Opinion about expert advisor
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Expert advisors and trading robots are programs that automate a trading strategy and apply it to the financial markets. The buy/sell signals of traders’ strategies are detected by the program and the expert advisor or robot opens positions automatically. The trade exit is also integrated into the program (stop placement, price objectives, etc.). In other words, traders no longer have to intervene manually. The goal of these expert advisors and trading robots is obviously to generate profits.
There are many websites on the net offering expert advisors and trading robots. What are the pros and cons? Which expert advisors or trading robots should be avoided? Can we believe the performances displayed? How can traders choose an expert advisor or trading robot? What are the conditions necessary to exploit this type of program well?
Expert advisors and trading robots are sold mainly on Forex. In this market, 9/10 of traders lose and for a large part, this is due to psychological causes. The main advantage of automatic trading is that emotions no longer come into play in trading. Therefore an important factor of losses is removed.
The second argument used by vendors of expert advisors and trading robots is the time needed for manual trading. Trading is time-consuming and it is difficult to combine work and a trading activity. Automatic trading offers traders the possibility to increase their income without having to devote time to trading. Moreover, using expert advisors and trading robots means that traders don’t miss any trading opportunity during a trading day and night, 5 days a week (Forex opening hours for individuals). Performance of the trading strategy is thus exploited to the maximum, contrary to a manual trading strategy.
Finally, no trading training is required to run the EA or robot. So once again time is saved and also money, because traders don't have to pay for any training.
Here is a question frequently asked to expert advisor and trading robot sellers: Why sell this type of program if it is so effective and not use it for yourself? Serious sellers will say that traders need a lot of capital to generate enough income to make a living from trading (even if the program generates 15% annual performance). Marketing these products is therefore a way to have regular income.
Profit motive is one of the psychological factors causing heavy losses for traders. The use of expert advisors and trading robots only exacerbates this desire to earn more, as quickly and effortlessly as possible. This is why investors often choose trading programs that offer the most performance. The choice is not made on objective criteria (quality of the strategy). There is therefore a common loss factor in manual and automated trading.
Expert advisors and trading robots only automate the flaws in the trading strategies used in manual trading. Effectively, traders who code these trading strategies often lose out in their trading (or do not trade at all). Coding their strategy simply allows them to make a strategy profitable (through its commercialization) that is not profitable or sustainable in the long run.
Critics of expert advisors and trading robots also point out that advertisements posted by sellers are often misleading. Either the results are completely falsified, or the sale is made on incomplete data. It is easy to make a strategy successful over a given time period but it is more complicated to find a winning automated strategy over the long term. Effectively, market conditions are constantly changing. It is therefore necessary to make the program parameters evolve to adapt to these new conditions.
Moreover, the prices of these EAs or robots can be exorbitant, as disproportionate as some useless and generalist paid training courses used to train traders.
Finally, sellers point out that manual trading is time-consuming. If traders already have a job, it is quite possible to do manual trading as well. It is just a matter of trading on larger time units that do not require trades to be monitored daily.
Today, expert advisors and trading robots can be found everywhere on the net. There's no escaping them. All the sites boast the merits of their automatic trading programs with a high return. Should we believe in these tempting offers?
I would simply answer that if it is too good to be true (big performance or curve that only rises), in 99.9% of cases it is a scam. Either the results are falsified or the risk associated with the strategy’s application is too high. In this case, traders risk losing their entire capital. Let's see the expert advisors and robots that should be avoided at all costs:
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In trading, a martingale elicits the use of leverage. The more traders lose, the more they increase their leverage to make up for their losses. The greater the leverage, the greater the risk. Certainly, any series will end but one day their account could be razed before they can recover their losses. It's an absolute truth!
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Moreover, the use of this strategy implies an increase in the trader’s leverage at each new position. Here again, traders end up losing all their capital, either because the price never returns to the entry price, or because their positions are automatically cut by their broker due to a margin call (due to the abusive use of leverage).
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Once again, their leverage will gradually increase over time. Traders also find themselves with positions that are losing heavily (by several tens, even hundreds of points on trades that have gone wrong). As a result, one day, the winning trades are no longer enough to cover their open losing positions and they lose all or part of their capital.
Traders therefore understand that they should avoid choosing expert advisors or trading robots which use too much leverage or which accumulate too many open positions (because no stop loss is used). To manage leverage better, it is better to choose a program that allows for a choice of position size and then limit the number of open positions.
