Do Indicators and Trading Robots Really Work?
This is a question that pops up quite a lot. The internet is flooded with a a plethora of Technical Indicators and Trading robots.
Some of them are fee and some of them have ridiculous price tags! A very important question asked by many is whether these things actually work in trading…
The answer to this question is both YES and NO. Oops! That wasn’t the answer you were looking for right?
When I want to know whether something works I first establish what people use it for.
When you want to evaluate whether a knife works you need to know what people use the for. Then, you can evaluate whether it works or not.
There is no value in evaluating a knife on its ability to scoop because people should not use it as a spoon.
So, in the case of Indicators and Trading Robots, first establish what people use them for. Then we can test whether they work or not.
What are Technical Indicators and Trading Robots?
Let us first start by explaining what Indicators and Trading Robots are. We can look at each of the two separately to make it easier to explain.
What are Technical Indicators?
In short, Indicators aim to visually represent changes in either price or volume. This is based on specific mathematical calculations.
Every indicator shows different things in different ways. It all depends on its design and purpose.
For example, traders use Trend Indicators to indicate when markets are trending. Other indicators like Oscillators try to indicate when the market might be turning.
There are thousands of different indicators. Each Indicator show very specific things based on its design and purpose.
What are Trading Robots?
In short, Trading Robots, also known as Expert Advisors, are software programs. These software programs automatically perform specific programed tasks.
Trading Robots can perform all sorts of tasks. These tasks can range from very simple to extremely complicated.
This is one of the reasons why certain Trading Robots are so expensive. This also explains why programmers charge such high amounts to code them.
However, just because something is expensive does not mean that it works!
How do traders use Technical Indicators in Trading?
There are thousands of different Indicators and Trading Robots. All of them perform a specific tasks based on their design.
For example, let us take a Moving Average Indicator. This is one of the most popular Indicators in Forex. It aims to visually indicate the strength and momentum of trending moves.
Then there are Oscillator indicators such as the MACD or Relative Strength Index. These Indicators try to indicate possible turning points or pull backs in the market.
These are only two examples, but there are thousands of different indicators. Most trading platforms comes standard with free Technical Indicators.
Yet, there are lots of programmers who make lots of money by coding custom indicators for traders.
Another important point about Indicators is the settings. Indicators are based on mathematical calculations. Thus, all indicators have different settings to show different things.
This is important. Some indicator settings work better on specific timeframes and specific pairs. The settings will also change based on what it is you want the indicator to indicate.
Due to the changing nature of the market traders need to adjust the settings from time to time. Knowing what the right settings are at which times can be very confusing.
However, there are a bunch of other ways traders use Indicators to assist them with basic tasks. This might include drawing Support and Resistance levels. Other use them to indicate when certain trading sessions open and close.
How are Trading Robots used in Trading?
Trading Robots are predominantly used as automatic trading programs. They execute and manage trades based on predefined criteria and rules.
Automatic Trading Robots are by far the most popular use for Expert Advisors.
However, there are a bunch of other ways that traders can use Trading Robots for as well. Some of these things include Trade Managers.
Trade Managers are Trading Robots that can help traders manage their risk better. Trading Managers can calculate things like lot size based on preset risk levels etc.
The possibilities are almost endless when it comes to what Trading Robots can do. But, traders need to use them for the right things and for the right reasons.
Can traders trust Indicators and Trading Robots?
It will depend on what you are trying to use them for. Unfortunately, this is an area where the majority of forex scammers make their money.
The FX industry is flooded with fraudsters that promise to make people rich. Normally, this is done through their Indicators and Trading Robots.
You should never believe anyone selling you a get rich quick idea! EVER!
There is no such thing as an Indicator or Trading Robot that can guarantee trading success! It does not exist!
Think about it for a second. If those type of Indicators and Robots existed the Investment banks would be the first to know about it.
Investment banks spend billions on market research every year. They do so to find better ways to anticipate the market.
If they haven’t found that holy grail system by now then it does not exist!
Indicators and Trading Robots can only perform tasks they are programmed to perform. Never place predictive powers on any indicator or Trading Robot.
Indicators can not predict, they can only INDICATE. This is important. If you place your trust in Indicators and Trading Robots you are in for a bumpy ride.
Another important point about Indicators is that they lag. This means, they are always behind the price. The Indicator will only show you there is a strong trend after a strong trend has already occured.
This validates the point that Indicators only indicate and they never predict.
So, can traders really Trust Indicators and Trading Robots?
Yes, they can be trusted to show you what they were programmed to show you. Nothing more and nothing less.
No, they can not be trusted if you place predictive powers on them! They cannot be trusted if you expect them to show you things they were not programmed for.
