What is an Expert Advisor? [Guide]
Published: 18 November 2020 by Andrew
In this article we will define what an Expert Advisor is and what it does. It is a very interesting tool that, if used well, can independently handle aspects of the negotiation phases on the financial markets.
An Expert Advisor is a robot that automatically manages the positions of those who trade online. It is able to close or open a position for any chosen asset. EAs work with If and Then strings. From a practical point of view it is nothing more than a file with the extension MQ4 or EX4.
The MQ4 file extension is known as the MetaTrader Custom Indicator File which was designed for the MQ4 MetaQuotes Software Corp. file format. The language in which the EAs are programmed is called “MetaQuotes Language 4”, abbreviated to MQL4.
Let’s see in detail how they work and how Expert Advisors are programmed, but remember that there are now several solutions to automate financial trading operations. Among these we remember the simplest and most immediate: eToro Copy Trading that we will present in the course of our guide.
Expert Advisor, planning the trading
Anyone can write and program their own indicator and strategy using MetaTrader’s “MetaEditor” setting. To open it, just go to Tools and select the “MetaQuotes Language Editor” item or click on the “MetaEditor” icon in the toolbar.
To make Expert Advisors easier, they are usually programmed with moving average crossovers. These crossovers follow few rules and for this reason the design is more accessible.
Each time the moving averages intersect, the platform will open a position for the investor. Simply put, if the fast moving average crosses above the slow one, the signal is a buy. If the fast moving average instead goes below the slow moving average, it is the signal to close the open position.
It is good to remember to set Stop Losses and Take Profits as EAs can also decide the size of positions to enter the market. It is also important to calculate the maximum possible drawdown and the expected value at risk. However, we talk about invested capital and we must always try to avoid the risk of loss.
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The Features that can be managed by an Expert Advisor
Expert Advisors can perform numerous automated activities. They can spot chart patterns and manage entry and exit orders with take profit and stop loss.
Thanks to the EA it is possible to manage the customized trailing stop and the automatic sizing of positions, for example by parameterizing it to the signal strength.
These robots can create graphical or email alerts, in-depth back tests, new indicators and oscillators. You can manage the hours to enable trading and close all positions simultaneously.
How are Expert Advisors used?
In order to start using an Expert Advisor, the user can choose between two options: create one on his own or buy an EA on the MetaTrader 4 market.
To produce the robot, the trader has to develop it, program it and compile it on the MQL MetaEditor. Thanks to their past experience, traders can define which market conditions will lead to the opening or closing of positions based on various indicators and elements of technical analysis.
To create an Expert Advisor you must therefore be a programming expert and know the language of the software you trade with, for example MQL4 for MetaTrader 4 or MQL5 for MetaTrader 5. The software must be written using the source code and then tested to see if it performs the operations that have been implemented.
However, not everyone is able to program with these languages and therefore it is good to rely on an expert in online trading and related software. On the internet you can find free and paid Expert Advisors, as well as on the MetaTrader Market.
The MetaTrader Market offers a large selection of free and paid Expert Advisors, as well as indicators, magazines and books on trading and finance. Each product is provided with a screenshot and reviews released by users who have already used it.
In the MetaTrader Market you can test any product in demo version. Thereafter, the products can be purchased or rented for a period of up to one year and each product can be activated on at least four devices.
The Parameters to consider in order to choose an Advisor
As in any e-commerce, even in the MetaTrader Market there are products that seem more tempting and promising than others. It is necessary to take into account each parameter of the Expert Advisor that you want to purchase, such as:
- Profit Factor
Profit Factor is the numerical ratio between profits and losses. For example, a factor of 3 suggests that the Expert Advisor allows you to earn $ 3 for every dollar lost. The best EAs promise to earn as much as $ 30 for every dollar lost, so they have a Profit Factor of 30.
A very interesting Expert Advisor made by an Italian team is the MEP (Mathematical Exponential Profit). Also worth highlighting is the EvoForex EA which has shown exceptional results. Or Forex Pip Shooter that with a spread friendly strategy and the right broker manages to generate profits that are not at all enviable to other Forex Robots.
This term means the maximum loss recorded in the event of a failed trade by observing a large sample of trades. It is a factor to be taken into consideration when studying the effectiveness of a trading system or even, of course, of an Expert Advisor.
The factor is calculated by dividing and percentageing the ratio between invested capital and maximum loss in the single trade. The best Expert Advisors, among which we can undoubtedly also include FAP Turbo, boast a 0.30% DrawDown. This means that if you invest $ 100, the maximum estimated risk is to lose $ 0.30.
- Win Percentage
Win percentage is simply the ratio, expressed as a percentage, between winning trades and total trades. If the winning percentage is 50%, half of the trades made have been successful.
If we talk about Expert Advisors it is not very sufficient to take into account only this percentage. In fact, another element must be taken into consideration: stop losses. If the stop losses are too large, then the loss per single failed trade will be very high.
