Forex Trading has seen its popularity increase significantly in the past few years, a large part of which can be attributed to the use of Forex Expert Advisors. Also known as Forex robots, Expert Advisors are a class of automated trading systems that aid the trader during trading. Generally, they can help the trader create orders and automatically submit them to the market, following some pre-defined set of rules and a strategy. It can aid traders to execute repetitive orders in greater magnitudes, quickly, without any human intervention required.
The use of EAs has been a talking point within the trading community for a long time, with some agreeing about its undeniable benefits while others point out its flaws. This article seeks to discuss both advantages and disadvantages of using an Expert Advisor in forex trading.
Advantages of using Expert Advisors
- Operating 24/7: Unlike manual trading, automated trading systems like Expert Advisors can trade continuously for 24 hours a day. This is important as the forex market is a 24/7 operational market, that always requires keeping track of price action. Because it’s automated, it can be programmed to observe market movements without any breaks. Following a set of rules based on technical indicators, it can execute trades automatically whenever specific criteria are met. This allows it to have an advantage over manual trading, as it ever misses valuable trading opportunities with potential.
- Not Vulnerable to emotions: Forex traders have often struggled when dealing with emotions during their trading sessions. It’s not uncommon for traders to be overtaken by either the fear of losing at some point or greed, taking erroneous decisions in the process. Human emotions are the cause of clouding the trader’s judgment leading them to deviate from their own tried and tested strategy. This problem is largely removed with the help of EAs. Expert Advisors do- not have any emotional components at all. Coupled with automation, it can take trading decisions and execute them without feeling pain from losses or any joy from wins. This has a tremendous effect in the long run for a trader’s account, as the EA is able to capitalise on many trading opportunities, which would otherwise not arise.
- Reacts Quickly to Market Movements: It’s a well-known fact that humans take a few seconds to figure out how to react to price movements, after being faced with the barrage of market information in real time. Often this results in traders either entering late or exiting too early off trades, losing valuable trading opportunities in the process. A forex robot, on the other hand, has the ability to execute a trade in a matter of milliseconds. Day traders especially benefit from this, as they often look for profits from quick moves, usually based on one minute and 5 minute charts.
- Avoids Silly Errors: Humans are prone to make mistakes, especially when one’s tired from a long, drawn out trading session. These mistakes can range from wrong calculations in position sizing, to entering wrong trade lot sizes. Preventing such mistakes is one of the key reasons why automated trading systems were designed. They never enter wrong inputs, which prevent costly mistakes from occurring.
Disadvantages of Using Expert Advisor
- Relies on Reliable Internet: Expert Advisors mostly need to rely on an uninterrupted, reliable net connection, or a VPS (Virtual Private Server) for it to function properly and execute all the trades it was designed for. Even though most internet connections around the world are reliable, the odd interruption in connection can cause EAs to malfunction. Traders tend to loose significant amounts of money if they don’t intervene soon.
- Broker Compatibility: Some Expert Advisors use the scalping strategy to gain profits, are thus designed to work best with brokers on a tight spread. In this case, the trader should investigate the spreads offered by the broker. The spreads have to be low enough for the specific pairs the EA is trading on. A lot of brokers have also outright banned EAs which use scalping.
- Performing in Adverse Market Conditions: Since financial, economic, environmental and political factors play a key role in currency changes within each country, it undeniably has a huge effect on the forex market, making it quite a risky place to trade in. Since EAs cannot decipher such fundamental data, their decisions may effect. A sudden extreme event that reverses the market direction can result in the EA stopping out or enter a trade much too later in the new direction.
- Settings Cannot Be Changed: Any manual intervention on the Expert Advisor is never advisable. This includes changing any settings or exiting trades manually while the EA trades in real time. Using the default settings is advisable as the creator of the EA has a better understanding of the inner workings of the software and has thus provided the recommended settings. Traders who manual tend to exit trades or change settings according to their own knowledge or preferences, risk degrading the performance of the Expert Advisor.
- Does not work in Sideways markets: The majority of EAs are technically based and are meant for working in trending markets. Thus when the market becomes sideways, EAs tend to get vulnerable. They tend to get chopped up when markets enter into a low pip range.
Expert Advisors undoubtedly offer an edge over manual trading when it comes to consistence and acting on predefined entry or exit conditions. There are several types of EAs available in today’s market, each working on single or multiple trading pairs. To make a well informed choice, potential customers should test them on forward and historical data.
If the EA provides demo accounts, traders should use them to test the EA in certain market conditions, before getting the confidence required to run them in a real trading environment. There are also a large number of fraudulent and scam Expert Advisors, which have to be avoided at all costs.