How does a binary robot work?
Binary robots are a great way of making money, especially for newcomers. But many traders ask themselves, How does a binary robot work? We explain the details and show you how binary robots can help you to become trade profitably.
In detail, this article will answer these questions:
- How does a binary robot work?
- How does a robot deal with trading binary options?
- Test a binary robot for free
With the answers to these questions, you will understand how binary options robots work, and how you can use them to become rich.
How does a binary robot work?
A binary options robot is based on a simple premise: it does all your trading for you. To achieve this goal, the robot does three things:
- The robot analyzes the market to find profitable trading opportunities,
- The robot invests automatically in good opportunities, and
- The robot manages your money according to your predefined settings.
To understand the details of how a binary options robot works, let’s look at each of these three things individually.
1. How a robot analyzes the market to find profitable trading opportunities
The first step to trading binary options is finding good opportunities. Robots use three different concepts to find the best trading opportunities:
- Most robots use computer programs to analyze the market. These programs execute a predefined strategy based on technical analysis, monitoring hundreds of assets simultaneously. Programs can use complex combinations of indicators and can execute almost every strategy that human traders use, but they never get tired, and they never make mistakes. Even the big banks use automatic trading systems, so this is a proven approach.
- Some robots rely on human traders to analyze the market. These robots employ professional market analysts that monitor the market for you. When they find a profitable trading opportunity, they pass it on to their robot, which executes it for all customers, including you. This system is ideal for traders that want traders of flesh and blood to handle their money instead of a cold-blooded machine.
- Very few robots trade the news. These robots monitor news release, classify them, and then invest in the predictions this news allow. For example, if there almost exclusively positive news about an asset, these robots would invest in rising prices. Since most short-term traders prefer technical analysis over a news-based approach, these signal providers are incredibly rare. Nonetheless, their strategies can create profitable trading systems.
You have to decide for yourself which approach you like best. Automated trading signals are the most common form of robots, and there is nothing bad to say about automated signals. On the contrary, technical analysis requires traders to create rules and follow them as strict and free of emotion as possible. Computers are perfect for this task – they make no mistakes, and they follow the rules as strictly as possible.
If you do not trust a machine with your money, you might be better off with robots that use real traders to generate their signals. If you like trading the news, go with a news-based robot. These robots are rare, though.
Again, there is no right and wrong in this question; this is a matter of belief and personal preference.
2. How a robot invests automatically
When a robot has found a trading opportunity, it automatically invests in this opportunity. When you first start using a robot, you have to set up a connection between your broker and your robot, and once this connection is established, your robot will use it to pass on every trade that it wants to make. Without you having to do anything, the trade will be made in your account, and you will get to reap the rewards. This step of the process is similar to all robots.
To allow you to adjust the investment process to your preference, most robots offer a number of setting with which you can adjust how they work.
You get an online tool or a plugin for your browser with which you can manage the settings of your robots. There are mainly three settings that influence how your robot invests:
- The selection of assets. With this setting, you select the assets that your robot monitors. You can exclude some assets from your trading, but this makes little sense. There is no inherent difference between assets, and there is no reason why your robot should have more success trading one asset than another.
Of course, there will be periods when your robot performs better with one asset than another, but these tendencies are mere coincidences and no indication of long-lasting trends. Always activate all assets – more assets mean more trades, and more trades mean more money.
The only possible reason to activate fewer assets is when you want to try a new robot with as little risk as possible. In this case, you can choose a single asset to spread your first trades and be able to pull the plug earlier if there should be a problem.
- The use of reversed signals. Some robots allow you to reverse their signals. If you activate this option, the robot invests in a high option every time it generates a low signal and into a low option every time it generates a high signal.
You should always keep this option deactivated. The reason is that binary options only offer two possibilities as to what can happen – prices can rise or fall. Consequently, the worst odds you can ever get to win a trade are 50 percent – just like with a coin flip, random investments in a two-possibility environment will win you half of your investment.
This means, the worst winning percentage a robot can have are 50 percent, too. In this case, reversing its signals would change nothing – you would still win 50 percent of your trades. If the robot’s technical analysis increases its winning percentage by even the smallest margin possible, however, you are worse off. Instead of winning 51 percent of your trades, for example, you would win only 49 percent of your trades; instead of winning 60 percent of your trades, you would win only 40 percent of your trades.
Never reverse signals – you can only lose. If your robot is unable to create a profit, check our top list of the best robots and choose a new robot, but avoid reversing the signals of any robot at all cost.
