Welcome to forex, the largest financial market in the world! This dynamic market is open 24 hours a day, six days a week. This means that one can trade forex at almost anytime during the week, no matter where you are situated. As technology has developed and forex traders are able to trade from their computers or Smartphones, automated forex trading has become more and more popular. In this article, we will discuss forex Expert Advisors (EA), which is a type of automated trading system.

MetaTrader 4

In order to trade on the forex markets, you will need to use a trading platform, which is provided by a forex broker. One of the most popular trading platforms is MetaTrader 4 (MT4). The MT4, which is a trading software program, can be easily installed on your computer or Smartphone. The platform is user-friendly, which makes it ideal for beginner traders. At the same time, the platform offers features customizable charts and is totally comprehensive, which makes it an excellent tool for the experienced trader.

What Is an Expert Advisor?

In a nutshell, an Export Advisor is a software program which is an automated trading system. The program can indicate to a trader when to execute a trade or it can automatically execute the trade, based on pre-programmed instructions. An important feature of an Export Advisor is that it can be run on any MetaTrader 4 or MetaTrader5 platform. A trader can use an existing Export Advisor which has pre-set parameters, or they can design their own Expert Advisor, using parameters of the trader’s choosing.

How Is a forex Expert Advisor different from a Forex Robot?

In forex literature, the terms “Expert Advisor” and Forex Robot” are often interchanged. However, it is important to differentiate between these two concepts. Both are automated trading programs which were developed to identify market patterns which can generate trading signals. A Forex Robot can be programmed to trade automatically and continuously on a trader’s behalf, without the trader needs to be in front of the computer during the trading. In other words, a Forex Robot conducts the entire trade – it determines the entry point, places the trade, and exits from the trade, all this without any participation from the trader. On the other hand, the forex Expert Advisor provides the trading signals, but it is the trader who decides whether or not to place the trade. If the trader likes what she sees, she will then have to manually authorise the trade.

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What is the best Expert Advisor for MetaTrader?

A casual search on the internet will bring up dozens of expert advisors in forex. The list can be dizzying, as there are literally thousands of Expert Advisors being advertised. How can a trader determine what is the right expert advisor to choose? One must be careful not to fall into the trap of an advertisement promising huge profits if you purchase their Expert Advisor or Forex Robot. This, of course, is nothing but a scam.

How can you avoid the scammers and choose the best Expert Advisor? We do not recommend any specific Expert Advisors, but some research on the internet will help you make an informed decision. The first step is to research an independent website which has tested and rated various Expert Advisors. Some reputable independent sites include Forex Ratings, myfxbook and forex peace army. These sites provide extensive details about expert advisors and some even provide a “Top 10” list of the best Expert Advisors. However, it is your responsibility to do the necessary research and select an EA that is suitable for your needs and goals. If the description of a particular EA looks appealing, we would recommend that you conduct further research on the internet about this product. As well, you may be able to ask your forex broker about their opinion of a particular EA.

There is, of course, no “perfect” Expert Advisor in forex. Don’t expect to pick a forex Expert Advisor and watch it scoop up the profits while you relax in the sun. In order to have a profitable forex expert advisor, you will need to understand how the Expert Advisor works, so that you can change the settings as needed. This means you should have a trading strategy in place before you begin making forex trades. It is important that you are familiar and comfortable with the EA software and understand how to change the settings if market conditions change since the settings will have to be changed manually. It is also important that you determine your risk tolerance so that you can choose proper risk settings on the EA, such as leverage. Ideally, your EA should be fine-tuned to settings that reflect your trading style and strategy.

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Backtests and Demo Accounts

Forex trading carries considerable risk; therefore, it is important not to rush into trading on the live forex market with an EA before carrying out two important steps:

1. Backtests on historical market data
2. Demo account test

Backtests– The MetaTrader 4 software features a strategy tester which can simulate performance over a defined period of time. This will provide information on past performance, but keep in mind that the data may not be 100% accurate, since it has been provided by brokers. Still, this information is useful in providing a picture of how well the EA has performed in the past.

If you run the backtests and the EA passed with flying colours, keep in mind that past performance is not an indicator of future results. Now it’s time to test the EA on a demo account.

Demo account - A demo account is a “practice” account, which enables a trader to simulate trading in the live market, but without any risk. In order to make the most use of a demo account, the parameters of the trade you plan to make on the live market should be duplicated, to the fullest extent possible, on the demo account (deposit type, deposit amount, leverage, currency pair, etc.) This means that the demo trade should mirror the live market trade.

In addition to being risk-free, a demo account allows you to test the EA and see how well it performs on the trading platform. You should only proceed to live trading when you are satisfied with the results of numerous practice trades on the demo account.

Reasons to use a Forex Expert Advisor

Let’s now take a look at the advantages and disadvantages of forex Expert Advisors:

Advantages

1. An EA doesn’t need to sleep or rest; it can continuously monitor price action on the forex markets, 24/7. A human trader is unable to function on such a schedule and cannot monitor the forex markets without taking breaks.

2. A human trader is susceptible to making a trade based on greed or fear, which could result in an irrational trading decision which could negatively impact on the trader’s account. An EA does not have any emotions, and therefore any trading move is purely rational.

3. An EA can easily be subjected to a backtest in order to determine past performance (although, as we discussed earlier, the results may not be entirely accurate).

Disadvantages

1. A trader may not fully understand the EA software and might inadvertently use it improperly. For example, the settings on the program might be improperly placed, which could result in the EA failing to execute trades in the manner in which you had intended. This could result in losses in your account.

2. The EA is limited to making use of programmable information. There may be other valuable information that could be useful in trading, but if it is not programmable, it cannot be used by the EA.

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Conclusion

The aim of this article has been to provide the reader with insights on the use of Expert Advisors in forex trading. Expert Advisors are useful trading tools which can monitor markets continuously, but it is important that you choose a reputable Forex Expert Advisor and also understand how the program works, to ensure that the settings on the EA reflect your trading strategy and maximize the likelihood of executing winning trades. At Platinum Trading Academy, we provide step-by-step mentoring and in-depth training courses, which will help make you a successful trader. Find out more about our dynamic courses.

Hopefully, you have enjoyed today’s article. Thanks for reading!

Have a fantastic day!

Nisha Patel

Live from the Platinum Trading Floor.