Before you shell out the money required for you to purchase a forex robot for use in your fx trading, you have to be very much aware of all the potential drawbacks. It is easy for people to get sucked in by the promise of millions overnight, and in that mindset, they forget that nothing ever works out 100% as planned, especially in forex trading. There is definitely an opportunity for one to make money using forex robots but you have to be aware of all the dangers involved. This will help you make a more rounded decision on your purchase.
Most robots use Hedging and Martingale in fx trading
One of the major pitfalls of using forex robots is the fact that they will open you up to Hedging and Martingale techniques, which are strategies that are well known to have crashed more accounts than they have been able to build in the past.
Hedging is basically the strategy of opening a position in the opposite direction of a losing trade in the hope of making money on the new direction while hoping that the market will reverse later on and turn the losing trade into a winning one. The problem with this is that, there is no guarantee that the market will get back to your original entry price on the losing trade and it is only a matter of time before the account gets into heavy drawdown. The drawdown will happen a lot faster if the robot opens multiple trades and rusn them in the same manner.
With Martingale, the end result is similar but the practice is different. It is a strategy that was picked up from gamblers. In fx trading, the robot implementing this method of trade management will simply open a new trade with double the lot size used for any trade lost. The idea is to make sure that the next win automatically takes care of the account, while still leaving the trader with decent profits. However just like the first drawback we saw, it often ends in tears for the trader.
Imagine a situation where the robot entered the first trade for you with a 1.0 lot size and doubled it to 2.0 after a loss. If that second trade goes awry as well, the lot size will get increased to 4.0! This throws away all forms of money management and puts the account under heavy risk, especially when the account is not heavily funded.
Unfortunately, many people that get carried away with the percentages promised by most of these sellers do not consider these facts until loss hits them in the face. There have been instances where a robot built an account from $100 to $5000 in a month only to crash the $5000 in the very first week of the second month!
If you must use a robot for your fx trading, your best bet is to use a robot that was developed strictly based on a manual trading system you have used profitably for a period of time.
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