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What is an Expert Advisor?

EA programming code

An expert advisor is not quite what the name suggests. This is not an expert in the financial markets who will advise you on how to trade. In trading terminology and especially in the forex markets, an expert advisor is an automated trading script.

Traders make use of an expert advisor to buy and sell or trade without the need for any human intervention. An expert advisor of course is nothing but a piece of code that runs according to the rules and the logic that is programmed.

An expert advisor is considered to be a better way to trade based on a trading strategy. This is because it is a bot, or a program. Therefore, the system trades objectively and removes the aspect of emotions or psychology.

While this may be an advantage, on the flipside, an expert advisor cannot think. This means that the expert advisor or an EA for short continues to do what it is told to do.


Why do traders use an expert advisor?

It is important to realize that an expert advisor is a piece of code that is based on a trading strategy. Trading strategies that are mechanical in nature tend to work best. However, you should know that not all mechanical trading strategies are profitable.

However, if you do find a strategy that works for you, using an expert advisor is the best option. Traders use expert advisors for a number of reasons. For example, if you have a full time job, you of course cannot spend your whole day looking at the charts.

If there are specific times of the day when you want to trade, an expert advisor can execute the trades for you. Because there is also the logic of when to stop your losses and when to book profits, an expert advisor is more preferable.


Example of a simple expert advisor

EA indicator

Example of a moving average crossover using an EA

The simplest of all expert advisors can be illustrated with the help of a moving average crossover. Say you want to buy when there is a bullish crossover and you want to sell when there is a bearish moving average crossover.

You can choose to do this by yourself, but you will have to wait for the crossovers to happen. Instead, you can program the logic into an expert advisor which will execute the trades for you. Of course, whether such a strategy works in the long run, is an entirely different story.

By using the expert advisor, you are eliminating the process of thinking. So the EA tends to be objective and follows the rules of your trading system all the time.


How to build your own expert advisor?

The first step is of course having a trading strategy in mind. You can employ any of the indicators available on your trading platform as long as you can code them.

Once you have a strategy in mind, the next step is to test it out. A good place to start is to build a custom indicator. Based on the rules you program, the indicator can show you buy and sell arrows. This visual depiction makes it easy to go back in history to see how your EA would have performed.

When you are satisfied with the results, you can then begin to code your EA or simply hire a coder. Once your EA is ready, it is recommended that you first run it on a forex demo account to back test the strategy.

Forward testing is also important. You can forward test your data on a demo or a forex cent account and let the EA execute trades for you over a few months or even a year. This process will help you to identify any potential shortcomings on your trading logic which can be fine tuned.


Tools needed to use an EA

Now that you have your expert advisor, you need some basic tools. Of course, you need to have a trading account. An EA runs as long as your terminal is open and active. An EA does not run when you close down your terminal.

Therefore, most traders who use an expert advisor also invest in a virtual private server or a VPS. A VPS is a remote virtual computer. You can install you trading platform and the EA. Unlike your local desktop or laptop, a VPS runs 24/7.

This eliminates the need to keep your computer running. You can access the VPS via a virtual desktop app. A VPS also allows you access the remote virtual computer from anywhere.


Should you be using an EA?

The answer to this depends on what you want to achieve. Most traders think that purchasing an EA will make them rich. However, it is important to note that sometimes, when you backtest an EA you end up tweaking your trading system so much that it is curve fitted.

This means, that your trading system is compromised to make sure that it looks good when backtesting. But when you forward test, the results might vary.

If you think that you need an EA because you cannot dedicate enough time but you believe that you have a good trading strategy, then an EA is the best option for you.

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