Using Expert Advisors in Forex Trading

Most traders will try a systems-based strategy at some time in their careers. Some will choose to remain with it, while others may discover that a discretionary approach is more suited to their style. Forex expert advisors(EAs) or Trading Robots as they are popularly known, provide a hands-off way to trade the Forex market through the use of a trading strategy. Our goal is to illustrate the advantages of Using Expert Advisors in Forex Trading while also pointing out potential drawbacks.

What is a Forex Expert Advisor, and how does it work?

Forex expert advisors are a type of trading software that uses pre-programmed rules to initiate, manage, and exit transactions in the market. In a nutshell, they are trading systems that are automated. Expert advisers for Forex, on the other hand, are written in the Metaquotes programming language (MQL), and they run on a highly specific trading platform. The Metatrader 4 or 5 platform is what we’re talking about.

Some traders choose to convert their current discretionary strategy into a Metatrader expert advisor, while others prefer to buy a ready-made MT4 expert advisor from a trading systems provider. The goal of this post isn’t to convince you to develop your own EA instead of buying an off-the-shelf trading system. It is up to each individual trader interested in systems trading to make that decision. Instead, we’ll focus on providing a comprehensive overview of some of the advantages of using Forex expert advisors, as well as some of the problems and traps to be aware of while using these trading robots in the market.

Advantages of Forex Expert Advisor:

Helps stay Disciplined

Trading is often described as “simple but not easy.” The reason for this is that our brains are organised in such a manner that achieving desired market performance is impossible. Most of the time, the choices that feel most natural in the market are the ones that bring us into problems. Those decisions that are difficult to make, on the other hand, are often the ones that lead to the finest and most successful trading opportunities.

Discipline is incredibly tough for discretionary traders, who are constantly influenced by their emotions while dealing with market pressures. Traders that have put in the time and effort to develop a rule-based trading approach that can be transformed into a Metatrader 4 expert advisor system, on the other hand, may maintain a high level of trading discipline.

This inherent advantage arises from your complete trust in the trading system, which will execute your programmed instructions without fail or hesitation. This form of robotic interaction reflects the market’s rigorous execution. Computerized expert advisor trading systems succeed in this area.

Execution of Orders in a Faster Way

Whether you’re a scalper, day trader, swing trader, or position trader, it’s critical to react fast to trade setups and execute your trades as quickly as possible. As your trading timeframe decreases, this becomes increasingly crucial. For example, a scalper’s loss in the profit potential of a few pips against a long-term position trader might make a significant difference in a trade.

Short-term traders must thus make every effort to decrease latency and slippage. A well-designed forex expert adviser can see possible trade setups considerably faster than the naked eye can. Furthermore, the deployment of a forex trading robot will considerably improve the execution time. Simply said, EAs react to trading circumstances much faster than a human trader could. If you trade with an ECN forex broker whose infrastructure is built on optimal execution, this effect is amplified.

Time Commitment is Reduced

A discretionary trader can only allocate so many hours to the market in a single day. Typically, they will set out a particular amount of time that is compatible with both their professional and personal schedules. Discretionary traders would have fewer opportunities as a result of this. Remember that the Forex market is open 24 hours a day, and chances might come at any time.

Using Expert Advisors in Forex Trading can increase productivity and cut down on market monitoring time. The continuing monitoring of your rule-based trading system might be low once the construction period for creating an expert advisor has been done. The ability to take advantage of round-the-clock trade possibilities, as well as the lower time commitment, might enhance the desirability of using an EA-based trading technique.

Balances work and home life.

There must be a balance between time spent on trading activities and time spent on other family and career obligations. When you achieve this balance, you will be able to trade with clarity and attention while still taking care of other commitments in your life.

While working a full-time job, a winning expert advisor may assist you in trading the markets. This is also possible if you are a discretionary trader; but, if you are more focused on short-term trading time frames, it becomes much more difficult. In general, the shorter your trading timeframe, the longer you’ll need to be glued to your computer screen throughout the trading session for discretionary traders.

Short-term and scalping traders don’t have to worry about this since EAs can manage any realistic amount of transactions throughout the trading day with no extra work or time. This frees up more time for an automatic EA trader to pursue other hobbies and interests.

Emotions are no longer a problem.

Emotions may play a big role in our decision-making process in the financial markets, whether we recognise it or not. When we trade the markets, we want to believe that we have perfect control over our senses and that we would behave in a way that is compatible with capital preservation and growth. However, we know from a study that this isn’t the case in the vast majority of cases.

The market’s effects of fear and greed may be immense, weighing heavily on our decision-making process. As a result, we must do all possible to attempt to control those bad feelings. One approach to do this is to use an expert advisor trading system in the market. EAs operate in the market with no emotional hurdles in their way.

They are merely designed to obey and carry out specific set instructions, and that is precisely what they do. As a result, one of the key benefits of having expert advisors is that they will assist us to avoid falling into the trap of leaning too much on our emotions rather than concentrating on the trading situation objectively.

Makes Backtesting Less Difficult

Every trader should get comfortable with their trading strategy’s overall metrics. Win %, average win to average loss, maximum drawdown, number of consecutive wins, number of consecutive losses, trade expectancy, profit factor, and other performance measures are included. You will only be able to stick to your trading strategy consistently after you have a firm grasp of these critical parameters.

