Why does Automated trading never seem to work?

This may answer why robots seem never to work for very long on a live trading account.

I was reading a thread yesterday for a simple break out strategy and I noticed a comment by SteveHopwood about testing robots and the apparent differences with demo results compared to live results:

http://www.forexfactory.com/showpost...&postcount=233

I’ve got a little bit of first hand knowledge about this, so I thought it may help to share.

Before I started trading myself, I had a very interesting job which has allowed me to meet and interact with all sorts of people from the top tiers of society around the world (multi-Millionaires, Billionaires, politicians and a few sovereign state Monarchs). So although I am not from that group myself, I was lucky enough to mix in those circles. By chance I got to know the owners of an online retail brokers based in Switzerland which some people on this forum may trade with.

During some conversations we got on to the topic of robot trading, and particularly MT4. At the time this particular broker was just starting the process of introducing MT4 to their platform. Some of you who have been around for a while will remember that not all brokers have always offered MT4, and some seemed particularly slow to offer it. I was just starting to take an interest in trading so I asked them why they didn’t currently offer MT4 as it appeared to be the preferred option that retail traders wanted, and why it was taking so long to set it up with their system. Their reply shocked me and is the reason why I personally have never and will never let a robot of any description trade for me.

They explained that some robots are extremely profitable, and the good ones would put them out of business. So before they could let any automated trading take place on their platforms, they had to program their own software to be able to compete and disrupt the robots their retail clients used. The reason it took brokers so long to integrate MT4 was because the broker’s tech boffins had to configure it and tamper with it to make sure that when it detects a robot trading, it can cut in and manipulate it to make sure it never makes money. They basically had to rig the platform against robots, and this takes time to do properly.

Such tampering and rigging does not need to happen with demo accounts, and this is why robots often appear to work fantastically in demo mode, and then crash spectacularly in live mode. Your MT4 broker is working behind the scenes to counter your robot and make sure your money gets deposited in to their accounts instead of letting you withdraw their money to yours. Some of the well known “miracle overnight riches” robots that are sold prolifically on the net for a mere $100 bucks, have been thoroughly decompiled by the brokers and have separate programs written and installed on the platform to make a joke of them, (no wonder everyone wants a refund!!!).

It was clear to me and to them that robots can and do work. I actually know a hedge fund manager in Geneva who uses “robots” on high frequency to conduct a huge percentage of their overall trading to make spectacular amounts of money (of course he is at genuine institutional level and doesn’t go near MT4 or retail brokers). But so long as you are using MT4, it is almost certain that the game is severely rigged against you and your robot will eventually drain your account.

This post is not my attempt to discredit robots or automated trading, but I thought it would be useful to some of you on this forum who are either heavily involved in the programming and use of EA’s, and those of you who are hoping that a robot in MT4 is going to be the answer to your prayers. My understanding from people right at the heart of the retail industry is that they will do everything they can to make sure your MT4 robot fails.

Good post indeed,
I do want to rely on robot to trade for me but another reason I use robots is that I want to know how successful a strategy is.

I can hardly believe my eyes. I am pleased that you have been able to mix with millionaires and royalty and an actual forex brokerage owner but it never would have occurred to me that so much work was being done in the background to scupper trading robots.

I have used trading robots succesfully on MT4 and I am convinced that with sufficient programming they could become profitable trading on their own. As it is I have to wait for the right time of day, right price action and right pair before I actually switch them on. This, of course, begs the question why didn't I just set the trade myself?

What I would like to know is why the trading robot trundles along and (usually) makes a small profit for me when I set it, instead of becoming confused by some mysterious commands from my broker's server and losing my account for me? Is it because I'm not making enough money yet? Or is it because they can recognise the robot I am using and are involved in a sinister double bluff, waiting for me to risk my entire life savings?

By the way, I have met a few millionaires myself and I once met Sir Matt Busby who was royalty where I come from. I found him to be a very pleasant person, although a friend of mine who was a telegram boy said he was very tight fisted. But that's another story.

I'm certainly no expert on this and I don't want to try and come across as if I know the entire ins and outs of how the brokers really work on a micro level or what exactly they look for in the robots. What I do know is they take them very seriously and will do all they can to stop the robot taking excessive profits.

My understanding is that the vast majority if not all retail brokers are initially taking the other side of the trade to you when you place one. From what these owners told me in layman's terms was that they take the other side of your trade and immediately try to pass it off to their liquidity providers. So the ideal situation is they are only on the other side to you for a fraction of a second. So their risk is very small and short lived. And this works in the vast majority of cases. However, occasionally (and often enough that it causes them problems) they are unable to pass your trade on quickly enough or at the correct price, which means they are tied in on the other side to you. And if you win....they lose, and no self respecting broker is going to let that happen. These are the situations you get "strange" things happening on your account which inevitably means the trade closes you out for a loss, that unusual spike happens, your TP or Sl isn't executed etc.

They get particularly worried about robots which are able to place multiple trades in rapid order which will cause the broker to be exposed to more risk than they generally allow for, and so they have to run their own programs to scupper your robot. Even robots which only place trades once per day or week or month are targeted because they are easy pickings for the broker to make more money. If your robot enters a trade and then "somehow" doesn't place your stop loss order or any other order, you can quickly lose your account, and the robot script error/bug gets the blame!

