Currently there a few methods to trade Forex such as the classic discretionary trading where all trades are manually placed by a trader. But more recently we have seen the surge of popularity for robot trading and signals/ social trading. But can you trust these methods or should you stick to the classic methods? The world of finance is currently shifting over to automation for everything from hedging, execution algorithms, risk systems and so on but these are not the same as the simple EAs built for retail traders. The EAs built for platforms such as MT4 will have a few rigid rules on when it should place a trade and when it should close the trade but it does not actively analyze the market and react to news and other traders like some of the more professional HFT traders use.

EA Trading

Benefits

  • When a system is placed into a robot it can be easily tested in markets as well as back tested against historical data to see the performance. It can then be optimized to find the best settings for its historical performance which can generally be used to predict future performance.
  • The EA will be set to a rigid set of rules which means it will only place a trade if these rules are met which takes out any emotions that some traders could have.
  • It is also less prone to mistakes with the direction of trade, volume or TP/SL levels.
  • You do not have to actively monitor, analyze the market or even be in front of your platform to use this system and many people who work full time like the sound of this option.


Drawbacks

  • Although you can back test against historical data this maybe no indication of future performance so although it may have been very profitable in the past it does not mean that it would be profitable in the future. It can also cause an over confidence if it has been successful in back testing.
  • Continuing with the issue of past performance, the forex market is an ever changing and markets will rarely ever repeat the same exact motions.
  • As the rules are already rigidly set it does not allow traders internal feeling affect the trading. Although this can be seen as a positive it can also mean that sentiment in the market is not taken into account and therefore the EAs may be positioned wrong but due to the rules being met they will still place the trade. 


 

Signals

Signals are a new entry into the forex market where you can follow trading being done on other trader’s platforms, this could be in the form of an EA or a manual trading. This is where you will receive a signal instructing you platform to buy or sell a certain instrument so you copy all trades placed on another account. This seems to be more of a cheap way to find a money manager who will have all the past performance of his trading history available for viewing. Should you trust a signal provided by someone you do not know who maybe on the other side of the world?


Benefits

  • It is much cheaper paying for a signal in most cases compared to finding a money manager.
  • Most signal providers will provide the history of their trading which has been verified.
  • You do not need to be sitting in front of the computer all day and can leave it to fully manage all the trades.



Drawbacks

  • Signals rely on being constantly connected to the internet and signal so if there is an issue where there is a break such as a power cut you can be left vulnerable as nothing is monitoring the open trades and they will stay open until manually closed.
  • Many signal providers also can show amazing profits but if you look further into their trading they leave many of the losing positions open while banking in the profitable ones. This can then cause losses to mount up and can wipe out whole accounts.
  • Most Signal providers will provide a detailed description of the type of trading style they employ but their Signal provider are most likely not regulated and they have very little oversight on what and how they trade.


 

Overall I believe that Signals can be a better way of copy trading than EAs as signals are not all automated system and you can find some very god traders. The main issue is the stability of them and any connections lost could wipe out all profits if not the account. Due to this I will always prefer manual trading on the retail level as the EA that are available or you can develop yourself are extremely basic when compared to what professional are currently using, incorporating AI into trading robots.

Are robots the future of trading?