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How Expert Advisors Work


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Forex traders can work independently – conducting their own market analysis and implementing their trading strategies manually. This means that they trade according to their own methodology, using their own ability to identify opportunistic moments and open trades. They can also make use of Forex Expert Advisors, which are trading robots that analyse the market and make trading decisions on the their behalf, using set algorithms.

The benefits of using Expert Advisors, or EA's as they are known, are debatable as professional traders rarely use such robots.

The market is fragmented between a multitude of get-rich-quick EA software companies and professional, skilled traders who know there is no such thing. Caught in the middle are the population of aspiring traders wanting to enter the market, who are unsure about how to select an EA and what skills they require in order to be successful traders. They're uncertain about how EA's work and the financial risks involved. Often times, they're leered in by the software company that has the biggest marketing budget – when what really matters is the expertise of the software author.

Automated trading robots work according to two basic steps:

  1. They analyse the market using built-in technical indicators and provide signals to open positions based on this analysis.
  2. They then open orders according to a set algorithm, when signals are received from at least two indicators. Orders are closed when “stop-loss” and “take-profit” signals are triggered or a trend reversal signal is received.
In deciding on whether to use an EA or not, it is imperative to understand that no software in the world is going to put in winning trades for you on a regular and consistent basis, making you wealthy while you sleep at night and go about your day. It is imperative that you have some basic understanding of forex trading fundamentals, as even the EA will need to be set according to an appropriate currency pair, capital deposit and trading period.
As a novice trader, you also need to do your research to find a credible EA, as the benefits of a trading robot are limited to the level of skill of the software developer behind it. You can expect that, while a trading robot can be extremely useful in assisting you with making trading decisions by signaling fortuitous opportunities and acting in the market on your behalf, it will need to be monitored from time-to-time and adjusted for changing market conditions. 
In order to actively manage your forex trading robot, you will need a basic understanding of the strategy or combination of strategies your EA uses.
  • Does it use scalping or trade breakouts?
  • Does it recognise opportunities based on moving averages or volume? 
These are concepts you should understand – and you need not understand every currency pair and every trading method, just the one that your EA works on. 
With sound knowledge of how your trading robot works, it can be an effective tool in assisting you with making profitable trades – especially because once the parameters are set and you leave your EA to do its work according to an intelligent algorithm, there's less influence from “human factor” mistakes that are far more likely when you are manually trading as a novice, independent trader.    
In conclusion, when deciding to make use of an Expert Advisor or not, it is important that you select a reputable company that promotes the expertise and principles behind their software rather than a company that falsely promises you untold millions. It is also imperative that you understand the fundamental principles of forex trading and the basic workings of your EA so that you can manage it when required and use it as a tool to improve your chances of success.
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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.