What is a trading robot?

Trading is a versatile activity, due to the different methods or approaches with which traders can approach the markets. There are different types of trader profiles and each participant can have tools adapted to his means and availability.
There are traders who wish to participate actively in the markets, by manually taking their buying positions and sale. Others, being less available, will use trading robots, which can be of great use to both the individual and professional trader.

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Trading can take a lot of research and backtesting to find a profitable strategy in the markets. After finding a strategy that suits you, it usually takes a lot of time to scan the charts, or economic indicators to find the best entry points. In short, trading is time-consuming.

A trading bot is a program designed to monitor the market automatically and place buy and sell orders itself, when pre-defined conditions are found. It therefore works by following an algorithm defined in advance.

Trading robots are not limited to placing orders on live prices of market assets. They can also help you backtest faster from the history of a given asset. A robot can indeed roll out a time interval very quickly in order to trade virtually according to the conditions you have given it in parameters.

How do trading robots operate ?

The trader who intends to use a trading robot wants to automate his trading, so as to spend less time observing the charts, or, more generally, following the markets. Robots, on the other hand, can monitor the markets continuously around the clock.

Some robots are programmed to follow several markets, up to several dozen. An intraday trader cannot follow so many markets at once without jeopardizing theeffectiveness of his strategy.

Trading robots are designed to take multiple input parameters. The programmer also defines the conditions that will generate trading signals. The program will take care of opening buy and sell positions when a signal occurs.

The advantage is that even in an unstable and confused market, the robot can trade well without being influenced by factors outside the market.

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Robots for all market conditions

Markets change their behavior from time to time. We have strong trending markets as well as stable trending markets. The price action can also be in a range, we then speak of a neutral trend.

There are trading robots for all market conditions.

Trend following robot

The trend trading robot will open positions following the prevailing market trend. It will therefore be necessary to define in the program how to define a trend.

Once the trend is set, the program executes trading signals that are consistent with it. Contrary signals will therefore be ignored.

For this type of robot, it will be important to define the conditions that mark the end of a trend, so that the robot stops trading when there is no longer a clear trend in the market in question.

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Robot de trading range

By developing this type of robots, the programmer tries to exploit calm and low-volatility markets, therefore without any particular direction. The goal will therefore be to buy high and sell low. This kind of robot is easy to program and can easily depend on a technical indicator like theRSI.

After choosing a fairly stable market, the robot therefore monitors the technical indicators. When the market is overbought, it goes short. Conversely, when the market is oversold, the program switches to buying.

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High frequency trading robots

These robots are very sophisticated and are often developed by financial institutions. They can place hundreds of buy and sell orders in seconds. So they are very competitive.

The purpose of these robots is to exploit small, very regular market fluctuations. High-frequency trading is increasingly developed in the financial markets. We will see in another article why financial institutions are using it more and more frequently.

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How to use a trading robot ?

Trading robots are not programs in their own right. They are therefore integrated into existing trading platforms. They integrate these trading platforms as a plugin.

Each trading platform therefore has its own programming language to create robots or technical indicators.

For exemple,MetaTrader 4 (MT4) is the most popular trading platform. The trading robots on this platform are called Expert Advisors or EA. These are developed in the MQL4 language (MetaQuotes Language 4). It is a programming language very easy to understand and which allows you to automate your strategy on MT4.

Trading platforms often offer backtesting tools. After programming your robot, you can test it to see if the program works and is profitable with the history of a given asset. However, it should be noted that the results obtained in backtesting may be different from the performance that you would obtain in the market in real trading.

Conclusion

Robots are very handy programs to automate your trading strategies. They are ideal for traders and investors who have little time to monitor the markets. Those without programming knowledge can also buy robots already available online.

These programs also allow you to test several strategies more quickly. They therefore represent a real time saver, when you know that finding profitable strategies is a huge job.

Trading robots are increasingly present in the markets, especially in the United States. CNBC reports that 80% of orders are placed by robots in US equity markets.

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