer flexible contract sizes. This way once you get sufficiently comfortable with your robot you can simply add money to your account and trade it more heavily with mini and standard lots.
What to look for in a Broker
The Forex dealer and investment banker are key components in the Forex robot trading world. Choosing the appropriate dealer and using the various perks and services offered by Forex investment bankers can make the difference between success and failure with your Forex robot.
A Forex dealer is the company that holds your money and clears your trades. An investment banker is the company that refers you to the dealer. Because Forex is so profitable and there is a lot of competition, the investment banker will offer you various perks such as complimentary robot installation, hosting and cash bonuses on your Forex trades.
When looking for a dealer it is essential that you work with a well capitalized firm that is regulated. The safety of your funds is far more important than the perks.
A good way to work with a large, well capitalized firm and at the same time get good perks is to trade your robot with a Forex investment banker. For example if your robot trades 20 lots per month and you are set up to receive a rebate of $5 per lot, you will get $100 for free every month.
Summary
Hopefully after reading this you have learned how to evaluate your goals with a Forex robot. Only you can determine if your robot is robust and in line with your expectations. Also you should now have a better understanding of the key factors involved in the automated system game.
