Opinion about trading robots
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Trading robots are a great success with private individuals. It must be said that the arguments put forward by the salespeople give you something to dream about: Effortlessly earn money for a sum of money to acquire the trading robot. Is this a scam?
A trading robot can be based on technical or fundamental elements. Robots sold to private individuals are only related to technical analysis. It is actually a simple combination of technical indicators (or in some cases to a single indicator) that provides buy/sell signals. The trading strategy used is therefore in most cases simplistic.
The indicators used are also visible on the seller's website or in the trading robot ‘sconfiguration tool (if it exists). Not surprisingly, we regularly find moving averages, RSI, MACD, stochastics, etc. (The most common technical indicators).
The selling price is justified by the so-called magic adjustment that the designer of the trading robot has found. This is what makes the trading strategy a winning one. To be able to obtain this configuration, you must therefore pay to acquire the trading robot.
Don’t believe that the more expensive a robot is, the more efficient it is. The selling price has nothing to do with the performance achieved. The price of a trading robot depends on the complexity of the code. The more time the coder has to spend coding the strategy, the higher the price of the robot. As I told you earlier, almost all the strategies used are simple. A trading robot sold for several hundred or several thousand euros is, in most cases, a scam. The seller is just looking to make the most from selling his trading robot.
If you look at trading robots’ advertised performance, most make at least 50% in the year or even several hundred percent for some. Be aware that any performance is associated with a level of risk. The higher the performance, the higher the risk. Certainly, some trading robots are capable of generating such performance but they are also capable of razing your trading account in the event of adverse market conditions. The higher the performance advertised, the greater the risk of being ripped off and losing money.
A trading robot’s performance is based on the past. To sell his product, a seller therefore seeks to maximize his robot’s performance over a given period and so advertise a strong performance curve. The trading robot is therefore optimized to generate the best performance under past trading conditions. The problem is that in financial markets, trading conditions (volatility) are constantly changing. For this reason, past performance is no guarantee of future performance.
In addition to performance, you can detect a scam by the shape of the performance curve advertised by the trading robot. If the curve is constantly increasing, it is a scam. No trading strategy is able to generate consistent performance without any loss phase. On a performance curve, these loss phases are symbolized by bearish peaks. The performance curve must therefore have bearish phases.
Finally, it should be noted that a lot of trading robot backtests are performed without taking into account transaction cost or spread (and its movements). A robot can very easily display several hundred percent in performance, but ultimately not be profitable if we apply real market conditions to it.
Here are some things you should definitely look at before buying your trading robot:
- Backtest period: The shorter the backtest period, the greater the risk of being a victim of a scam. In the professional world, we believe that a trading strategy must be tested over at least 2 years to be legitimate and this is a minimum! If the backtest period is shorter, do not buy the trading robot.
- Real account or demo account: To judge the quality of a trading robot, it is better if the backtest distributed by the seller is on a real account. This does not mean that the robot’s seller cannot complete the backtest using a demo account so as to have a longer backtest period. If the robot is so powerful, why wouldn't its designer use it on a real account with his own money? If the seller is unable to provide you with proof of a real test, there is a good chance it will be a scam.
- Drawdown: This is the maximum loss recorded on the trading account over a given period. It is important to compare the trading robot’s performance and drawdown over the same period to obtain the trading strategy’s risk/return ratio. The most important is the annual drawdown. This is what you could lose if you buy the trading robot. You should avoid all trading robots with a drawdown that is too significant for the performance generated as well as those with a drawdown that is too high. For example, do not buy a trading robot with a drawdown of several tens of percent. After that, it all depends on your level of risk aversion.
- Monitor current positions: On social trading sites, there are many accounts with attractive performance and acceptable drawdown. But be careful, a lot of social trading sites do not take into account unclosed positions. To have good statistics, it is therefore enough not to close your losing positions. To attract as many customers as possible, the trading robot’s designer may have included a prohibition on closing positions that are too low to optimize his statistics in his strategy.
If, despite all these warnings, you still buy a trading robot, here are some rules you should follow:
- Monitor the positions taken by the trading robot: You must imperatively see if the trading robot is working correctly and places orders correctly (especially stop losses!).
