Using Expert Advisors in Forex Trading

USA, New York, New York City, Trading desk with computers and phones
•••

Tetra Images/Getty Images

In the world of foreign exchange (forex) trading, an expert advisor (EA) is software that tells you when to make trades. You can even program the software to initiate and execute trades for you by using your trading criteria.

Expert advisors are most often used within the MetaTrader 4 or 5 forex trading platforms. You can use a current EA or create your own based on the trading parameters you like. These EAs are written in a programming language called MetaQuotes Language (MQL).

Find out more about expert advisors and how they can help you trade.

Key Takeaways

  • Expert advisor (EA) software lets you take part in the foreign exchange market at any time, even while sleeping.
  • The software can detect trading patterns and execute them based on the instructions you've given.
  • Use an EA with caution, because it doesn't account for time-sensitive market movers like news.
  • Humans still have a role to play in trading by looking out for the events that could affect their trades.

What Is an Expert Advisor?

An expert advisor is a computer program that is designed to automate forex trading. There is a forex market open somewhere in the world 24 hours a day, seven days a week. You can use an expert advisor or a trading tool called a "forex robot" to carry out trades in your absence.

These tools enable you to make trades while you're working, asleep, or doing other things. Like other artificial intelligence platforms, they have some benefits and issues that you should be aware of.

Advantages of an EA 

If you're prone to trade when your emotions get the better of you, an EA removes that factor from your trading. If you use an EA, your fears and drive for more profit won't affect your choices when responding to trading signals; the EA will carry out trades based on your input. It has no fear of loss or profit-making mentality; it only makes the trades for you.

If forex trading is your main source of income, using an EA can reduce stress levels, because it takes away the mental strain of trading. You can set your trades for the day and move on to other tasks or efforts.

An EA or robot can compare far more variables per second than a human can. Our brains are not fast enough to match an EA's speed at weighing options.

An EA can consider the variables for several different currency pairs at the same time. The speed at which it makes a decision and acts on it is the main reason many traders use them.

Disadvantages of an EA

One of the issues you face with an expert advisor is that it cannot respond to real-time news. It ignores factors that cannot be programmed into it. If you're at your desk monitoring the news, you can avoid making a trading mistake after a news release. The EA, however, will not care about the interest rate decision being published in one hour; it will keep trading (or not) if it is set to do so.

Even though the EA can deal with more variables at once than you can, it can only act in the manner you've told it to. You're not as rigid in your thinking, so you can respond to things that fall outside the parameters you've set. There may also be times when you have to jump in to avoid a big trading error or take an opportunity.

Testing and Research

Whether you use someone else's EA or create your own, it's crucial to test it over various time frames in a practice account. A practice account does not put real money at risk and lets you see how it performs for you. You may find that it works well for you on some currency pairs but not on others.

If you're using an EA that you programmed, be prepared to adjust the variables from time to time. As trends in the market change, your program may have to change with them.

If you're using an EA from another firm or individual, remember that the currency market is largely unregulated, making it a natural place for scammers to work. Beware of EA creators who promise ridiculously high returns. Realize that some scammers understand that overpromising is a red flag, and an EA provider that tries to strike a balance between hope and credibility may also be a scammer.

Above all else, do your research before committing to any single expert advisor, and keep your expectations realistic. There are some good EAs out there, and some traders achieve year-over-year gains using an EA or robot that trades automatically. However, their annual returns are usually in the high single- or low double-digits at the best of times.