Thanks to artificial intelligence algorithms, trading will change forever. Traders can analyze millions of data points and execute trades at the optimal price.
Everyone knows that trading robots have been working in the stock market for a long time. They focus on price movements within trends and channels. Trading robots were designed to help traders who want to use automated trading methods. This article aims to explain what a trading robot is, how it works and what its advantages are.
Trading robot: what is it?
A trading robot is a common term for online brokerage systems which helps determine whether to buy or sell a currency pair at a given time. This system can be fully automated and integrates with online Forex trading platforms or brokers.
In principle, you have to create a trading strategy and follow it manually. However, many users resort to computer programs to implement an automated trading strategy.
Sometimes called FX robots or simply “bots”, they are not physical robots. In reality, these are highly specialized computer programs which were created to perform many different trading functions. These features range from telling traders when to place a trade to automatically placing and managing trades.
Trading robots: how do they work?
Forex trading robots are automated software based on artificial intelligence that generate trading signals. Most of them work with MetaTrader, using the MQL scripting language. In fact, the latter allows you to generate trading signals or place orders and manage transactions. Forex (FX) robots were designed to remove the psychological element from trading.
There are several types of Forex robots on the market, including:
- a ready-to-use trading robot with its own built-in trading rules,
- a system that the trader has designed himself to follow his personal trading strategy.
In fact, buying an automated trading trading system turns out to be much easier than creating one yourself. In fact, traders with limited trading experience should rather opt for a ready-to-use system.
It is important to do research before making a purchase and ensure that the source is reliable. Some of these systems have a good reputation, but others may be below average or even scams. To deal with this situation, backtesting allows you to test what a trading robot can do using historical data. These can then be used to optimize the chosen strategy.
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The different types of automation in trading
Trading robots can be configured differently depending on the results one is looking for.
Fully automated
A fully automated trading system analyzes the market in search of opportunities of trading. It executes transactions electronically on behalf of its user, based on a set of predetermined rules. It automatically generates stop-loss orders, trailing-stops and profit targets as soon as a trade is entered.
Semi-automatic
A semi-automatic system uses a computer program to analyze the foreign exchange markets and look for trading opportunities. Again, it is based on a pre-programmed trading strategy. It then sends the user trading signals with entry prices, stop-loss orders and profit targets. It is up to the trader to decide whether to act on these signals and then enter the trade manually.
As with full automation, this system frees up the trader’s time by doing much of the preliminary work for them.
How is artificial intelligence changing trading?
According to the results of a JPMorgan study in the year 2020, more than 60% of transactions over $10 million were executed using algorithms. The algorithmic trading market will grow by $4 billion by 2024, bringing the total volume to $19 billion. Here are some ways AI is transforming trading.
Machine learning
The out-of-the-box auto trading platform solution improves performance through machine learning and artificial intelligence. In fact, an AI platform can identify large-scale complex trading patterns across multiple markets in real time. It combines machine learning technology and high-speed big data processing power. It becomes a source of ongoing compliance risk assessment for clients.
Deep learning
Analytics tools leverage neural networks and AI to replicate the decisions of humans and use them with much more accurate algorithms. The data science platform democratizes trading. She allows data scientists from all walks of life to produce algorithmic trading strategies that help solve investment problems. Therefore, investor clients can reap the benefits of data science without the need for costly in-house expertise.
Custom AI tools
AI for trading may use voice recognition and natural language processing technology. It saves traders time searching for conversions, financial data, and ratings.
This approach allows tointegrate the latest advances and developments in the field of AI in algorithmic trading technology. It provides protection for trading professionals through advanced authentication, encryption, hardware security modules and more. With an intuitive dashboard interface, users can easily access account details, balances and transaction history.
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Predictive analysis
This approach uses data, statistics and algorithms to determine the probability of trading decisions. Dynamic predictive programming and advanced intelligence tools contribute to this. This move has created a complete ecosystem of products for traders and investors who trust proven technology and understand the future.
They can thus formulate an investment strategy by developing an intelligent asset allocation system that used deep learning to predict each asset in a particular portfolio.
Trading robots: the advantages
Trading robots will therefore gradually revolutionize this area thanks to the many advantages they present.
Easy and transparent
Automated trading systems involve complex technical analysis, but offer traders an easier interface to control. Then, the transparent approach and the possibility of perfecting oneself through backtesting becomes one of the advantages of trading using robots.
Performances
With backtesting, traders have the opportunity toevaluate the performance of a strategy over a certain period of time. A Forex robot can analyze the markets, find opportunities based on predetermined parameters and make trades according to its rules. These operations are done in seconds.
A buoyant market makes it nearly impossible for traders to attend all important political events and central bank meetings. The trading robot can automatically execute the position and react to market movements. Traders can thus divide their time with their busy life without losing trading opportunities.
Diversification
The automated trading system allows traders to easily use multiple demo accounts with different strategies at the same time. Position execution, trade tracking and market research can be done by robots without wasting time. Thus, traders are able toexplore new markets and open up new opportunities potential trading.
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Discipline and emotional control
Traders often involve the emotional side of trading, which will ultimately influence decision making. By using a robot, doubts and other emotional reactions will disappear from the trading process. Indeed, the transaction is carried out automatically when the conditions are met.
Forex robots operate according to a set of predetermined rules that they follow under all circumstances. When humans trade capital, sometimes they struggle to overcome their emotions. For example, fear and greed, as well as their own biases and assumptions. This may cause them to hesitate, prevent them from making trades, make them make bad trades or hold their position too long.
Even if traders have a solid strategy in place, it can be difficult for them to think critically and objectively in the heat of the moment. An automated system eliminates the risk that human emotions can bring to trading.
In general, trading involves making decisions about transactions with assets with the aim of making a profit. All technical analysis is based on statistical data, past market behavior and reactions.
Note, however, that CFDs are complex instruments, the risk of losing money quickly is high due to leverage. Thus, everyone must first assess their own understanding of how they work and determine whether the risks are worth it.