- Use micro batches: Even if all trading robots have backtests, there is nothing like testing it yourself. For this, there is no need to take large position sizes. Risk the minimum to see if the trading robot is working well and if the displayed performance matches what you get. Test the trading robot over a period of at least 1 month while minimizing your risk. It's just a matter of not having any unpleasant surprises and not losing all your savings. Even if the test is successful, never risk too much of your savings! You must always diversify your investments.
- Limit the number of positions: To avoid any unpleasant surprises, limit the number of simultaneous positions taken by the trading robot. The more positions you take, the greater your risk. Leverage is not calculated in relation to the size of a position but in relation to the size of all your positions!
Among the multitude of trading robots that can be found on the net, almost all of them are there to enrich the robot seller rather than the customer (i.e. you). Good trading robots exist but they are rare, very rare. First, you can immediately eliminate all sites dedicated solely to the sale of trading robots. These sites are sure to be scams. If their trading robots worked so well, they wouldn't bother selling it to get a few hundred euros from private individuals every month.
In my opinion, a good trading robot should have 2 characteristics:
- Be fully configurable: On the financial markets, trading conditions are constantly changing. You must therefore be able to change the parameters of the trading robot to adapt to these changes. The problem is that it is often difficult to change a strategy that you have not designed yourself. Most people who buy trading robots don't even try to understand how they work, they just want to make money effortlessly. A trading robot can be a winner for 1 or 2 months and then raze your trading account afterwards.
- Be free: Very often, high-performance trading robots are developed by a real company (a broker, a trading site, etc.). Indeed, developing a high-performance robot requires time and sound expertise. This is a must for combining mastery of trading and programming. This is rarely the case for a private individual. Offering a high-performance trading robot attracts new customers and visitors is therefore a plus for the company. Offering it for free enables the company to clear its name in the event that the trading robot generates losses.
It is better to avoid trading robots. It won't make you money, but it will keep you from losing money. Be careful, I'm not saying that automatic trading doesn't have its advantages. It makes it possible to remove the emotional aspect of trading, a source of loss for individuals. If you want to use a trading robot, it is better to find your own trading strategy and have it coded later. That's a good trading robot! You can always test the trading robots you find on the net, but only those that are free. It doesn't cost anything to try and who knows, you may be lucky to find a nice surprise.
The price of the trading robot: the first screening factor
A trading robot can be based on technical or fundamental elements. Robots sold to private individuals are only related to technical analysis. It is actually a simple combination of technical indicators (or in some cases to a single indicator) that provides buy/sell signals. The trading strategy used is therefore in most cases simplistic.
The indicators used are also visible on the seller's website or in the trading robot ‘sconfiguration tool (if it exists). Not surprisingly, we regularly find moving averages, RSI, MACD, stochastics, etc. (The most common technical indicators).
The selling price is justified by the so-called magic adjustment that the designer of the trading robot has found. This is what makes the trading strategy a winning one. To be able to obtain this configuration, you must therefore pay to acquire the trading robot.
Don’t believe that the more expensive a robot is, the more efficient it is. The selling price has nothing to do with the performance achieved. The price of a trading robot depends on the complexity of the code. The more time the coder has to spend coding the strategy, the higher the price of the robot. As I told you earlier, almost all the strategies used are simple. A trading robot sold for several hundred or several thousand euros is, in most cases, a scam. The seller is just looking to make the most from selling his trading robot.
Beware of trading robots’ performance!
If you look at trading robots’ advertised performance, most make at least 50% in the year or even several hundred percent for some. Be aware that any performance is associated with a level of risk. The higher the performance, the higher the risk. Certainly, some trading robots are capable of generating such performance but they are also capable of razing your trading account in the event of adverse market conditions. The higher the performance advertised, the greater the risk of being ripped off and losing money.
A trading robot’s performance is based on the past. To sell his product, a seller therefore seeks to maximize his robot’s performance over a given period and so advertise a strong performance curve. The trading robot is therefore optimized to generate the best performance under past trading conditions. The problem is that in financial markets, trading conditions (volatility) are constantly changing. For this reason, past performance is no guarantee of future performance.
In addition to performance, you can detect a scam by the shape of the performance curve advertised by the trading robot. If the curve is constantly increasing, it is a scam. No trading strategy is able to generate consistent performance without any loss phase. On a performance curve, these loss phases are symbolized by bearish peaks. The performance curve must therefore have bearish phases.
