Before purchasing a Forex robot you should be very well aware of the various drawbacks and not simply get excited from the promises of becoming a millionaire overnight. The opportunity of profiting with Forex robots is definitely there but one must first be aware of the dangers involved to be knowledgeable and therefore make a better decision.
Grid, Hedging, Pyramiding and Martingale
Knowledge in technical analysis does not seem to stifle the forex robot designers.
Indeed, there is more talk of hedging, matrix, pyramiding and martingale than about indicators.
Hedging is the act of opening a short position when it is a long, in order to gain when the market will head in the wrong direction. It is expected that one of the two positions will close with a win. So we ended up keeping positions for weeks hoping they become winners.
Matrices and grids are techniques that include open / close positions every 10, 20 or 50 pips. The danger is that when the market shifts a great deal, the robot must be fast enough to close or open all vulnerable positions.
For example, I knew a robot that used a grid trading system. The idea was that we defined a grid order to pass all 20 pips.
E.g. N is opened at a position of 1 lot.
At n + 20 it is closed with a gain of 20. No problem. This is compounded if 20 is not met.
If it drops below n, the position is reversed by opening a short position of 3 lots.
If the level n – 20 is not reached and it returns over n, we bought six lots.
If it drops below n or sells 12 lots, etc. each time the number of lots purchased or sold, double.
Grid System Trading – Number of Lots
We quickly reached 190 lots in all. As long as the spread is 1 pip, we already have 190 pips negative with the spread. If the spread is greater: Beware!
Presuming the robot cannot close positions in during sudden market fluctuations, we can definitely see the dangers this involves!
Pyramiding and average down accumulate position, either if we are winning or losing.
Martingales are techniques similar to those of card games that consist of doubling or even tripling your positions when you do not win. In this way you can very quickly reach important global positions.
Unfortunately vendors and robot designers will never share with you such information as their goal is to sell you their software and thus generate profit. Purchasing these kind of programs to trade on auto-pilot may sound very tempting, however one should be extremely careful in making the right choice and generate profits instead of losses.