subject: How To Successfully Use Automated Software In Conjunction With Forex Trading [print this page] While automated forex trading robots can be profitable, it is not simply a case of choosing the most profitable for your favourite forex pair and leaving it to run unattended. Managing the software is an essential part of the process: perhaps the most important. Management can mean the difference between success and failure for a user of robots.
Perhaps even more important than gains, is the amount of drawdown which can be expected. There will always be some losing trades: no trading system is infallible. And statistically there could be a series of losses, leading to substantial totals. As future gains cannot be relied on (losses like this this could mean the market parameters for success have changed), this rightly makes a trader very nervous.
If there is a known expected drawdown based on back-testing, it should be possible to set an expected drawdown amount. Anything exceeding this should immediately set off alarm bells. No one wants to knowingly give back all their profits. Carrying on with a robot in the face of accumulating losses is not the best approach.
Perhaps the best approach is to set a number of consecutive losses or a drawdown amount. Once this is reached, then the operation of the robot should be suspended until market conditions once more make it profitable. This might not happen for some considerable time, making the decision to suspend it a really good one. If the robot quickly resumes being profitable, not too much will have been lost.
Remember, an important rule of successful traders is to minimize losses. A series of daily small profits can quickly grow to huge amounts, and so can losses. While drawdowns are a fact of trading life, they must not be allowed to get too big. A good idea is to keep track of how much profit any software robot has provided, and to keep this in mind when evaluating losses.
It is always possible that the market has moved on, and its characteristics are no longer ideally suited to the software parameters set. Analyze the losses to see if any parameter change would restore profitability. Experience will allow a trader to develop an understanding of what is involved.
The one rule of any successfully trader is not to get too carried away by visions of unbelievable profits. They seem unbelievable because they are: avoid letting advertising hype mislead you! Being realistic in your expectations is just as crucial when using automated forex trading robots as in any other form of trading. Greed is your number one enemy, and can all too easily cloud your judgement.