A backtest is one of the most effective ways to get at these metrics. For traders who trade manually, backtesting may be time-consuming. Backtesting, on the other hand, maybe a breeze for a system trader. Metatrader includes a powerful back testing engine that can rapidly run a back test on your trading strategy. For the back test, you are only limited by the quantity of historical data you have available. Additionally, after the back test has been completed, you may conduct additional optimization tests in order to improve the expert advisor’s performance.

The disadvantages of using a Forex Expert Advisor:

Unless you’re building your own expert advisor from the ground up in MetaTrader 4, you’ll discover that the great majority of forex expert advisors hide the system’s trading logic. A black box trading system is a term used to describe this kind of trading system. A big issue with trading black box trading methods is that once the system has a downturn, it becomes very difficult to continue with it.

Obviously, whether you are a discretionary or a systems trader, and whether or not you are aware of the trading rules, you might succumb to this urge. When using a black box EA system, however, the effect is far more evident. This is because if you are unaware of the system’s rules, you are more likely to doubt the system’s integrity than if you are well-versed in the methodology’s standards.

This is one of the reasons why traders who use profitable, time-tested Forex EAs sometimes lose money. This is to suggest that a trader will ultimately get uneasy with the inherent instability of a black box system and will find it hard to follow during a losing run.

Performance Results That Have Been Over-Optimized

The trading industry relies heavily on data. In order to back test their trading strategies, traders depend on previous data. However, this may be a double-edged sword at times. That is to say, if you torture a data set long enough, you will finally get the findings you want. As a result, if you’re creating your own expert advisor, it’s critical to take the essential precautions to avoid over-optimizing the system. Because if you’re not cautious, you’ll end up with a strategy that looks amazing on paper but will almost certainly fail while trading in real time. So, if you’re wanting to create your own expert advisor, bear that in mind.

Those looking to purchase an expert advisor from a system developer or a firm that provides expert advisor programming services should do due diligence to verify that the performance results offered are not unduly curved fit.

This might be difficult to do prior to purchasing any expert advisor from the system provider, but every effort should be taken in this direction. One practical suggestion is to forward test the EA approach in demo mode before investing real money in the market.

Limited To A Single Currency Pair

An expert adviser is typically enabled by attaching it to a certain chart inside the Metatrader platform. The EA will then execute trade orders on that specific currency pair.

Though some EAs can trade several currency pairs at once, the majority are intended to trade just one currency pair at a time. This may restrict your exposure to market opportunities. Furthermore, you will be foregoing some of the diversity that a multi-instrument trading strategy would provide.

Trading multiple assets may significantly raise your entire risk. For example, if you were trading only one currency pair with a total position size of five mini lots, an unfavorable price move due to unexpected news would have a considerably greater impact on you than if you had the same total position size open but spread over many currency pairings.

It is possible for technical failures to occur

When using Expert Advisors in Forex Trading, you must be aware of the many technical problems that may occur both inside the system and in the hardware components.

There may be occasions when you encounter technical difficulties such as computer crashes, software upgrades, power outages, connection challenges, and other factors that have a direct impact on the expert advisor’s performance.

As a result, expert advisors must be closely checked on a regular basis to guarantee that there are no technical issues with it or with your infrastructure. As a result, you’ll want to keep an eye on your expert advisor’s internal operations to verify that orders are being routed appropriately and signals are being generated according to your instructions. If you discover anything out of the ordinary in this area, you’ll need to move swiftly to restore or change the expert advisor code.

Additional VPS Costs

When an expert adviser is deployed from a dedicated server, it performs optimally. For maximum performance, EAs are often operated on virtual private servers or VPS. This might help to alleviate some of the technical difficulties that come with trading an expert advisor.

The advantage of a VPS is that it allows you to house and deploy your expert advisor from a secure network with reduced latency for quicker execution. A VPS also provides a high amount of flexibility for traders who are often on the go since it can be accessed from any place with an Internet connection.

All of this, though, comes at a price. As a result, those considering forex trading with expert advisors should factor in this extra expense. While the cost of virtual private servers is decreasing, the additional expense may only be justified for those who have a sufficient capital balance in their trading account.

Doesn’t Help You Develop Trading Skills

Those that effectively trade the market have attained something highly prized in the financial sector. And it is financial speculation’s talent. This is a highly sought-after ability that may help you amass a sizable fortune over time. Such a talent can only be gained after many years of sitting in front of a computer screen observing price action.

You are not improving your trading skills by depending on an expert advisor to trade the markets. Most expert advisors are only useful for a short period of time before becoming outdated as market dynamics shift.

As a result, putting too much faith in an expert advisor to trade on your behalf might lead to disappointment in the road. If there existed a piece of code that could extract money from the market under every market regime, the developer would almost certainly not offer it to you.

You will have gone a long way in your trading career if you take the time to learn how the markets work and the most successful trading tactics for various market circumstances. Remember that there is no such thing as a Holy Grail trading strategy in the markets, and any endeavor to find the finest forex EA would be pointless.

Summary

Before considering whether or not trading with a Forex expert advisor is right for you, examine the following considerations. The benefits of EA trading are many, but they may be outweighed by the negatives. It’s a choice you’ll have to make, but you now have a solid foundation on which to base your decision.

In case you’re interested, there are a few trustworthy sites that test and rate commercially accessible trading systems.  Regrettably, there is no one authorised source that gives a ranking service for top expert advisor systems for Forex trading. As a result, more due diligence is essential while selecting the ideal expert advisor for your needs.