You never see a vendor of expert advisors or trading robots posting negative performance on their program. However, once the product is purchased, many of them perform quite differently and often negatively. How is that possible?
To post a performance chart of their EA or trading robot, sellers perform a backtest. A backtest is a method to test the performance of a strategy over a period of time. However, these backtests are sensitive to several elements:
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The impact of changing market conditions has a much stronger impact on swing trading strategies than scalping. Effectively, depending on whether the asset is in a trend, range or high volatility phase, this will generate very uneven performance (positive or negative).
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Backtests are reliable but the data processing method and especially the period of time chosen by the seller considerably vary the performance generated by the expert advisor or the trading robot. So it is advisable to opt for sellers displaying the real performance of the program on a real account. This also eliminates several backtest defects that muddy real performance such as slippage and order execution time (not taken into account in the backtest), especially if it is a scalping strategy.
Choosing an expert advisor or trading robot is not easy. Indeed, the sellers of the program do not wish to provide details of the trading strategy associated with it. This is perfectly understandable, otherwise the program would no longer have any market value. But then how do traders evaluate an expert advisor or a trading robot? This is done according to several criteria:
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Example: Strategy 1 generates 30% performance with a 15% drawdown. Strategy 2 generates only 21% but with a drawdown of 7%. Which strategy should traders choose?
If you answered 2, that's the correct answer. Indeed, with strategy 2 traders risk 1 to win 3 (21/7). With strategy 1, traders risk 1 to win 2 (30/15).
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If the strategy is linked to scalping, traders should also choose a broker with good execution speed and with whom slippage is infrequent. To do this, traders should test the broker’s platform on a demo account.
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The VPS must have the shortest possible response time and hardly any interruption. Traders should know that even the best VPS can freeze. The VPS must therefore be automatically rebootable. So, when the VPS restarts, their EA or robot will be functional again.
Some brokers offer free VPSs but often they are not the best (although in most cases they are enough). Traders pay a monthly subscription if they want to have access to the best performing VPS.
Expert advisors or trading robots have their advantages and disadvantages. It's up to traders to choose their camp. If they opt for automatic trading, they should be very wary of the different offers to be found on the net. Most of them are very attractive (very promising backtests) and traders should be wary of them. However, we must not put everyone in the same basket. Not all robot vendors and expert advisors are crooks.
Traders should ask themselves how the strategy works, try to understand it. Choosing one of these programs should not be made lightly. The strategy applied must be analysed in detail and the notion of risk must always be kept in mind. High performance is not risk-free. You're old enough to know that Santa doesn't exist!
There are many websites on the net offering expert advisors and trading robots. What are the pros and cons? Which expert advisors or trading robots should be avoided? Can we believe the performances displayed? How can traders choose an expert advisor or trading robot? What are the conditions necessary to exploit this type of program well?
The arguments used by vendors of expert advisors and trading robots
Expert advisors and trading robots are sold mainly on Forex. In this market, 9/10 of traders lose and for a large part, this is due to psychological causes. The main advantage of automatic trading is that emotions no longer come into play in trading. Therefore an important factor of losses is removed.
The second argument used by vendors of expert advisors and trading robots is the time needed for manual trading. Trading is time-consuming and it is difficult to combine work and a trading activity. Automatic trading offers traders the possibility to increase their income without having to devote time to trading. Moreover, using expert advisors and trading robots means that traders don’t miss any trading opportunity during a trading day and night, 5 days a week (Forex opening hours for individuals). Performance of the trading strategy is thus exploited to the maximum, contrary to a manual trading strategy.
Finally, no trading training is required to run the EA or robot. So once again time is saved and also money, because traders don't have to pay for any training.
Here is a question frequently asked to expert advisor and trading robot sellers: Why sell this type of program if it is so effective and not use it for yourself? Serious sellers will say that traders need a lot of capital to generate enough income to make a living from trading (even if the program generates 15% annual performance). Marketing these products is therefore a way to have regular income.
Arguments from critics of expert advisors and trading robots
Profit motive is one of the psychological factors causing heavy losses for traders. The use of expert advisors and trading robots only exacerbates this desire to earn more, as quickly and effortlessly as possible. This is why investors often choose trading programs that offer the most performance. The choice is not made on objective criteria (quality of the strategy). There is therefore a common loss factor in manual and automated trading.