Finally, it should be noted that a lot of trading robot backtests are performed without taking into account transaction cost or spread (and its movements). A robot can very easily display several hundred percent in performance, but ultimately not be profitable if we apply real market conditions to it.
How to detect trading robots scams?
Here are some things you should definitely look at before buying your trading robot:
- Backtest period: The shorter the backtest period, the greater the risk of being a victim of a scam. In the professional world, we believe that a trading strategy must be tested over at least 2 years to be legitimate and this is a minimum! If the backtest period is shorter, do not buy the trading robot.
- Real account or demo account: To judge the quality of a trading robot, it is better if the backtest distributed by the seller is on a real account. This does not mean that the robot’s seller cannot complete the backtest using a demo account so as to have a longer backtest period. If the robot is so powerful, why wouldn't its designer use it on a real account with his own money? If the seller is unable to provide you with proof of a real test, there is a good chance it will be a scam.
- Drawdown: This is the maximum loss recorded on the trading account over a given period. It is important to compare the trading robot’s performance and drawdown over the same period to obtain the trading strategy’s risk/return ratio. The most important is the annual drawdown. This is what you could lose if you buy the trading robot. You should avoid all trading robots with a drawdown that is too significant for the performance generated as well as those with a drawdown that is too high. For example, do not buy a trading robot with a drawdown of several tens of percent. After that, it all depends on your level of risk aversion.
- Monitor current positions: On social trading sites, there are many accounts with attractive performance and acceptable drawdown. But be careful, a lot of social trading sites do not take into account unclosed positions. To have good statistics, it is therefore enough not to close your losing positions. To attract as many customers as possible, the trading robot’s designer may have included a prohibition on closing positions that are too low to optimize his statistics in his strategy.
Some tips to follow
If, despite all these warnings, you still buy a trading robot, here are some rules you should follow:
- Monitor the positions taken by the trading robot: You must imperatively see if the trading robot is working correctly and places orders correctly (especially stop losses!).
- Use micro batches: Even if all trading robots have backtests, there is nothing like testing it yourself. For this, there is no need to take large position sizes. Risk the minimum to see if the trading robot is working well and if the displayed performance matches what you get. Test the trading robot over a period of at least 1 month while minimizing your risk. It's just a matter of not having any unpleasant surprises and not losing all your savings. Even if the test is successful, never risk too much of your savings! You must always diversify your investments.
- Limit the number of positions: To avoid any unpleasant surprises, limit the number of simultaneous positions taken by the trading robot. The more positions you take, the greater your risk. Leverage is not calculated in relation to the size of a position but in relation to the size of all your positions!
Is there such a thing as a good trading robot?
Among the multitude of trading robots that can be found on the net, almost all of them are there to enrich the robot seller rather than the customer (i.e. you). Good trading robots exist but they are rare, very rare. First, you can immediately eliminate all sites dedicated solely to the sale of trading robots. These sites are sure to be scams. If their trading robots worked so well, they wouldn't bother selling it to get a few hundred euros from private individuals every month.
In my opinion, a good trading robot should have 2 characteristics:
- Be fully configurable: On the financial markets, trading conditions are constantly changing. You must therefore be able to change the parameters of the trading robot to adapt to these changes. The problem is that it is often difficult to change a strategy that you have not designed yourself. Most people who buy trading robots don't even try to understand how they work, they just want to make money effortlessly. A trading robot can be a winner for 1 or 2 months and then raze your trading account afterwards.
- Be free: Very often, high-performance trading robots are developed by a real company (a broker, a trading site, etc.). Indeed, developing a high-performance robot requires time and sound expertise. This is a must for combining mastery of trading and programming. This is rarely the case for a private individual. Offering a high-performance trading robot attracts new customers and visitors is therefore a plus for the company. Offering it for free enables the company to clear its name in the event that the trading robot generates losses.
Conclusion
It is better to avoid trading robots. It won't make you money, but it will keep you from losing money. Be careful, I'm not saying that automatic trading doesn't have its advantages. It makes it possible to remove the emotional aspect of trading, a source of loss for individuals. If you want to use a trading robot, it is better to find your own trading strategy and have it coded later. That's a good trading robot! You can always test the trading robots you find on the net, but only those that are free. It doesn't cost anything to try and who knows, you may be lucky to find a nice surprise.