They may very well let most trades run from robots without interference so long as you are not making much money or creating higher risk for them. Maybe try letting your robot trade 10 million units at a time and see if it suddenly starts to hit unusual losses???? I really can't give specifics as our conversations were never entirely specific. But they told me enough to make me personally stay way from the MT4 EA's.

Like I said, I'm not trying to discredit the EA's or how they work, or indeed criticise people who use them, but I think it may help people to know the retail brokers who take the other side of your trade are not letting robots run freely as they please. As I said in the opening post, it was a comment from SteveHopwood that prompted me to post this and it may help explain a few things that EA users have run in to in the past.

Do you have any information, how a broker is able to determine that on the client side a robot is working?

As far as I know, when you don't pass any magic number etc. within your EA your broker could not distinguish between manual and automatic orders!?

Sorry I don't. As some people here will already know, I am not overly savvy with the technical side of charts to begin with, so robots and their codes are way out of my reach. And our conversations were very informal (mainly about how they fleece their customers). But these guys said to me that they can basically see everything from every angle at all times. They were specific about MT4 because the automated trading aspect posed serious problems for their risk exposure, so they spent a long time adjusting and coding themselves to be able to counter the EA aspect. Sorry I can't give technical details.

I don't believe this for a second....

>>>They explained that some robots are extremely profitable, and the good ones would put them out of business.

How would this put them out of business? Don't the brokers just make money off the spread?



>>>So before they could let any automated trading take place on their platforms, they had to program their own software to be able to compete and disrupt the robots their retail clients used.

So for every robot out there running on a retail account the have one to counter it and make it a loser??? How do you suppose one broker could mover the markets enough from minute to minute or hour to hour or day to day to make good robots bad?


>>>My understanding from people right at the heart of the retail industry is that they will do everything they can to make sure your MT4 robot fails.

Sure wish I new broker that was so I don't get involved with them. I don't think its FXCM because they are trying to come up with there own type of robots for retail traders.. Of course they wont be profitable.

For the most part brokers do make money just from the spread, but EVERY time you take a trade, initially your retail broker is the opposite side, and SOMETIMES they get stuck there, which means if you win, they lose. If this happens often enough, or with a high enough amount at risk, they can go out of business or lose a very large proportion of their money.

No, they just need one program to identify automated trading and then block the automated orders from being processed. If your robot tries to trigger a Sl or TP and the message isn't received at the broker end, your trade which is open as you sleep can slide away to oblivion. They don't have to counter your automated strategy, they just need to counter your automated orders. And the broker does not need to move the market.......they only need to move the data feed they are supplying to you, which they can very easily manipulate. At the very least all they need to do is widen their spread to hit your SL without the real price ever going anywhere near it.

You may not believe any of this, and that's fine. I posted this information in direct response to a post referenced in my opening post as I thought it may be insightful to a few people who are interested in this kind of thing.

Well yes I could see this if your are trading with a very tight stop they could do it all day long...If you are trading a bot with a 50 pip stop they cant make the spread that wide....

No need -

If you are 6 pips form being stopped out (i.e. at -44pips), there is nothing easier than to trigger your stop at -50 without creating any problems for them - and you are out of your position.

flotsom, what was your job? can you hook me up?

Ah, I can shed a bit of light of this. I spent some time talking with a big retail shop about this very problem and yep - it's pretty much right though arguably not all of them are doing anything other than protecting their risk. The bigger ones I suspect are simply slipping once their own liquidity at a given level dries up. Only the really shonky ones are shading and throttling prices.

And no, it makes no difference if disguise the fact you're using MT or whatever, they know when a surge of trades happens at XX point it is YY robot.

It happens with the big heavily advertised robots, particularly during Asian session (less liquidity obviously), particularly on other pairs other than EU, and especially after a winning streak.

There's an edge right there for those that want to do the homework.

I don't use robots myself.....but I can imagine how horrified a broker must be knowing that he is taking the other side of a completely emotionless trade entry.

At many sportsbooks it is standard practice to boot or offer a separate set of lines to a skilled punter, and in some even just a punter who "won too much". Why expect more of a financial market bookie?

Gee, I dunno. Maybe the platform tells them everything about you?

They know everything you run and you do. My representative told me "yeah, I noticed you've tried out a robot".

Believe it!

http://www.forexfactory.com/showthread.php?t=70582

One thing I don't understand is that brokers make profit through spread, then more trades means more profit. And the application of robots theoretically increases the number of trades. How comes brokers lose money from robots?

Why would they bother with a measly pip or two when it is pretty much standard that a newer trader will lose their entire deposit. That is why they dont mind having "deposit bonuses". You usually need to make an obscene amount of trades to even be able to withdraw it (I recently saw one broker requiring 100 standard lot turns to be able to collect on a mini account deposit). They make it all back. Where do you think that money goes? Right to their bottom line.

the spread only puts the broker ahead versus you at the start of the trade. If the trade goes in your favor and you close it out at a profit then they lose money. In other words, if you're account balance grows, they lose. Therefore, they are after your money regardless of quantity of trades.

My advice is to always trade with long term in mind. Look at the big picture. The brokers and banks together can manipulate the smaller timeframes, whether by means of trading against you in times of low liquifity and volume or by altering tick feeds to the platform (or shutting down platform altogether). What they really can't do is manipulate large timeframes. Currency is ultimately a reflection of a country's (or union's) economic strength, production, commerce and monetary policy. On a global scale and over a large timeframe banks do not want to alter currency to the deteriment of their economy, government and central bank. Good luck!