Expert advisors and trading robots only automate the flaws in the trading strategies used in manual trading. Effectively, traders who code these trading strategies often lose out in their trading (or do not trade at all). Coding their strategy simply allows them to make a strategy profitable (through its commercialization) that is not profitable or sustainable in the long run.
Critics of expert advisors and trading robots also point out that advertisements posted by sellers are often misleading. Either the results are completely falsified, or the sale is made on incomplete data. It is easy to make a strategy successful over a given time period but it is more complicated to find a winning automated strategy over the long term. Effectively, market conditions are constantly changing. It is therefore necessary to make the program parameters evolve to adapt to these new conditions.
Moreover, the prices of these EAs or robots can be exorbitant, as disproportionate as some useless and generalist paid training courses used to train traders.
Finally, sellers point out that manual trading is time-consuming. If traders already have a job, it is quite possible to do manual trading as well. It is just a matter of trading on larger time units that do not require trades to be monitored daily.
Which expert advisors or trading robots should be avoided?
Today, expert advisors and trading robots can be found everywhere on the net. There's no escaping them. All the sites boast the merits of their automatic trading programs with a high return. Should we believe in these tempting offers?
I would simply answer that if it is too good to be true (big performance or curve that only rises), in 99.9% of cases it is a scam. Either the results are falsified or the risk associated with the strategy’s application is too high. In this case, traders risk losing their entire capital. Let's see the expert advisors and robots that should be avoided at all costs:
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Martingale
: A martingale has no trading logic. It is simply a matter of betting on the fact that any series has an end (which is true, it is mathematical). So, if traders lose a trade, they bet double on the next trade until they win. For example, a trader loses €100, he stakes €200, then if he loses again, he stakes €400. If the trader wins the last trade, he wins the whole operation: 400 – 200 – 100 = 100€.In trading, a martingale elicits the use of leverage. The more traders lose, the more they increase their leverage to make up for their losses. The greater the leverage, the greater the risk. Certainly, any series will end but one day their account could be razed before they can recover their losses. It's an absolute truth!
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Declining averages
: Declining averages consist of opening an additional position at a price higher or lower than the first position. This technique is used if the price evolution is unfavourable. Traders then accumulate a larger and larger number of positions waiting for the price to bounce back in their chosen direction. That's the infamous: "the price will eventually return to my entry price one day" mantra. This is far from always the case, a trend can last several days, weeks, months or even years.Moreover, the use of this strategy implies an increase in the trader’s leverage at each new position. Here again, traders end up losing all their capital, either because the price never returns to the entry price, or because their positions are automatically cut by their broker due to a margin call (due to the abusive use of leverage).
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Matrix
: Matrices are trading robots or expert advisors designed to generate a fixed gain on each trade. Every x points or on a buy/sell signal, the program will open a position and put a take profit at x points (usually, the take profit is very close and varies between 1 and 10 points). Of course, no stop loss is used. Traders then accumulate a large number of winning positions and collect their gains, but they also accumulate a number of increasingly large positions (on the trades which did not reach their objective).Once again, their leverage will gradually increase over time. Traders also find themselves with positions that are losing heavily (by several tens, even hundreds of points on trades that have gone wrong). As a result, one day, the winning trades are no longer enough to cover their open losing positions and they lose all or part of their capital.
Traders therefore understand that they should avoid choosing expert advisors or trading robots which use too much leverage or which accumulate too many open positions (because no stop loss is used). To manage leverage better, it is better to choose a program that allows for a choice of position size and then limit the number of open positions.
Can we believe the performance posted by expert advisors and trading robots?
You never see a vendor of expert advisors or trading robots posting negative performance on their program. However, once the product is purchased, many of them perform quite differently and often negatively. How is that possible?
To post a performance chart of their EA or trading robot, sellers perform a backtest. A backtest is a method to test the performance of a strategy over a period of time. However, these backtests are sensitive to several elements:
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Market conditions
: The performance of an expert advisor or trading robot varies depending on market conditions. Like all trading strategies, some conditions will generate phases of gains and others phases of losses. Sellers obviously favour backtesting under favourable market conditions by choosing periods of time when performance was positive. So, it is possible to post positive performance for all EAs or robots.The impact of changing market conditions has a much stronger impact on swing trading strategies than scalping. Effectively, depending on whether the asset is in a trend, range or high volatility phase, this will generate very uneven performance (positive or negative).
