Top Mistakes to Avoid When Using Trading Bots

Top Mistakes to Avoid When Using Trading Bots

From Sara Aziz

A trading bot is a tool that can help you to automate your forex, stocks, and crypto trading. In most cases, these bots are developed using principles of technical analysis.

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A trading bot is a tool that can help you to automate your forex, stocks, and crypto trading. In most cases, these bots are developed using principles of technical analysis. Recently, advanced developers have learned to incorporate complex technologies like artificial intelligence and machine learning in their trades.

Trading using bots has many advantages. For example, it can be highly profitable since bots trade on a 24/7 basis and always follow their preset rules. Also, these bots can analyze multiple assets at the same time and find hidden opportunities in the market. This article identifies some of the most common mistakes that people make when using trading bots.

Not doing your research

The growth of day trading bots has led to many genuine providers. However, because of how the industry has grown, it has led to many bad actors in the market. These actors provide bots that don’t work as advertised. Other bot providers are known for stealing customer’s credit cards and other payment details.

Most importantly, some bot companies that provide downloadable software are known to spread malicious malware. Therefore, it is always important for you to do your research before you buy a trading bot.

One of the best things to consider is to read reviews from past customers. A simple Google or Facebook search can show you more information from users. Also, as this website reports, you should consider using third-party reviewers to find more information about the bots.

Not back-and-forward testing

The other important mistake you should always avoid is not doing backtesting and forward testing. Backtesting is a process where you test the bot using historical data, which are provided by most charting platforms. The goal is to see how the bot would have performed if you started using it earlier. Most charting platforms like TradingView have these backtesting features.

After doing backtesting, the other process is known as forward-testing. It is a process where you subject the bot in the market using current data in a demo account. A demo is an account that has live data but with virtual cash. You should only move forward if the bot performs well in this testing process.

Starting with a lot of money

The other mistake that many people make is to move from the testing process and then make a big deposit in the trading account. Your initial period in a live account is part of the testing process. Therefore, you should be careful in your early days and start with money that you can afford to lose.

For example, if you are planning to start trading with $100,000, you should start with a third of it. You should then add to this balance if the bot continues to deliver strong results.

Changing the bots settings

Most bots have specific settings that should be adhered to. As such, you must read these terms before you move to your live account. Reading these details will help you to know the optimum settings to use in the account. Unfortunately, many people either ignore these settings or change them in a live account. Doing this can lead to substantial losses.

Understanding what to avoid

Many people, especially beginners, often make these mistakes when using trading bots. Some of the other mistakes you should strive to avoid are not monitoring the trades, ignoring market context and new information, and interfering with the bot as it works.

Remember that not all bots are 100% accurate. A bot is said to be a good one if it has a success rate of over 80%. Therefore, you should not feel bad when all trades are not profitable. Also, ensure that the bot has clear settings on stop-loss and take-profits.

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