Binary option auto-trading has been all the rage for a good few years now. The simple nature of the binary option proposition has made it the perfect target for auto trading and robot traders. After all, the decision boils down to a simple Yes/No – or rather Up/Down – one. If that’s not an open invitation to automation, nothing is. The question is how to consistently profit from a binary option robot.
The problem with that sort of thinking is though that while the actual mechanism behind binary option trading is indeed very simple, the analytic process which is absolutely necessary for profitable long-term trading, is everything but. It can in fact be almost infinitely complicated.
Just trading on a coin-toss is by no means a profitable – or even break-even – approach. The payout rates offered by most brokers cover the 70-90% range (some may even fall below that), so if you coin-toss with those odds, you’re essentially guaranteeing your failure. With that in mind, your binary option robot needs to be able to win a rather large majority of its trades, just to break even. A flesh and blood trader accomplishes this through thorough technical analysis, coupled with a good understanding of the fundamentals.
Binary option robots and technical analysis
Technical analysis is wonderfully suited for automation. It’s all based on various mathematical concepts and artifices, meant to identify impending price-action reversals, which can then be exploited through the proper binary trades. Every binary option robot and auto trader is based on technical analysis alone. Such robots are comprised of three modules or components. One of these handles the generating of trading signals. The other actually applies trades to the resulting signals, while the third one handles capital management. Needless to say, all three modules need to be top-notch for the robot to be able to do what it’s supposed to, and even so, it may just not be enough.
There’s the slight issue of fundamental analysis, you see…trading robots simply cannot handle that in any shape or form. While for a human trader, trading the fundamentals (or “trading the news” as it’s more widely known), is one of the simplest approaches to binary option trading, a robot cannot handle it. Fundamental analysis is not an exact science, therefore it cannot be automated. Conceivably, there might be a way to do it, through the use of cutting-edge AI, but that’s much more than any trading robot creator has been able to work with thus far. There are auto trading scams out there which try to convince traders that they’re using an intricate system based on AI and some other far-fetched concept, like bare metal servers and optical data transmission, but these are just scams. What they really have under the hood is a combination of technical analysis indicators and that’s about it. That’s the reason why they will inevitably always lose whatever money you allow them to trade with. One can’t just flip an auto-trading switch and let the robot have at it. The world doesn’t work that way.
How do actual trading robots work?
Trading robots need a lot of tinkering, fine-tuning and back-testing. They need almost constant attention and care.
As said above, they’re made up of three modules. The first of these generates trading signals, through a combination of technical analysis indicators. These indicators find trading opportunities and then re-verify them a few times, to make sure they are indeed strong signals. The module handling the actual trading then applies a number of filters on top of these signals, filters which contain variables adjusted directly by the trader. How these variables are set and how the signal-generating module works, depends a lot on the type of traded asset, the trade types used etc. Every time these variables are tinkered with, it is recommended that the user run a thorough testing on historical data, to make sure that the changes don’t upset the abilities of the robot.
The third module is the capital management one. This is the module that tells the robot how much to invest and how to generally handle the funds. One can set his/her robot to apply the martingale system to trading, to reinvest the profits or to use a number of other such money-management methods. These methods need to be experimented with as well.
How do you operate a profitable binary option robot?
Even if you get all the above described variables right, you’re still not guaranteed success. The dreaded fundamentals can always induce unexpected market volatility and thus they can completely turn your robot upside down.
What experienced traders do, is they set up their robots and then keep an eye on the fundamentals. As soon as they sense increased volatility ahead, they turn off their robots and maybe trade the variance by hand. During periods of high volatility, they always keep their binary robots turned off and only turn them on when the markets sort of do as they’re expected.
A word of caution: there are scores of scams out there based on various binary option robots. Know what such robots are really capable of and do not fall for anything that looks too good to be true.