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Data evaluation
: When performing a backtest, complete data on the price history of the asset is required. However, this data may be incomplete, which can considerably modify the performance of the program. In addition, the data can be used in several ways.Backtests are reliable but the data processing method and especially the period of time chosen by the seller considerably vary the performance generated by the expert advisor or the trading robot. So it is advisable to opt for sellers displaying the real performance of the program on a real account. This also eliminates several backtest defects that muddy real performance such as slippage and order execution time (not taken into account in the backtest), especially if it is a scalping strategy.
How can traders choose an expert advisor or trading robot?
Choosing an expert advisor or trading robot is not easy. Indeed, the sellers of the program do not wish to provide details of the trading strategy associated with it. This is perfectly understandable, otherwise the program would no longer have any market value. But then how do traders evaluate an expert advisor or a trading robot? This is done according to several criteria:
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Average gain/loss ratio per trade
: A trading strategy cannot win in the long run if the average gain is not greater than the average loss per trade. Traders can therefore remove these strategies from their choices. The higher the ratio, the better the quality of trades. This amounts to assessing the risk/return ratio on a trade. However, this does not mean that strategies with an average intermediate gain/loss ratio are not good strategies. Indeed, one strategy may have a lower average return on winning trades than another strategy but have a higher ratio of winning trades.-
Percentage of winning trades
: This statistic should be compared with the previous ratio. Effectively, one strategy may have a lower percentage of winning trades than another and yet generate more performance. This is particularly the case if we compare a scalping strategy (which must have a high percentage of winning trades) and a swing trading strategy. With swing trading, it is possible to have a winning trades ratio below 50% and be a winner if the winning trades are well exploited with a high average gain per trade.-
Drawdown
: This is the historical maximum drop recorded on the strategy. It's the strategy’s volatility. The higher it is, the greater the risk. Traders must relate the drawdown to the performance posted by the expert advisor or trading robot. It's all about return versus risk.Example: Strategy 1 generates 30% performance with a 15% drawdown. Strategy 2 generates only 21% but with a drawdown of 7%. Which strategy should traders choose?
If you answered 2, that's the correct answer. Indeed, with strategy 2 traders risk 1 to win 3 (21/7). With strategy 1, traders risk 1 to win 2 (30/15).
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Configurable program
: An expert advisor or a trading robot must first of all be configurable. For example, traders should be able to decide the size of their positions, the maximum number of trades or trading times. These are the basic functions, additionally, depending on how the EA or robot works, traders should also be able to set the trade entry and exit parameters. For example, the take profit or stop loss level must be configurable. If it is a scalping strategy, traders must be able to change the maximum slippage allowed.The conditions required to fully exploit an expert advisor or trading robot
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Good trading conditions
: Choose the broker offering the best trading conditions on the products on which the expert advisor or the robot is active. It is better for traders to choose a broker with variable spreads if the trades have been carried out throughout the day and the broker has fixed spreads, if he or the robot intervenes essentially in periods of high volatility (increasing spreads during an economic announcement).If the strategy is linked to scalping, traders should also choose a broker with good execution speed and with whom slippage is infrequent. To do this, traders should test the broker’s platform on a demo account.
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A quality VPS
: Running an expert advisor or trading robot is not done on the trader’s PC, especially if he is trading continuously. Traders have to go through a VPS (Virtual Private Server) that will host their robot. They can remotely access the server and interact with it as if it were their PC.The VPS must have the shortest possible response time and hardly any interruption. Traders should know that even the best VPS can freeze. The VPS must therefore be automatically rebootable. So, when the VPS restarts, their EA or robot will be functional again.
Some brokers offer free VPSs but often they are not the best (although in most cases they are enough). Traders pay a monthly subscription if they want to have access to the best performing VPS.
Conclusion
Expert advisors or trading robots have their advantages and disadvantages. It's up to traders to choose their camp. If they opt for automatic trading, they should be very wary of the different offers to be found on the net. Most of them are very attractive (very promising backtests) and traders should be wary of them. However, we must not put everyone in the same basket. Not all robot vendors and expert advisors are crooks.
Traders should ask themselves how the strategy works, try to understand it. Choosing one of these programs should not be made lightly. The strategy applied must be analysed in detail and the notion of risk must always be kept in mind. High performance is not risk-free. You're old enough to know that Santa doesn't exist!