- The stop-loss settings. With the stop-loss settings, binary options robots want to provide you with an easy way to avoid losing streaks. You can define a number of losing trades or maximum amount of losses after which the robot cancels trading for this and waits until the next day before it resumes trading.
Unfortunately, this system fails to deliver on its promise. The truth is that as long as you follow a strategy – and every robot does – your chance of winning a trade is always constant. Regardless of whether you have won or lost the last ten trades, you have always the same odds to win the next trade. Consequently, you should never quit trading after a losing streak. This decision fails to improve your odds, it can only delay your waiting period until you will win the next trade, and there is no positive consequence that can come from it.
3. How a robot manages your money
In addition to settings with which you can adjust how a robot trades, all robots provide you with settings that allow you to choose how you want to manage your money. Money management refers to the process of deciding how much you want to invest in a single trade, which is just as crucial a decision as deciding in which assets to invest. The right money management will make you rich, but the wrong money management will ruin you even if you win a high percentage of your trades.
Robots offer you three types of money management:
- No money management at all. This is the simplest form of investing, and it is not the necessarily the worst. Robots without money management allow you to define an amount that you want to invest in every single trade, and they will simply keep investing the same amount until you change the setting.
This is not the worst type of money management because even though your robot is not doing anything right for you, at least it is not doing anything wrong. This leaves you free to manage your money. Depending on how much time you have to invest and the risk of your strategy, you can simply open the settings of your robot in intervals that suit you and adjust your investment per trade. If you adjust your settings daily or at least weekly, there is not a lot that can go wrong.
- Money management that increases your investment after a loss. This is the most common type of money management that robots offer in addition to the no-money-management option. Unfortunately, it is also a type of money management that will ruin you.
The most common money management of this type is the martingale money management system. With this system, your robot doubles your investment per trade after every losing trade, trying to gain back the losses you just made. Once you win a trade, the robot will reset the investment per trade to the original amount and start the cycle anew.
Such a system will work until it fails. This means that you will sooner or later lose so many trades in a row that you will be unable to double your money again. You will invest almost everything in the last trade, lose it, and end up broke. This is why you have to avoid money management systems that increase your investment after a loss at all costs.
- Money management that decreases your investment after a loss. This is the best type of money management, but it is also very rare. With such a system, you would invest a fixed small percentage of your overall account balance on every trade. When you lose a trade, your account balance decreases, and your investment per trade decreases, too.
This type of money management helps you to survive losing streaks without going bankrupt, and it helps you to increase your investment per trade as you get richer and expand your financial capabilities. This is the perfect way of trading, and it is the type of money management you should use.
As you can see from this list, the decision which money management system to use is simple:
- If your robot offers an option to invest a fixed percentage of your overall account balance on every trade, use it. Choose a setting somewhere between 2 and 5 percent, depending on how much risk you are willing to accept.
- If your robot lacks the option to invest a fixed percentage of your overall account balance on every trade, use the fixed amount and manage your money yourself. Make sure to adjust your setting at least once a week or better once a day, and you will be just as effective as with a robot that manages your money for you.
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How does a robot deal with trading binary options?
Once you have adjusted all the settings of your robot, you have to connect it to your binary broker. With this connection established, your robot can trade binary options for you in your account.
This system works in a simple way. Every robot has a connection to a number of brokers. In order for you to use this robot, you have to have an account with one of these brokers.
A robot that is connected to a broker can send its signals in a way that the broker understands. This connection works just like any connection of two electronic devices. It requires a shared interface, the right drivers, and a setup process, which is why not all robots can connect to all brokers.
If you have no account with the brokers that your robot supports, contact your robots support. Often, the support people are able to set up a connection for you. If they can, you can still use the robot. If they cannot, you either have to find a different robot that works with your broker or you have to switch to a broker that works with your robot.
To set up the connection between your robot and your broker, you need an API code from your broker that you have to enter with your robot. The system is relatively easy to set up, but if you should encounter any problems, just contact your broker’s customer support or your robot’s customer support. They will help you.
Test a binary robot for free
Now that we have explained how a binary options robot works, you are probably itching to try one for yourself. To help you try a robot for free, we can give you one hot tip, and this is a robot called Binary Option Robot.
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Binary options robots can take over your entire trading process. They analyze the market for you, find profitable trading opportunities, invest automatically, and manage your money – the perfect system for any trader who wants to outsource their complete trading.
All you have to do to get this system working for you is find a quality robot that can connect to your broker and adjust the robot’s settings. If you manage your money yourself, you might have to add a few minutes every day to adjust your investment per trade – that’s it.
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