What Is An EA In Forex?
EA or Expert Advisor is a programming script that can automatically open trades with no human intervention, analyzes trading patterns, and close trades. Generally, expert advisors monitor and trade financial markets using algorithms, preprogrammed instructions. Expert Advisors can be used in the strategy testing process; even traders trade manually.
Profiting from forex (foreign exchange trading) will require you to undertake in-depth technical analysis, carry out substantial fundamental analysis, regularly follow the news, and attach yourself to a monitor to view the price charts.
Almost every trader understands that it is tough and can lead to burnout resulting in a loss rather than profiting. This realization has surfaced automatic trading technologies that make trading easy and increases the probability of getting more profits.
An expert advisor is often deployed on MetaTrader 4 (MT4) or MetaTrader 5 (MT5) foreign exchange trading platforms. You can either create your own expert advisor or use an existing one. These are written in a programmable language called MQL (Meta Quotes Language).
An Expert Advisor (EA) is a software that monitors and trades in the financial market with the help of algorithms. The software will run on the Metatrader 4(MT4) trading platform. Depending on the configuration, the software will automatically open a trading position or notify the trader to make a decision. After the position is opened, the EA can add conditions for closing the trade like limits, trailing stops, and stops. Some traders are using the EA only for monitoring the important markets, while others use it for automatically opening positions. Though they are mainly used for forex exchange(forex) trading, an EA on an enhanced MT4 can be used for trading indices, commodities, and cryptocurrencies.
The EA will allow the trader to define the parameters for which trades are opened, closed, finding opportunities, with a set of rules triggering the trade. Traders can build their own EA using the programming language MQL4 or use the EA someone has developed. The EA will combine many rules with yes/no answers to form a complicated algorithm and implement complex trading strategies. Instead of manual calculations, the EA will use the computational power available for making decisions and execute them almost immediately.
Advantages Of Having An EA:
Forex markets remain open for an entire 24 hours and 7 days a week. Using an EA, you can have the liberty to carry out trading opportunities even when you are not present on the scene, such as when you are asleep or occupied in some work.
Using an EA will detach any emotional attachment from your trading. Your greed or fear won’t become a barrier in choosing or declining to trade signals. As per your instructions, the EA will perform the trades without considering how it might weather a loss or spend a profit. You can follow EA only to manage money.
An EA can process far more variables at one time than you can ever imagine. It has the ability to consider those variables along with several currency pairs all at the same moment. It doesn’t matter how intelligent you are, but you cannot perform similarly.
If you are trading forex, and it is your only income generator, using an EA could reduce the stress levels because the EA will relieve you from all the mental exhaustion required to build a successful enterprise.
Disadvantages Of Having An EA:
An important aspect that differentiates a human from a robot is that the former can react to real-life situations, whereas the latter will follow the orders.
If your EA cannot respond to current news, it might ignore the fundamental reason to make a trade. But if you were at the desk and watching the news, you may probably avoid such mistakes.
Even though your EA can manage more variables in a single moment than you, it will act according to your programmed schedule. You may not be flexible in your thinking, but you can respond to certain variables within your parameters. Sometimes that might be necessary to keep away from making a huge trading error or taking advantage of an outstanding opportunity.
Unlike an online trading platform, you have to install the program in your system. That means you can access the program only on the device you had installed. Your EA can run when that system is turned on with MT4 running, and you have access to the internet.
The Significance Of Testing An EA:
Whether you create your own EA or use someone else’s, it is essential to test it on various time frames. Test it on a practice account that does not put real money at stake to determine its ability to perform. For instance, you may find out that it performs well on definite currency pairs and not others.
If you are using your own programmed EA, be prepared to devious with the variables occasionally. Market trends will fluctuate from time to time, and so your program has to make necessary alterations.
Remember that the forex market is highly unregulated and vulnerable to scammers using an expert advisor from a firm or any other individual. Beware of commitments that promise higher returns from EA creators. You must realize many scammers will understand that overpromising will be a red flag. An expert advisor provider may also be a scammer if he tries to balance credibility and hope.
How Does An EA Works?
Typically an EA works by using predetermined rules or strategies for building trade decisions. This set of rules are programmed in a robot that automatically enters and exits forex trading. With embedded strategies, the EA will be capable of implementing trade decisions so that humans cannot.
Some of them are programmed in such a robust way that they can effectively and thoroughly scan an entire market, looking for chances with a high level of accuracy rather than humans.
For example, if you have developed a successful trading strategy that relies heavily on candlestick patterns, indicators, resistance levels, support, or other things, you can program them on the EA. After that, relax and sit back to watch your computer program do the hard work.
Moreover, if your EA is programmed to perform a sell whenever a pair reaches a certain resistance level, the EA will abide by that instruction always. If you want to make any amendments, you can open your coding and include your desired parameters.
The targets for trading are also encoded into the program. Almost every automated trading strategy includes a takeaway profit and stops loss level that safeguards profits with prevention for an extensive loss.
Why Are EA’s Popular?
An expert advisor is popular because of the following reasons.
EA Saving time
It is possible to monitor hundreds of forex and other markets using a properly programmed EA, so the trader does not have to monitor the price movements to find profitable opportunities manually. Using the EA, the trader can control the time he spends trading; some use the EA to get trading alerts while personally opening and closing positions. In other cases, the EA will open and close trades, and the trader is only monitoring the loss of profit.
EA – Emotionless trading
Emotions can affect decision making, resulting in profits or losses. In some cases, the trader may not sell immediately, increasing his losses, or in other cases, he may sell too quickly, reducing his profit. Using an algorithm to automate the trading will prevent emotions from affecting decision making since the algorithm only considers numbers.
The EA considers a huge amount of information like economic declarations, price movements, technical indicators, account balance for extremely sophisticated algorithms, which will help the trader get better results.
Using the EA for automatic trading using money is far riskier compared to just developing the EA. So most traders are backtesting the EA they wish to use against historic data to check the results and modifying it if required before using it for live trades. One of the disadvantages of backtesting is that it does not consider slippage, which affects the live trades.
One of the main reasons why EAs are popular is that the existing EAs can be easily imported into the platform and customized based on the trader’s requirement.
Risk of using Expert Advisors
Though traders can make huge profits with a well designed EA, some disadvantages are listed below.
EA Incorrect advice
Many of the EA programs are advertised as giving excellent returns, which may not always be true. Hence the trader should do some research before making a decision.
No human intervention
Though it may complex, the EA will not match the human brain in decision making, and lack of emotions can cause new trading problems. Hence the EA should be closely monitored to check whether it conforms with the trader’s strategy.
Not always available
The MT4 has to be installed on a computer, and the EA can only run when the computer is switched on and connected to the internet. Otherwise, the EA cannot be accessed.
EA always running
If the trader wishes to have his EA running always, he will require a virtual private server(VPS). The VPS will be the online version of the trader’s MT4 since it is hosted on an external server. The server is always online, so the EA will continue to function.
MT4 has a built-in wizard for making a simple EA. The prebuilt EA files should be copied into the expert’s folder in MT4 and checked using the expert advisors section. The settings can be modified as required. They can be used on a demo trading account in MT4 for practice.
With an EA in forex trading, you can trade multiple instruments non-stop, eliminate any emotion linked trading decisions, and diminish trading errors. An expert advisor can help traders to test their strategies even they decide to trade manually.