Should You Trade With An EA? (Expert Advisor)

By Tom Stewart on 24 May 2021

Most forex traders at some point in their journey will start researching about expert advisors. This typically follows a trader using a rule based system, and looking to automate their trading strategy. Sometimes new forex traders without coding experience will look to purchase their expert advisors on the retail market, with the hopes that it can produce profits for them. Whatever the reason, here you are researching whether you should trade forex with an EA. There is no clear cut answer, but we’ve weighed up the pros and cons for you!

What Is An Expert Advisor?

An Expert Advisor (EA) is a piece of code for the MetaTrader trading platforms, with programmed rules for initiating signals, opening positions, risk management and exiting positions. Using an Expert Advisor can completely automate trading systems, or provide alerts based upon criteria to part automate a system. Forex expert advisors are coded in the MQL programming language and only function on MetaTrader platforms. MT4 is the most popular platform for retail forex traders.

Cons Of Using Expert Advisors

Limited To One Trading Symbol

Unlike a human being, an EA can only trade on the symbol of the chart that it is attached to in the MetaTrader terminal. Some Expert advisors are capable of running on multiple symbol at a time, however most are designed for a specific currency pair. This can limit your exposure in the market, leaving market opportunities untapped. Along with that, in drawdown periods having no diversification means that your drawdown can be significantly higher. 

Technical Issues & Failures

Technical issues with forex expert advisors can and do occur. These can be simple issues, such as wifi connectivity, server downtime, computer malfunctions or power outages. These can leave your positions exposed in the market, or result in missing winning trades. The dream sold is that EA’s are a magic forex system they pay you while having cocktails on the beach, but the reality is that they require diligent monitoring. Without frequent monitoring EA’s can amass huge losses due to technical issues, or the inability to think like a human.

VPS Costs

Traders typically decide to host expert advisors on a VPS for optimal performance. Using a VPS to host your EA greatly reduces the chances of technical issues, however does not entirely remove them. Whilst this provides some peace of mind, it does come at a cost. All costs of operation must be taken into consideration, so traders can accurately calculate forecasted profits after commissions, spreads, swaps, and other outstanding costs.

Vendor Credentials

If you are deciding to purchase an EA rather than develop one yourself you must be aware of potential scams or rip offs. There are numerous things to consider about the vendor credentials. Are the back testing results using live trading conditions? Do they offer multiple verifications of their track record? These are factors that every potential EA buyer should weigh up prior to purchasing an Expert Advisor.

Don’t Build Forex Trading Skills / Financial Speculation Skills

Being capable of coding trading algorithms is a valuable skill but having algorithms trade on your behalf doesn’t enhance your financial market skills. The ability to accurately predict financial markets is a highly sought after and desired skill. Only through developing a deep understanding of financial markets fundamentally and technically can this skill can be gained. Automated forex trading systems all have an expiry date. Forex market conditions change, and systems must be updated to profit in new market conditions. Understanding how the forex markets work and the reasons that they move the way they do is a priceless skill. The skill of financial speculation is also resilient to changes in market conditions.

Pro’s Of Using Expert Advisors

Emotionless Trading

Trading is not easy business. A key reasons for bad trading performance is the emotional stress placed upon the trader. Emotional reactions to financial markets leads to overtrading, risking too much, and taking trades that you shouldn’t. It’s normal for the human experience to interfere with trading clarity, which is why EA’s have an advantage here. The impacts of fear, greed and ego don’t play a role in an EA’s execution or management of a trade.

EA’s Promote Work / Life Balance 

When an EA is trading for you it allows you time freedom. You still need to monitor it frequently, however unlike manual trading you don’t need to be glued to the screen! Many forex traders start trading to get freedom, and then end up in front of the charts all day. EA’s give traders the time freedom they want.This reduces time commitment as well, meaning that your EA can be running 24/5, whereas humans need time to eat, sleep and exercise. With a profitable EA traders can resume control of their own time.

EA’s Are Faster Than Humans

EA’s are able to perform analysis, risk calculations and trade executions in the blink of an eye, executing trades according to their rules faster than a human possibly could. No matter what trading style you use it is critical that trade setups are acted upon in the most efficient way possible to maximise your P/L. This is especially true for scalpers & day traders. An EA hosted on a high speed VPS trading through an ECN broker will be far more profitable than a human in the long run. This is because the EA is able to execute trades faster, and has no hesitation or emotion in trading. This perk of EA trading is one of the more considerable advantages of trading with an automated system.

Expert Advisors Are Good For New Forex Traders

Using forex expert advisors is a great way for a new forex trader to get started in the forex markets. New forex traders can learn from an automated system, especially when they don’t know much about forex. There are a wide variety of free expert advisors and commercial EA’s that forex traders can easily use on MT4. This means that you don’t need to be a gun coder, or even a programmer at all to get access to an automated trading system. Don’t be fooled into thinking that all EA’s will make money, as this is not the case. To avoid losing money it is important to perform due diligence, as mentioned above in the “Vendor Credentials” section.

Back Testing

Expert Advisors are able to back test a forex trading system over historical market data in a matter of seconds. A manual forex trading system typically takes tens or even hundreds of hours to back test, and typically is more discretionary. With EA back testing a Trader is able to see real data on how an EA would have performed over the selected period, with no discretion. This allows the trader / programmer to develop clear insights into the systems profitability, drawdown periods, and expectations.

Overall there are many great reasons to trade with a forex expert advisor, and many forex traders are highly successful with automated trading. For more information be sure to check out this article on Hammer Capital News!

Recent News See All Articles
Top Story

Building An Automated Trading System With No Coding - The Next Big Thing?

09 June 2021
How To Download Install And Run TradeProofer’s MT4 software
24 May 2021
Should You Trade With An EA? (Expert Advisor)
28 April 2021
Major Forex Pairs Spreads Recap