What are Expert Advisors?
Expert Advisors (EAs) are programs that run on the MetaTrader 4 (MT4) platform, used to monitor and trade financial markets using algorithms. They find opportunities according to the parameters you set, then either notify you or open a position automatically. And once your position is open, an EA can add close conditions including stops, trailing stops and limits.
You could, for example, use an EA to monitor a few key markets. It would alert you when it finds a potential opportunity for profit. Equally, you could let it loose on the markets completely, opening multiple positions each day with little human input.
For most traders, EAs are primarily used for forex trading. But you can use them to trade any market that’s available on your MT4. you can use an EA to trade forex, indices, cryptocurrencies and commodities on an enhanced MT4.
What Is MetaTrader 4?
MetaTrader 4 or MT4 is a platform that allows you to trade on the financial markets and can be used to trade stocks, Forex, commodities, and other derivatives. MetaTrader 4 is a popular choice for traders as it offers a wide range of features and tools, including an extensive selection of technical indicators, an automated trading system (Expert Advisor), and charting toolsMT4 also supports hedging and allows traders to trade on margin. Additionally, it has a large community of users who share trading strategies and ideas.
How do Expert Advisors work?
EAs work by enabling you to set the parameters by which opportunities are found, and positions are opened and closed – essentially using a set of yes/no rules to trigger trading decisions. You can either build an EA for yourself, or import one that someone else has built.
By combining lots of yes/no rules into a complex mathematical model, EAs can execute sophisticated trading strategies, using computational power to make decisions – and act on them – almost instantly.
Why are Expert Advisors popular?
- Timesaving
- Emotionless trading
- Flexibility
- Backtesting
- Accessibility
Timesaving
A correctly-programmed EA can monitor hundreds of markets, meaning you don’t have to watch price movements 24 hours a day in order to find new opportunities. With an EA in place, you can decide how much time you want to dedicate to the markets – you could use an EA for trading alerts but open and close positions yourself, or allow it to open positions on your behalf and merely keep an eye on your running profit or loss.
Emotionless trading
Emotion can affect your bottom line. It might encourage you to hold on to a losing trade for longer than you should because you don’t want to realise the loss, or dive into a reckless trade too quickly, riding high off a big win. Automating your trading helps take the emotion out of your decision-making because an algorithm only views the markets in black and white.
Flexibility
Your EA can run on any market that you can trade using MT4, taking lots of information into account including price movements, economic announcements, technical indicators or even your current available balance. The ability to build hugely sophisticated algorithms that track many different markets makes EAs a powerful tool to support your trading.
Backtesting
Building a strategy is just the beginning as trusting it to take care of your capital is a big step to take. That’s why most traders will backtest their EA before letting it loose on live markets. Backtesting involves running your strategy against a chunk of real historical data and seeing how it performed, helping you to iron out any issues before they end up losing you real money.
However, it’s important to note that backtesting isn’t completely foolproof. For example, slippage can’t affect your trades when backtesting, but it can be an issue once you start using your EA on the live markets.
Accessibility
While they are all undoubtedly major benefits, in truth the above four points apply to any automated trading system – not just EAs. However, while building a trading algorithm from scratch can be complicated, importing an EA just means choosing a program and tailoring it to your needs. The easy accessibility of EAs is probably the biggest reason for their popularity as an automated trading tool.
But while a well-coded, fully backtested and properly monitored EA can be hugely beneficial to your trading, there are some major pitfalls to avoid.
Risks of Expert Advisors
Inexpert advisors
If the promise of a program that beats the returns of the world’s best fund managers at a fraction of the cost sounds too good to be true, then it probably is. So, if you’re planning on buying a readymade EA, it is imperative that you carry out your own research to make sure that what you are buying is worth the money.
Lack of human interaction
No matter how sophisticated your EA is, it’s no match for the human brain. As such, it is important to remember that while taking some of the emotion out of your decision making is often useful, removing it entirely can bring new problems. It is always important to keep track of how an EA is performing and assessing whether it is in line with your trading logic.
Not always online
Unlike a web trading platform, to run MT4 you have to install it. This means that you can only access it from the device you install it on, and your EAs can onlyrun when that computer is switched on, with MT4 up and running and connected to the internet.
If you want your EA to run round the clock, you’ll need a virtual private server (VPS).
