When looking to buy a trading robot we have to wade through plenty of sales pages. These pages want to show us that we can make $ 10,000's just by buying there automated system.
We are led to believe that easy money is waiting for us. All we need to do is buy their system.
When we use an automated system we are much more likely to make money in the short term. The difficulty is in finding an automated system that will allow us to trade over a much longer time period.
A programmer will use an indicator or many indicators to run their system. These indicator produce the inputs that a computer can read to make trades.
These indicators are tested over historical data to produce a system that will make a profit. By testing the system a developer can refine their trading robot until it is robust enough to make money. We must be aware of a few pitfalls for the developer.
All markets will change over time as they always have. If a automated system is tested only over a short time period, the automated system will only produce results for this type of market.
When the market conditions change the automated system will stop making money. We either need to use different automated systems for different conditions or we need a robust robot that can be used with different conditions.
By looking at a how long a robot has been tested will give us an indicator if a robot is robust. These sales pages will show the length of this testing. If the testing has only been done on a short time period this is an indicator of a potential scam.
By looking at the length of time the automated system has been tested will give us an idea if our trading system will be able to cope with changing market conditions.
Check which vendor is processing the payment of the robot. Some sellers will give you your money back and some will not. Most developers use click bank as they will always give you your money back.
By only buying from vendors who give you your money back gives us the opportunity to test our robot without financial risk. If the robot is rubbish we can get our money back.
Once we have bought our EA we can set it up on the metatrader4 platform. Once we have set it up we can start to test to see if the robot is any good. This can be done with historical data.
IMPORTANT; the historical currency data provided by metatrader4 is not the best. The smallest time frame available in metatrader4 is not the smallest available. This can lead to distorted results. We need to use tick data to get the required results.
First we need to open the trading robots systems parameters to see if we can use a stop loss. This is one of the most important parts of a trading system.
When we use a stop loss we are controlling our trading risk. Another thing to look out for is can we use variable inputs in the robots parameter section. If we can then the robot maybe re-tuned to different market conditions.
If the robot does not have variable parameters or a stop loss then we should ask for our money back. If the robot does have these things we can start to do our testing using our tick data.
We are looking to use the historical data to provide the settings we will use in our forward trading. We do this by first selecting how long we wish to forward trade. This could be weeks or months. Lets say we are forward trading for a week. We would need to back test the previous 2 weeks with various settings.
The settings that cave us the best results over the 2 weeks are then used in our forward trading. After the week of forward trading we would repeat our back testing procedure. This would include the week we had forward tested. This new test would give us our settings for the forward trading.
Now we know that by selecting a trading robot that can be returned to the market can give us an automated way of making money. We also know that only through the use of tick data can we achieve testing results of sufficient quality to make it profitable.