- What are trading bots?
- How do they work?
- Should you use them?
- Are trading bots the holy grail?
- What do you think?
What are trading bots?
Trading bots are just software that trades on your behalf. So these software have a set of rules, that are nothing but trading strategies, and it takes trades whenever the conditions are met.
Trading bots can enter, set stop loss, set position size, and even exit the trade as and when it is supposed to, as per the rules.
You can create trading bots to trade in literally any market, any financial asset, at any time of the day, based on whatever strategy you want.
As easy as it may sound, you first need to have a trading strategy that you can quantify and build rules around it, then you’ll need to get those rules coded, and connected with your broker so that it can take trades.
How do they work?
Say that you have rules based strategy just like the one I came with where we can trade using the VWAP indicator.
Now, you may not really have the time to sit in front of the charts the entire day, or you may not be quick enough to enter the trades as and when the opportunity arises.
So, what do you do then? You create a trading bot that will trade the strategy for you.
Like this, you can literally get any strategy coded and build a trading bot around it, and you can capitalize using all of them, without having to take trades manually.
Trading bots are good for diversifying and taking advantage of different strategies rather than being completely exposed to just one.
On top of all this, you can save on the time you’d spend watching charts, and you can also completely get rid of your emotions interfering in trades as the process is completely automated now.
Should you use them?
You may have come across a thing known as Expert Advisor or EAs, and these are nothing but trading bots only.
Now, if you do a simple Google search on trading bots or Expert Advisor, you’ll come across so many of them, but you know what, lots of them are scams.
Well, if you have read this blog post I uploaded on forex scams, then you should already know this.
So, should you use trading bots? Yes, if you can use them, then you should try them out.
There are lots of advantages that automated strategies have, and of course, they have some disadvantages too.
By the way, here’s a trivia for you, Jim Simons, a billionaire hedge fund manager, made all of his money by running a fund that traded only using automated strategies.
So, if you have a strategy that is rules based and has proper logic, you can build a code around it, integrate it with a broker platform, and you can sit back while it takes trades.
Are trading bots the holy grail?
When I said that you should sit back and let the bot trade, did you think that you could sip pina coladas sitting at the beach while the bot makes money for you?
If you did, then you seriously need to reconsider your priorities as you are just on the wrong track. This is the wrong mindset to have and I’ll tell you why.
Trading bots are nothing but a strategy that you would have traded on your own. It will have its ups and downs and losses will be there. It’s only going to make the process easier for you, rest everything will remain the same.
Thinking that a trading bot is the only thing you need to make money is the very thing that these scammers use to lure you into buying useless bots and you end up losing everything.
So instead, what you should be doing is, focus on building a rules based strategy, test it properly, get it coded, and then let it trade for you.
Yes, you can use trading bots built by others, but you need to be extra careful with them and need to find the good ones from all the bad ones out there.
What do you think?
I want to know about your experiences with such trading bots and if you would ever consider using them?
By the way, if you know how to code, then do reach out to me, maybe we could work together to code some strategies and see it goes about.
Don’t forget to share this blog post with others and feel free to ask me anything in the comments section below and I’ll get back to it at the earliest.