Let’s proceed with
scam disclosure and potential traps that could appear in trading. Today we will
start to talk about trading bots. Later we also touch the topic of trading
signals services and more about scam brokers.
Ok, I’m ready.
Trading bots
Once if you
remember we already have discussed two different approaches to trading –
mechanical systems and analytical ones. Today we will talk about first one, but
not totally just in part related to scammers.
What is a mechanical system or as it also often called bot,
robot, expert advisor and so on? This is some kind of mathematical algorithm
that is based purely on technical analysis and most often on indicators’
application which suggests entry/exit conditions and some money management –
placing stop losses, changing lot sizes and so on. So, call it a bot, because
it generates signals and open/close positions without human participation. You
may sleep, swim, watch a movie or visit your grandma – no matter, the bot will
continue to trade until you will stop it, or… until the margin call on your account. Yes! This is
also possible.
What is the problem
with them?
First, I suggest
you to re-read the chapter, dedicated to comparison of analytical approach to
trading and mechanical ones. Shortly speaking, there are two major problems
with robots – past performance and optimization can’t guarantee success in the
future. Second – robots do break sooner or later. The reason of both failures
is the pauseless market’s mutability.
The market is changing over time; it has to adapt itself so
that most people always lose money, in other words market is changing own
breath. Since market action is just a consequence of trend (up or down) and
sideways action they could change each other with unlimited number of
combinations. This market dynamic hardly could be adapted forever. So, most
trading systems can’t be adapted so that they will be tuned on market dynamics
at all times, so to adjust itself for changing market’s environment. This
should be in this case some kind of intelligent robotics that is not the case
currently. Since most programs past through an optimization process, based on
historical data and there is an assumption that the market will remain unchanged.
So if some bot has worked perfect on historical data – it will supposedly
continue to do so in the future. In reality a really good trading bot will work
for 1-2 years as a maximum. Then it will demand adjustment or even will stop to
work at all.
Relatively more stable trading systems that are based on
volatility breakouts can be designed, but these can fail too.
Another reason is that market could change fundamentally.
For example, imagine that Japan will find huge diggings of some mineral
resources. Or some central bank will change overall economy policy due
political events or something. In other words, if will happen some events that
drastically change the role of some currency and its value. The market will
change in this case.
I understand the problems
with robots and that they could lead to losses, but how is this part of the
scam department?
Very simple.
Scamming here is the way how robots are presented by their promoters. Robots
and their development is not a scamming process. The problem is that even if
robots are junk, many promoters will put up a good front and tell you that this
is a gold mine, and you probably will not need to work any more, just let the
robot bring in all the money you need. Besides, we offer you it for (right
puny) $50-5000. Is it money at all? The next thought you probably will say
next…
Wow, sir, but $50 is
so cheap to get the chance. What if I get lucky and find a good one?
Yes, you’ve said
that…
$50 - it is too small for the change. But be careful – do
not catch lack (of money) instead of luck by taking such a robot. How do you
think, is $50 much or small if it will lead you to loss of you account, say
2000K. Will you be happy if you pay “just” $50 for a $2000 loss?
I guess not.
Right, and now
listen. The most logical question here is:
If you have a gold mine robot that generates millions of
pips daily profit – will you sell it at all? What for?
Second stupid question – will you sell it for $50? Try to
answer by yourself. This robot will produce some profit but only as sell
revenues by scammers to pigeons. I do not know how much it will be in pips…
Ok, maybe this is the
case with raw robots, but what about those that was back-tested?
Well, here are some
chances to success. But, since we are talking about scammers, we will continue
to look at this situation from this point of view:
1. Real and acceptably working trading system will not cost
$50, but the problem is that:
2. If some trading system is expensive, this does not tell
us that it is real and acceptably working one.
3. Back testing could be fabricated. Scammers can use any
numbers that they need instead of real historical quotes to make their system
show you good results. You will probably not investigate the numbers that were
applied in back testing. Sometimes this will be even impossible.
Hm, it looks like
chained circle. So, we can’t deal with robots anyway?
If you have decided
in previous part to not trust your money to stranger (aka manager) why you
intend to do that to some piece of iron that has no brains and does not know
what it is doing?
But hold on, son. I have some recommendations that could be
useful to you.
1. If you are newbie trader and do not have any solid
experience understand nothing in programming and little in trading – stand away
from robots and other stuff of this kind. Your primary target is to learn to
trade with profit consistently;
2. If you trade consistently with profit and decide to dig a
bit robot’s topic – find a good and independent programmer, if it will be your
friend – all the better. Get some basic knowledge of programming, and language,
understand how algorithms work. For example, to program in MT 4 you need
knowledge of build-in MQL language. Examine the code of free indicators and
algorithms that were written by others and so on. Read some books about
development, testing and optimization of mechanical trading systems.
3. Spend some time on the work that we are doing for you
with our performance tests. In fact they could be great, I mean robots, but
they do break – nothing works forever, especially such fragile substances as
trading program. Think about this - Why doesn't Porsche produce trading robots?
I probably will buy one, at least while its warranty valid.
4. And finally – don’t put all your eggs in one basket. Set
aside for robots just a small part of your assets and save the rest for your
personal trading. Indeed, if those robots are really so good, then even small
part assets should be sufficient to become the boss of G. Soros right?
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