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What is a trading robot

  • You have probably heard more than once about trading in financial markets automatically using trading robots. As the cheerful song from the old Soviet film goes: “What progress has come to ... robots work hard, not people.” So what is a trading robot, can it be trusted to trade and can you earn a stable profit with it? I will try to answer these questions as clearly as possible.

    By itself, a trading robot is not at all a complex technical device, reminiscent of R2D2 from a famous movie franchise, but just a program code that contains an algorithm of actions transmitted to a  trading terminal  (in which, in fact, this program code is installed). The algorithm of actions of a trading robot is, in fact, a trader's trading system, which he translates into a language understandable to a computer.

    So, a trading robot is a symbiosis of a trading terminal, an algorithm program and a computer on which the whole thing is installed. But usually the algorithm program itself is called a trading robot. Also learn more about trading bot for kucoin.

    Installing a trading robot on a VPS server

    Recently, the practice of installing a trading robot not on your work computer (which for some traders is also a common home computer) has become widespread, but on special dedicated virtual servers - VPS (Virtual Private Server).

    A trader rents a VPS server and installs a trading terminal on it along with a robot connected to it. After that, he may not worry that the correct operation of his trading system (implemented by the algorithm of the trading robot) will be violated by an Internet connection failure or a banal power outage. This is especially true for traders who do not live in large metropolitan areas, but in the outback.

    A considerable plus is the fact that installing a terminal with a robot on a separate hosting allows you to offload your own computer. After that, you can not be afraid that the wife, child or cat will accidentally press the “wrong button” while the unlucky merchant leaves, for example, to drink coffee in the kitchen.

    By renting such a server and installing on it a trading terminal with a password to access your trading account, as well as a trading robot with its own exclusive trading system, the trader thereby entrusts all this information to the hosting provider. Therefore, it is necessary to choose hosting with special care, focusing on its reputation and reliability, and not buying into the generous and tempting offers of all sorts of cunning and scoundrels (of which, unfortunately, there are many in this area).

    Renting such a server can cost from several hundred to several thousand rubles a month. It all depends on the level of service and reliability that the hosting provider from which the VPS can be rented can provide.

    Can a trading robot be completely trusted?

    To the question of whether it is possible to trust a trading robot with your hard-earned money, the answer will be ambiguous. On the one hand, the answer is: yes, but why are these very robots still being created? But on the other hand, as they say: trust, but verify. It is necessary to check even your own written trading robots (by running them in the strategy tester), not to mention those trading robots that you download or buy.

    Any trading robot must be run in the strategy tester at different time intervals with different input parameters, etc. This is done in order not to receive an unpleasant surprise later in the form of a huge  drawdown  or even a complete drain of the deposit.

    Is it possible to earn stable profits with automatic trading? Yes, you can, but under certain conditions. It is necessary to understand that a completely universal (successfully trading under any market conditions) trading robot has not yet been created (it would be the so-called Grail). That is, the trader himself must decide which trading robot to throw into battle under certain conditions prevailing in the market. Those. Alas, it will not work to completely get rid of the process and make trading completely automatic  (at least at this stage of technical development). But the competent use of trading robots, nevertheless, allows many traders to receive stable profits.

    Pros and cons of trading robots

    As a summary to all of the above, let's look at the main pros and cons inherent in trading robots.

    Let's start with the cons:

    1. Trading robots are relatively weak in fundamental data analysis. If they get along fairly well with technical analysis tools (after all, all technical indicators are nothing more than a set of formulas), then fundamental analysis and news-based trading are much more difficult for them;
    2. A robot can be very good, but only under certain market conditions. These conditions will change and the robot will start draining. There is no universal trading robot that automatically adjusts and works equally well under any market conditions. It doesn’t happen that you press the “On” button and forget, and a month later you remember and withdraw the earned profit;
    3. Many traders are not strong in programming, and therefore buy or order trading robots on the side. This is fraught with unpredictability of the “behavior” of a custom-made system. After all, it may happen that the programmer may misunderstand or even misunderstand the task assigned to him.

    Let's end with the positives:

    1. The first and, undoubtedly, one of the most important advantages of trading robots is their ability to strictly and unconditionally follow the trading system laid down in their algorithm. A trading robot, by definition, is not characterized by such human weaknesses as emotions. He is not able to experience fear, greed or hope, he will clearly and steadily, like the terminator from the film franchise of the same name, follow the task assigned to him;
    2. By automating their work through the use of trading robots, a trader can save a whole car (and even a small cart) of time. And time is one of the most expensive resources, which many, by the way, do not really appreciate;
    3. The trading robot allows with great speed, in a matter of seconds, to analyze huge amounts of data that in the "manual mode" or using a microcalculator, the trader could not shovel even for a whole year. That is, with the correct formulation of the problem, you can create a very powerful computing system, the main task of which will be making money;
    4. Thanks to the use of a trading robot, a trader can trade simultaneously on several financial instruments. Otherwise, it would take him a lot of time to analyze each of them separately.