Important difference between Technical Indicators and Functional Indicators
There is a very important difference between Technical Indicators and Functional Indicators.
Technical Indicators are designed to indicate possible price directions based on mathematical calculations.
But, Functional Indicators are are not used as traditional technical indicators. They are mainly used to simplify basic trading tasks and activities.
A good example would be indicators that reveal the spread of a currency pair on the chart. It is not used to indicate any price direction but is merely there to show the trader what the spread is.
Another example of this is functional indicators that draw support and resistance levels. This is a very mundane task and is much better suited for an indicator as it saves a lot of time and effort.
Using Indicators to assist in a functional way adds value to your trading as it saves time.
Luckily, there are thousands of free functional indicators available on the internet. You’ll find plenty available on google if you know where to look.
Do you really need Indicators and Trading Robots?
It all depends on what you want to use it for. Indicators and Trading Robots can be very useful if you use them in the right ways.
However, they can be VERY DANGEROUS if used in the wrong ways. There are many traders out there who rely way too much on Indicators and Trading Robots.
Traders can rely on Technical Indicators or Trading Robots for really silly things.
For example, using five indicators to tell you that a market is trending is silly in our opinion. It should be simple to differentiate between trending and non-trending prices.
A trader does not need an Indicator or group of Indicators to show him that. If a trader needs Indicators for things that are easy to spot then trading might not be for them.
Also, some traders think the more indicators they have the safer they are. Their charts end up looking like Christmas trees full of different Indicators.
Traders don’t need Indicators to feel safe. They simply need a solid Risk Management plan and they need to trade more selectively.
In some cases, beginner traders like to use Indicators that help them to perform basic tasks. These tasks include things like drawing Trend Lines and Support and Resistance lines.
This might be a good idea for beginners as they lack experience. However, traders should not use those things like a crutch and become dependant on them.
There are very few things that traders really need Indicators and Trading Robots for.
Traders need solid Fundamental Analysis and Price Action skills, not Indicators…
When should traders NOT use Indicators and Trading Robots?
Traders should not use Indicators and Trading Robots to improve their success rate. More Indicators will not increase your success rate. All the indicators in the world will never be able to make you a successful trader.
Do not think Indicators and Trading Robots will help you to lose less trades. No Indicator will magically show traders when to successfully buy and sell.
Traders should not use Indicators and Trading Robots If they think it will make them rich. Nor should they use them just because someone told them it works…
Some traders think Technical Analysis is the only method needed to trade successfully. In this case Traders should not use Indicators as they will never lead to consistency.
Some traders think by adding more Indicators they will get more consistency. But, consistency in trading comes from skills and experience, not from Indicators!
Traders should not use Indicators and Trading Robots as a crutch. Especially not to show them things that are already obvious in the Price Action.
When is it okay for traders to use Indicators and Trading Robots?
Our list would not be complete without some examples of when using Indicators is a good idea.
Traders can use Indicators and Trading Robots if they want to use the tools to help them with mundane tasks. These include things like showing the Spread on the chart. Another example is indicators that show when certain trading sessions open and close.
Traders should use Indicators to help them complete certain time consuming tasks. This may include things like calculating the correct position size faster.
Some Indicators help traders to save time. They can do this by drawing basic price action tools like support and resistance levels. In such cases it is fine to use Indicators and Trading Robots.
There might be other times when it is okay to use Indicators. However, be very selective with the reasons why you use them.
Our Advice on using Indicators and Trading Robots
We use Indicators in our own trading. However, we only use Indicators that help us to perform basic and mundane tasks.
For example, we use an indicator that draws in support and resistance levels. We also use another indicator that automatically draws in the daily pivots.
We also use another indicator that calculates the lot size we need to trade with. This calculation is based on the size of our Stop Loss and our predetermined risk per trade.
This indicator also shows us what our open profit and loss percentage is of all our open trades. Apart from that, we don’t use any other indicators.
We never use any other indicators because we do not need them to trade profitably. In our opinion, the majority of indicators are a distraction.
Do not fall into the trap of looking for that holy grail Indicator or Trading Robot. It does not exist! More Indicators will not make you a better trader.
Trading is a game of skill and will improve as you grow in experience.
So, do Indicators and Trading Robots really work? When traders use them for the right reasons then the the answer is yes.
When people use them for the wrong reasons then then answer is no. It is very easy for traders to place all their reliance on Indicators and Robots.
However, that is just not the way real traders trade. Indicators might be useful, but they are not a requirement.
Traders would be better off building quality Fundamental Analysis and Price Action skills.
Never trust Indicators and Trading Robots to turn you into a successful trader!
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