How to Make any Trading Robot into a Trading Superstar
You will find a possible UGLY TRUTH of how with some craftiness one can make practically any trading robot perform with such trading results to make the best professional traders in the world green with envy. You will understand why selling trading robots is a potentially very profitable business. Consequently, you will be able to see marketing campaigns for trading robots in a new light.
What proof do we get for trading results of trading robots?
Have you ever seen a marketing promotion for a trading robot? The promise of trading results (fantastic profits in the shortest period of time) is head spinning.
Have you ever gone to check the web site in the promotion? If you have you saw many charts as proof of successful trades. All those charts could be bogus. This is why buyers of trading robots demand to see trading results.
So trading robots promoters show trading results from their DEMO accounts. But those could also be forged. This is why buyers of trading robots demand to see trading results by logging into the trading account.
So some trading robot promoters allow you to log into their account. And some (very few but nevertheless!) allow you to check their LIVE trading account.
That surely cannot be forged as you will be able to see with your own eyes the trading record in that account which produces the fantastic results. Something like this surely cannot be a scam! Right? WRONG!
Before we reveal how these things could be achieved first consider the information in the next section.
Could hedge funds use a trading robot?
What is a hedge fund?
Wikipedia says: “A hedge fund is an investment fund that can undertake a wider range of investment and trading activities than other funds. … Some hedge funds have a net asset value of several billion dollars…. The estimated size of the global hedge fund industry is US$1.9 trillion.”
The yearly ROI of hedge funds is nothing mind boggling and stays well below 100% which is the so much dreamed about ROI of FX traders: to double the money in a year! Furthermore, in 2011 the average yearly return of the hedge funds was negative. (source: www.hedgefundresearch.com)
Amazing, would you agree? Despite all the supercomputers and hoards of analysts with PhD in mathematics and applied physics hedge funds on average could not beat the S&P index.
Now consider this: How much do you think a hedge fund would pay for a trading robot that makes not 100% per month but say “only” 10% per month? Such a robot would enormously increase the hedge fund’s ROI and hence its equity.
Such robots for Forex trading start from $97. I can firmly state that for sure there are at least a few released per week because I get their marketing promotions into my mailbox. With so many robots which on paper perform so incredibly well don’t you think a hedge fund would buy one or two? And if they bought those robots do you think that the robot price would be $97?
Granted, a hedge fund cannot trade like a retail trader so they cannot use the trading robot the way it is sold. But still, don’t you think that out of all the hundreds of new trading robots released every year hedge funds would find one or two suitable for their trading strategies?
A rather logical answer is: Yes, if those robots worked. But in most cases those trading robots are a waste of money and in many cases a scam.
How could they make a trading robot perform so well?
A note of caution first. I am not saying that what you will read here happens out there plus the explanation is SIMPLIFIED. I have no tangible proof and I don’t intend to search for one. I am simply asking you to expand your frame of thinking to see what COULD be possible and then decide for yourself.
The approach is very simple. Let’s explain it with the use of two accounts.
In the first account the robot enters trades as prescribed by its algorithm. In the second account the robot enters at the same time in the opposite direction.
Where is the stop loss positioned? This is the beauty of this approach. There is no stop loss. As you are 100% hedged, whatever the price is doing in one account the exact opposite is happening in the other account. So if one account is losing 10 pips at a particular point in time the other is winning 10 pips at the exact same time.
We set the robot so that it exits when a certain profit in pips is reached. When in one of the two accounts we get the targeted profit, in the other account we get the same amount of loss. So we theoretically have always the same amount of money in the accounts as when we started.
How does the practical world of trading affect the described approach?
In practice this approach doesn’t work so easily. There is a cost of doing this, at least the spread and the commission (with an ECN broker). Plus the slippage if we do this in a LIVE account.
Also, it is difficult to make things work very well with only two accounts. For example: it is possible that both accounts oscillate around the initial amount because the trading parameters are such that in the current market there is no profit.
How do you improve the chance of not getting stuck in such a scenario?
Imagine you had $50.000 and were in the business of selling bogus robots. You could divide $50.000 into 20 accounts of $2500. Then you do what was described above but now with 10 account pairs for hedging and thus 10 possible trading parameter combinations. There is a reasonably high chance that one of these accounts will produce a very good profit.
Of course, if you want to show proof with a DEMO account then sky is the limit. You set up as many account pairs as you want with as many parameter combinations and voila! With one of them you surely get a trading record out of this world.
By the way, have you ever seen proof of robot performance in a LIVE account of $50,000? I haven’t. Mostly they show you DEMO accounts but if they show you a LIVE account then it has only a few thousand dollars in them.
Isn’t it interesting? The creators of a robot which makes say 100% or whatever per month trade with only a few thousand dollars in a LIVE account, foregoing huge profits each month. It doesn't make a lot of sense!
How profitable could be the business of selling bogus robots?
The cost of doing this depends upon the trading strategy, how much of the profit is eaten up by the spread and the commission and more. But let’s simplify things a bit so we can show what could be going on.
Let’s say that 10% is spent on the spread, the commission and the slippage per account. By the way, if you were doing this professionally I guess you would open all these accounts via an introducing agent and would get 50% of the commission back thus lowering the commission cost.
The cost of running this elaborate scam with $50,000 is therefore $5,000.
How many robots would you need to sell to be profitable? The price of robots varies but if we assume a price of $100 then 50 is the answer.
Here is the big question: do you think you could sell 100 robots all over the world with proof of fantastic performance on a live account? This would give you revenue of $10,000 and the profit of $5,000. So you invest $5,000 to get $5,000. A 100% profit!
You can have for example one such marketing action each month, selling a different fantastically performing robot. Each month you make 100% on your investment.
So yes, such robots are great performers. They can produce 100% profit or more per month. Unfortunately not for their buyers but for their creators and sellers.
Do trading robots work or are they a scam?
There are HFT (high frequency trading) firms that run only machine based trading and are very profitable according to reports. So trading robots definitely work.
Also, not every trading robot is a scam. There are honest development teams around who endeavour hard to come up with trading robots that work well.
However, unfortunately the following is probably true:
Many trading robots don’t work (as expected) and there are trading robots (sold to the public) which are a SCAM.
Once you see the world of trading robots from this perspective you may look at marketing campaigns for selling trading robots from a different angle. You may even SAVE some money BY NOT BUYING a bogus robot.