A little known fact regarding the Forex market is that during the last few years, “robot” trading has grown exponentially. Robots are just automated programs designed mathematically and based on market patterns.
What’s wrong with Robots: They are not successful.
Of course, people boast about someone who converted a few thousand into a hundred thousand in only a week… yet this is false. The hype is based on historical trading that is ‘hypothetical’.
Fact: The majority of Forex traders who rely on Forex robots lose money.
Fact: The reason that robots don’t make a profit is the unbalanced risk management strategy integrated into their system.
Three pips, seven pips, nine pips – the quick, small profits are what the Robots seek. Naturally, over the period of trades, the Robot’s ‘Winning Percentage’ will be high percentages of 85-95% winners.
However, there is a serious problem with the Robots: their stop losses are out of whack with typical reward to risk ratios, normally approximately 1:5 or 1:10. (In other words you, the trader, are putting $10 at risk to try to win $1. In betting circles, this is referred to as a sucker’s bet, with you in the losing role.)
This is the true situation regarding those Robots: The stop losses are set so wide that any profits from all your winners can evaporate with just ONE TRADE. The reason is that the gains you realize on the winners pale in comparison to the losses you take with the risk that is built-in – or not.
The amount of winning trades is the opposite of the size of the reward/risk ratio. The higher your percentage of winning trades, the lower your reward ratio will be; conversely, the lower the percentage of your winning trades, the higher your reward ratio will be.
Your reward to risk ratio will be around 1:10 if the Robot claims to have 90% winning trades.
The facts? Do not focus on the ‘winning percentages‘; rather concentrate on risk management in each trade and in maintaining the risk to reward ratio in YOUR favor.
View this video and see the proof that this concept can make a major change in your Forex trading:
http://www.theforexnittygritty.com/private-forex-training