The Expert Advisors Trading Guide

Trading with Expert-Advisors (EAs)

Deployed on a trading platform, Expert Advisors (EAs) are small programs that can automatically trade any financial instrument. Trading with EAs is becoming increasingly popular, as they can continuously operate in any financial market without human intervention.

Introduction to EA Trading

An EA identifies and opens trades based on user-defined parameters. If market conditions change, the algorithm can automatically modify or close the trade.

EA trading is a multi-featured process offering:

• Trading across the full range of assets available on the platform (Forex, equities, crypto, etc.)

• Combining technical analysis tools and techniques (indicators, pattern recognition, support/resistance, etc.)

• Including money management tools (risk control, spread/slippage control, etc.)

• Applying time management (selecting when to open or close orders, avoiding news releases, etc.)

Automated trading systems generally consist of two main components:

• The Forecasting Module -This module analyzes market dynamics and identifies potential winning trades based on user-defined parameters.
• The Action Module -This module executes trades at specific prices and times, including opening, modifying, and closing one or multiple positions simultaneously.

Trading Platforms

Most EAs are designed to trade on MetaTrader 4 or MetaTrader 5, but they can also operate on other platforms like cTrader and NinjaTrader. For MT4/MT5, the programming languages used are MQL4 and MQL5.

» MetaTrader 4 Platform | » MetaTrader-5 Platform | » cTrader Platform | » NinjaTrader Platform

 

EA Trading Pros & Cons

Here are some advantages and disadvantages of trading with Expert Advisors (EAs):

(√) Advantages

• Achieving 24/5 Automation:

Expert Advisors automate the trading process, allowing you to capitalize on opportunities around the clock without constant market monitoring.

• Trading a Wider Asset Index & Managing Multiple Positions:

Manual trading limits the number of assets and positions you can handle simultaneously. EAs can analyze hundreds of assets and manage multiple strategies and positions efficiently at the same time, without delay.

• Eliminating Human Emotions:

Human psychology often hinders successful trading, especially when fatigue sets in. EAs are emotionless and never tire, ensuring consistency and discipline in executing trading strategies.

• Easily Trading Fast-Moving Markets:

Pending orders are useful in fast markets, but manual order placement can be too slow. Automated trading removes the delay between spotting a trade opportunity and executing an order.

(X) Disadvantages

• The Creation of an EA is Costly:

The best EAs are custom-built to fit your ideas and risk profile, but developing one requires significant time and investment. Outsourcing development can be expensive, and ongoing recalibration to changing market conditions adds further costs.

• Difficult to Adapt to New Market Conditions:

EAs rely on past data and probabilistic rules, so they struggle during unexpected events like black swan occurrences. Incorporating money management rules to halt trading after extended losses is essential.

• Over-Optimization:

Over-optimizing parameters during backtesting is common but problematic. Using too many parameters makes the EA complex and less adaptable to market changes, reducing real-time profitability. The solution is to use fewer parameters when backtesting your EA.

 

Categories of Model-Based Expert Advisors

1. Scalping EAs

• Markets: Forex or markets with tight spreads

• Strategy: Aim for small profits (4–10 pips) on very short-term trades, often lasting just minutes or seconds.

• Notes: Needs tight spreads and low slippage to work well. Brokers with dealing desks often forbid scalping due to inefficient pricing.

2. Trend-Following EAs

• Markets: All financial markets

• Strategy: Use indicators like MACD to enter trades in the direction of a strong trend and exit when the trend reverses. Can use volume and volatility for confirmation.

3. Mean-Reversion EAs

• Markets: All financial markets

• Strategy: Based on the idea that prices revert to their mean around 80% of the time. These EAs trade when prices hit extreme highs or lows, betting on a return to the average price.

4. Range & Breakout EAs

• Markets: All financial markets

• Strategy: Identify strong ranges and trade:

  • Opposite direction: When price hits upper/lower range boundaries and volume spikes.

  • Same direction: When price breaks out above/below range with strong volume.

• Indicators: Often use Bollinger Bands, Parabolic SAR, fixed Support/Resistance levels.

• Note: Breakouts are more probable in volatile markets.

5. News-Event EAs

• Markets: Mainly Forex

• Strategy: Open trades based on the difference between actual news data and market expectations.

• Advanced features:

  • Quantify news impact

  • Determine news event significance

  • Avoid stop-hunting maneuvers around news releases

 

How to select the right Commercial EA

As mentioned above, traders can either develop their own customized EAs or purchase a commercial product. Here are some key factors to consider when choosing a commercial EA:

(1) Compatibility with Your Trading Style

An Expert Advisor must align with your risk profile and trading style. If the EA significantly deviates from either, it may produce unwanted results. Additionally, the EA's settings should reflect your personal trading philosophy.

(2) Focus on Winning Pips, Not Winning Ratio

When comparing different EAs, prioritize Winning Pips over the Winning Ratio. Some Expert Advisors operate with a wide stop-loss and a narrow take-profit, leading to frequent wins but substantial losses when they fail. This makes the Winning Ratio a misleading metric. Avoid EAs that typically use a reward-to-risk ratio of less than 1:1.

(3) Don’t Take Anything for Granted

Always visit the EA developer’s website and verify the Expert Advisor’s past performance. Do not rely on claims of effectiveness without access to verifiable historical data.

(4) Always Check Who Is Behind the Project

Research the programmer or team responsible for developing the EA. Developers often apply similar methodologies across all their projects, so understanding their background can help assess the system’s reliability.

