EAs can be very useful in the investment business. Sadly, the power of EAs is often underestimated by the rookies. The big players in the trading industry often think the manual use of the EAs is the only way by which the retail traders can secure profit. The thing is people are biased with three key elements at trading.
These are –
- Securing a big profit
- Avoiding the losses
- Showing the pride
These three elements are very risky for traders. Unless you learn to take control of these three things, you won’t be able to succeed. The greed to secure big profit forces a trader to make an aggressive decision. The fear of losing a trade makes the traders frustrated. Lastly, pride stops you from learning new things. And the result of these three things creates massive errors in your trading system.
Based on the situation and market demand, we feel the urge to educate the traders to fix their errors. Though everyone thinks the manual method is the key way to fix the issues in any system but the smart investors love to rely on EAs. EAs can excel human beings in a certain aspect of this business. Let’s find out the key steps by which we can fix the errors in any system.
Analyzing the ROI
ROI stands for return over investment. The traders usually risk a certain portion of the capital with an urge to earn a decent amount of money. But they forget the role of risk to reward ratio. Taking $100 risk and earning $100 might seem to be an excellent return in the traditional business. But at trading, it’s merely considered a good approach. The fact is, you are taking the trades with a 1:1 risk to reward ratio and putting you in a bad shape for recovering the loss. You have to carefully analyze the potential risk to reward ratio in each trade.
Unless your system is generating 1:2 risk to reward ratio in each setup, you can’t survive in the long run. Use a strategy tester EA and see the ROI of your trading edge. Anything less than 1:2 (risk to reward ratio) requires strong revision.
Analyzing the trade direction
We all know the trend is our friend. But do you know many people don’t even know how to find the trend? Lack of knowledge usually leads to a counter-trend trading approach. The win rate of a system might be more than 70% still, it’s not a balanced system unless 70% of the trades are executed along with the existing trend. The only way by which you determine whether the system is balanced or not is by using an EAs. Install an fx EA that can test your previous trade and analyze the historic price movement.
Based on in-depth analysis, the EA can create a summary in which you can see the number of trades executed in favor of the trend and against the trend. With this simple data, you will know whether you are taking trades based on trend or retracement.
EAs to analyze the candlestick pattern
The new price action traders often take trades without even knowing that they are reading the pattern in the wrong way. The price action EA can analyze the potential price pattern and create a simple text mark adjacent to the candles. So, when you take real trades with PA (price action) signals, the chances of making the wrong decision are almost zero. Just read the text and analyze the position. It can quicken the process of learning price action patterns.
Though it might seem a super complicated task to get used to the different price action signals, the EA starts working as the helping tool, you can feel the ease at trading.
Determine your aggression level
Some unique EAs can determine the aggression of the trader. It uses a simple logic of trade frequency. After developing a trading system, you know how much money you can make from a certain trade. Most importantly, you know the probable number of setups you might find by using a particular trading method. The EAs will analyze the potential risk factors and compare it with the result. If you overtrade or increase the risk without following any consistency, the EAs can mark the strategy as an aggressive one.
By analyzing the system, you can find the faults and eliminate the root cause of aggression. In general, overtrading, taking high risk, and taking trades with emotions are the main cause of aggressive steps.
EAs are amazing tools and often considered as blessings. Learn to use them properly so that you can stay tuned with the market. Stop thinking that buying the most expensive EAs will eliminate the problem. Focus on its functions and use it to fix the errors in the system.