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How does a Forex Expert Advisor work?

How Forex expert advisor works

Forex trading doesn't always goes smoothly and sometimes it can be frustrating. Some Forex traders can become greedy or fearful, and for this reason they are often inclined to make bad decisions which can negatively affect their accounts. One way to avoid this issue would be to use an automated trading system. As the name implies the system is based on preset rules and automatically opens and closes trades. Though we do not recommend any automated systems due to their unpredictability, some traders have found them to be of benefit.

FX trading is a 24/7 market. Being active for these long periods isn't possible for a human, however a machine can trade for days without having to take a break. In addition, automated trading can be performed on a number of FX trading platforms. Some of them allow traders to fully customise trading systems and then use it on a personal account. MetaTrader 4 is arguably the most popular customisable Forex trading platform. One of the many features of the MT4 platform is that it allows users to write entire automated trading or signal systems which can be moved onto other installations of the MT4. There are a lot of FX systems available in this format and they are referred to as a Forex Expert Advisor. In our article we will focus on what an EA is and how it works.

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What does an Expert Advisor stand for?

The first question to is - what is an Expert Advisor? It is an FX automated trading system that is written in MetaQuotes Language 4 and is developed for use under the MT4 trading platform. Predominantly, the EA can be programmed either to perform trades for you, as well as manage all the aspects of your trading operation, or just to notify you of trading opportunity. Additionally, every Expert Advisor is based on its design and preset rules, so EAs can differ in the rules they follow in order to trade. As with any automated software, they eliminate the chance of making emotional and irrational trading decisions, which commonly affects novices or inexperienced Forex traders. An Expert Advisor Forex follows a very strict and consecutive plan deprived of any human intervention.

Expert Advisors can be obtained easily on the internet, usually for a price. We are not inclined to recommend any for the simple reason that the results of automated software are very subjective. Some traders can make a certain amount of pips using them, while others can wake up in the morning and discover that their account is empty. If we compare EAs with Forex robots, you may not notice any distinction. Nonetheless, Expert Advisors can be directly and quickly installed into your MetaTrader 4 trading platform and you don't need any special technical knowledge to do that.

Before describing the functions of Forex trading Expert Advisors, we would like to outline the four kinds of Expert Advisors you may encounter:

  • The News Expert Advisor - as the name implies the main purpose is to take advantage of various news events and big price moves that can take place during big news releases.
  • The Breakout Expert Advisor - it is specially designed to open a trade when a price breaks through preliminarily determined resistance and support levels.
  • The Hedge Expert Advisor - under this category falls any Expert Advisor which plays two respective and opposing positions, diminishing the loss on one whilst facilitating profit on another.
  • Expert Advisor Scalper - such Expert Advisors pursue the goal to secure small profits once they are available. The EA will open and close an endless amount of trades for any profit, so your Expert Advisor could trade up to 400-500 times a day depending on market conditions.

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Which functions does a Forex Expert Advisor have?

Potentially, the best Expert Advisor Forex can be developed and programmed to work in multiple ways, e.g. by utilising a selection of technical indicators ( MA - moving average, MACD - moving average convergence/divergence) or by searching for necessary trends and breakouts. By applying those diverse indicators, the EA will make the decision which action to undertake - purchase, sell, or simply just place an order on the market.

That isn't all an EA is capable of. An Expert Advisor can be programmed to take entire control of your account. The idea here is that it will look at your current account balance, before deciding how much of your balance can be put at risk. The general rule of thumb is to only to risk 1 - 2% of your account balance. Furthermore, it may review the trades and decide whether there should be a trailing stop, or either a simple take-profit (also known as TP), or stop-loss (also referred to as SL). As soon as Forex Expert Advisors have the necessary information, they also take into account the dominating market conditions. Consequently, you will be notified when to open a particular position.

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The tips: what you should be aware of before launching your EA

If you want to create and use your own EA, we would like to provide you with some tips on what to do to make it properly, aside from using a Forex expert advisor generator.

The first one is the reliability of backtesting results. You might think that great backtesting results are proof of your system being ready to prosper - unfortunately it's not that simple. In fact, these results are absolutely dependent on the quality of the data applied in the backtest, implying that poor data can lead to unreliable outcomes. The default data in MT4, provided from MQL, can only reach a modelling quality up to 90%. Whilst this seems good, this can actually cause considerable differences in backtesting and the live experience, particularly on smaller time frames. Fortunately, there are sources of freely accessible historical data and instructions on how to prepare the needed data for MT4. Reliable data is the first step in adjusting an EA to trade a live account.

The next step is comprehending your execution speed. MT4 demands trading activity for more than 30 seconds, which is known as a trading session. Your session using any EA and free Forex Expert Advisor will time out automatically if there is no trading activity for more than the time mentioned above. This requires the IP address to be automatically re-authenticated with a password and login. This can take some time, even up to two seconds with some brokers. Even though it may seem insignificant, in times of high volatility delays this size can have a substantial impact on the trades' results.

If you have spent any amount of time writing a complex Expert Advisor in MT4, then you know how difficult it is to debug the code. As the MetaQuotes policy shows that they cater more to the needs of brokers than traders, you will find that a debugger isn't included in the list of available tools - it does not matter whether your EA is one of the free Forex Expert Advisors or a paid one. Luckily, there are some things to make your life easier. One method is to input print functions directly into your code, although that can become very hard to manage, particularly if you have thousands of lines and don't know where the problem is. You can also download the Microsoft DebugView in order to view a methodically formatted log.

Our last tip concerning your EA is the following - test your MT4 connection. Your platform has to be on and connected directly to your broker to run your Expert Advisor. There is nothing more disappointing than thinking you have an EA only to find out that it has been disconnected and is unable to reconnect. This can be quite bad for your Expert Advisors Forex. While MT4 is designed to automatically reconnect to the server without any problem, this does not always work as expected. If you possess multiple MT4 accounts, occasionally the wrong credentials are used during the process of reconnection. The best resolution is to delete your unapplied accounts from the Navigator window in MT4. Although this may not necessarily be a considerable problem, it can be quite frustrating if you are getting disconnected and your Expert Advisor is not continuously up and running.

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Conclusion

By using automated software like an EA, you can benefit from the following advantages: it can trade while you are sleeping, it is not susceptible to emotions, and you can quickly run backtests. However, it is hard to define whether an EA will make you profits. In addition, there are a lot of scams on the internet and finding a really good EA demands a considerable amount of time. In creating your own EA, take into account the tips we have exemplified to avoid unpleasant situations, then it may have the potential of becoming the best Forex Expert Advisor.

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