 

Important EA Tests

Historical Backtesting

Backtesting is a crucial step in validating any EA. By analyzing profitability using historical market data, you can assess how the algorithm would have performed under various market conditions. The key metrics to focus on are the winning pips and the drawdown rate. Always test the EA across different market scenarios to avoid overfitting to a specific asset's historical price behavior.

Benchmarking

Benchmarking offers an additional layer of validation for an automated system. This involves comparing the EA's past performance to a specific benchmark, such as a market index. This approach is especially useful when trading equities or cryptocurrencies, helping to determine whether the EA’s performance is truly effective or simply a result of favorable market conditions.

Forward Testing on a Demo Account

Once backtesting and benchmarking are complete, the EA should be tested under real market conditions. Factors like wide trading spreads and high slippage during order execution can negatively affect any automated system. A demo trading account allows you to conduct forward testing without risking capital.

Applying the EA to a micro-lot account should be the next step.

» Selecting, Managing, and Backtesting Automated Trading Strategies

 

Important EA Metrics

These are some important metrics to evaluate any Expert Advisor’s performance:

Profitability Rate (%)

The Profitability Rate calculates the ability of an EA to generate profits. A high Profitability Rate is a positive event.

■ Profitability Rate = Net Profit / Initial Allocated Capital

Profit Factor (PF) (%)

The Profit Factor calculates the ratio between gross profits and gross losses. If the Profit Factor of an Expert Advisor is higher than one (>1), it is good news, as the EA can generate more money than losses.

■ Profit Factor (PF) = gross profits / gross losses

Max Drawdown Rate (%)

The Drawdown Rate is one of the most important metrics when evaluating any trading system. The Drawdown % refers to the maximum decline from the maximum asset value. In simple words, it calculates the maximum (%) extent of loss from a previous peak. A high Drawdown Rate is bad news for the EA trader, as it indicates a risky trading algorithm that can suffer huge losses in the future.

■ Max Drawdown Rate (%) = [(Lowest Portfolio Value – Peak Value) / Peak Value] * 100

Win Rate (%)

Win Rate calculates the percentage of profitable trades out of the total number of trades. As explained previously, the Win Rate is not a reliable metric.

■ Win Rate = Profitable trades / Total number of trades

 

Building a Customized EA

After covering the process of evaluating and comparing commercial products, it is time to focus on developing tailored-made EAs.

First of all, some basic questions need to be answered:

• What markets/assets do you plan to trade?
• What is your initial capital and how much can you afford to lose?
• What is your risk profile and trading style?
• What are the sources of trading costs you will have to pay for using your EA (spreads, commissions, overnight fees, VPS, etc.)?
• Are there any hidden risks that can disturb your system’s future profitability (liquidity risks, correlations with other assets, etc.)?
• What is the money management you will need to apply (spread/slippage control, position sizing)?
• What types of trading orders will you need to execute (market orders, pending orders, stops)?
• Will you be using a VPS?

One of the most important issues for successfully trading with an EA is to find an EA-friendly broker that can meet all the above requirements.

 

EA Builder -Developing Expert Advisors without Programming Skills

For those who wish to build a customized EA but lack programming skills, there is the web app EA Builder that can transform ideas into fully operational EAs.

• For MT4, MT5, or TradeStation
• Full set of built-in functions (including even trendlines and time parameters)
• Full Money-Management system modules
• The outcome is a single compiled MQL4/MQL5 file, ready to trade
• The one-off cost is $97

The Advantages of this Method

• Free for creating indicators (which can be later transformed into EAs)
• No need for Programming Skills (graphical environment)
• Can build automated strategies for trading all asset classes in any timeframe
• Includes tens of functions and a wide variety of technical analysis indicators
• Action alert methods (e-mail, audio alerts, on-screen)
• Spread and slippage control (important for scalping strategies)
• EAs for trading Binary Options
• Supports MT4, MT5, and Tradestation
• The final code can be used in unlimited accounts (no limits)

Automated-Trading Functions

• Full functionality (time, support & resistance, trendlines, etc.)
• Use arrows via the EA Builder's graphical interface
• Use unlimited variables for creating EAs
• Insert multiple money management systems
• EA Builder can develop EAs for trading Binary Options
• EA Builder Output is human-readable and it is included in a single file
• Adjust Lot Size / Number of Contracts
• Martingale / Anti-Martingale techniques
• Customize Time Preferences and select even specific Days / Hours to trade

» EA Builder Free for Creating MT4/MT5 Indicators

Advanced Techniques for Evaluating EAs

These are some tools to have in mind when evaluating the performance of Expert Advisors:

• Historical Backtesting (explained before)
• Sharpe/Sortino Ratios (comparing the performance of different automated systems)
• Walk-through optimization (testing the performance by identifying the optimal parameters for a certain period)
• Monte-Carlo Simulation (using random sampling to solve deterministic problems)
• Hamilton–Jacobi–Bellman (HJB) Equation
• Queuing Theory (predicting the time and length of waiting lines or queues)

 

Using a VPS Service

VPS stands for Virtual Private Server, an internet hosting service that enables traders to run automated strategies on a virtual machine without relying on their own computers. Its purpose is to reduce the risk of connectivity failures and simplify trading around the clock, five days a week.

» What is a Forex VPS and Free Forex VPS Hosting

Compare EA-Friendly Brokers Offering a Free VPS

Table: Compare Forex Brokers Offering a Free VPS

◙ The Expert Advisors Trading Guide

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