Should I buy commercial forex robots?

commercial forex robots

The answer is yes, but before jumping onboard there are a few things you should consider if you care about your money. Don’t forget that if someone sells you something, he’s after your money first. It’s not something bad to be after money but it stays goods as long as the integrity and honesty are still there.  How many times did you buy something driven by greed just to regret after? The following advices may be hard to follow if you are after a quick buck, but following them is the only way to keep your money safe.

1. The vendor. Is he a reputable and trusted vendor? By trusted and reputable I mean honest. His previous systems may have failed but failure is part of the game, scamming customers isn’t. Is he supportive, helpful and polite? And most important, did he honor refund requests? Almost forgot, did he have a refund policy in the first place? If he doesn’t a refund request, don’t bother to buy. No refund policy = no buy policy for me.

2. Does he have a myfxbook verified live account? If he doesn’t, don’t bother. The results shown on demo account are almost useless for real live trading because you don’t have low execution times, slippage and high spreads on demo. Demo accounts are offered by brokers in order to make you jump onboard where different conditions are to be expected. Scalping for example works great on demo, but don’t work at all on a live account. Do having a live verified account is a must. I usually don’t care about the starting balance as long as the account is live and the history is long enough (4-6 months, the longer, the better).

3. Do you know how the strategy works? If they don’t tell you that, don’t bother. You have the right to know what you buy. It’s like buying a car without technical specification. Buying blind leads to disaster. Don’t be blinded by the stellar performance displayed on myfxbook, it’s more important to know at what risk those money were made. For example, a martingale strategy can double your money in the first month, only to lose them in a day.

4. What is the risk/reward ratio? For example risking 100 pips just to make 10 pips is crazy, sooner or later the system will fail and you loose all your money. Or it takes ages to recover.

5. What is the maximum historical drawdown in pips? If you don’t know this, you don’t know how to set the risk. If the maximum historical drawdown is 1000 pips and your starting balance is $1,000 then don’t risk more than 0.01 lots per trade under no circumstance. Do the math and you’ll find out why.  Maximum historical drawdown and stop loss level(s) are the most important part in understanding how to set the risk properly.

6. Do they have backtests, at least 12 years? If not, don’t bother. Of course, backtests represent the past and money are made in the future but considering the fact that history tend to repeat itself (the most basic principle of technical analysis) how can we assume it will perform better in the future? It’s like winning a real competition when I’m not even able to perform decent in the gym. If the forex robot passes the backtests with a decent drawdown then it has a chance to survive in real live (it’s not a guarantee of future success of course, but it has an edge).

7. What is the frequency of trading? More trading = more statistical relevance. It’s very easy to build a system that trades 100 times during 12 years with almost 0% drawdown! Curve fitting is the key.:) But it’;s very hard to curve fit a system that has more than 3000 trades during 12 years. A reasonable amount of trades should be 1500+ during 12 years.

8. Statistical distribution of profits. Are the profits distributed almost equally during 12 years? If not, then curve fitting or hardcoded data are top be suspected. A good forex robot must return the same average profit every year, this means it can survive and remain profitable under any market conditions.

9. What is the average annual profit / maximum historical drawdown ratio? This ratio should always be greater than 1.2 in the worst case. Please consider that the maximum historical drawdown can happen anytime, even tomorrow. For example, backtests show a profit of 14,000 pips and a maximum historical drawdown of 800 pips. Does it worth trading? Average annual profit is 14000 / 12 = 1166 pips. AAP / Max DD = 1166 / 800 = 1.45. Is a good result, not great, but good.

10. How long is the drawdown period? If the drawdown period is longer than an year and all other factors are good, the EA is still a good EA. But in this case it should trade along with other EAs within a portfolio, please read my article about how to built a successful portfolio. Diversification is the key.

But them at your own risk if you don’t consider those advices. I learned that the hard way as a customer, as a developer and as a vendor. 🙂

If you like my article and you find it useful, why don’t you share the knowledge with others? Don’t be selfish 🙂