For this reason, it is good, when judging an Expert Advisor, to check the approach to the issue of Stop Losses. If these are placed at an average of 150 pips, an EA must have a winning percentage equal to or greater than 80% in order for it to be judged satisfactory.
How to upload an Expert Advisor to the Trading Platform
Each Expert Advisor, purchased or developed, is different and has been designed to meet the needs of each trader. Therefore, it is important to test it before using it on your trading account.
After conducting the appropriate tests, you can proceed to upload to the online trading platform to start reaping the benefits.
1. Folders creation
- After downloading or creating the Expert Advisor, keep in mind the path where the files were saved.
- Click on the specific files required for installation and copy them.
- Paste the selected files into the MetaTrader 4 folder generally accessible from C:\
2. Uploading the Expert Advisor to MT4
- Log in to MetaTrader 4.
- Go to “Navigation” and select “Expert Advisor”. Your EA is accessible by clicking on the “+” sign.
- Drag the selected EA onto the platform’s charts.
3. Define the settings of the Expert Advisor
- Define the EA settings in the pop-up according to your preferences.
- Once you are sure that all parameters are correct, click on “OK” and start trading.
Read More: Metatrader Platform
Expert Advisor: risks and advantages
One of the obvious advantages about the Expert Advisor is the ability to earn easily. Being a robot that acts automatically, investors don’t necessarily have to spend hours in front of the computer. It is also possible to accumulate profits by investing your time in other activities.
The most common mistakes in trading are also dictated by the psychology of traders. Many investors act on instinct, aiming only for profit. This is why most of them rely on the Expert Advisor. Being a real programmed robot, it does not run into problems of greed or panic. This makes trading much more efficient.
The skepticism in using an Expert Advisor resides above all on a practical level. In fact, EAs are not always as effective as they should be in theory. The basic problem is to be found in the programming of the above.
The many solutions on automatic trading that are found on the web very often have poor performance. Expert Advisor developers are almost never trading experts but marketing experts. Those who fall for it are especially novice investors who are duped by unmissable offers and, after using the EA, find themselves without a penny of capital.
Unlike trading experts, marketers almost never take into account the history of past operations. Those with a minimum of experience in the investment sector know the importance of the historian and avoid these types of low-quality EAs.
eToro, the best alternative to Expert Advisor
For investors who fail to recognize a quality Expert Advisor from one with poor performance, there is a very valid alternative. Another way to do automatic trading, in fact, is to rely on Copy Trading and the most advantageous platform is certainly eToro.
eToro was born in 2007 thanks to three entrepreneurs. Their mission was to make the world of trading accessible to everyone and, looking at the current situation, they have succeeded in an excellent way.
In May 2009, WebTrader was launched, a state-of-the-art, intuitive trading platform that allows anyone to trade financial assets online. WebTrader includes professional tools for both beginners and advanced traders and is available on any device.
But the greatest success of eToro comes only in 2010, the year in which it becomes the best social trading platform in the world. It allows anyone in the world to join the Fintech revolution with the use of the innovative CopyTrader feature. The platform attracted global attention and won Finovate Europe Best of Show for 2011.
Thanks to Copy Trading, users can copy the trades of the most successful investors. It is possible to select prominent traders in the “Pupular Investors” section or through a filtered search with the search engine on the portal.
This form of automatic trading therefore allows you to make transactions even when you are not at the computer and obviously allows you to avoid any type of psychological conditioning in trading. You can rely on absolutely secure and certified data to make your choice and set your own budget.
eToro also offers the Copy Stop Loss functionality. Thanks to this tool, you can choose a threshold beyond which to close a Copy Trading operation. It is very useful to avoid risking additional capital when there is a loss.
Less experienced investors can sign up for eToro with a demo account. Totally free and unlimited, the demo account is the best solution to learn everything about the world of online trading and the dynamism of the market. Some investors start with the demo to fine-tune their winning strategy.Click here to sign up for free on eToro
All aspects of Expert Advisors have been illustrated in this guide. Expert Advisors can generate high automatic profits as they allow experienced traders to automate the strategy.
While they may seem like a good automated trading solution at first glance, they are not to be overestimated.
The tempting offers found on the web do not always correspond to reality. This guide tries to especially warn traders who have very little experience in the sector and are blinded by easy money.
When it comes to the financial market and in particular to investments, you must always keep your feet on the ground. It is no coincidence that most traders devote themselves to the study of fundamental and technical analysis before investing their capital.
If you want to resort to further help in online trading and rely on automatic trading, the use of the eToro social trading platform is more appropriate.
As explained in the previous paragraph, with Copy Trading we rely on secure and proven data compared to the use of an Expert Advisor. Finally, remember that it is always effective to operate with manual trading signals coming from technical indicators such as ADX indicator.
It is a Robot able to operate on the markets independently.
Using the appropriate MQL programming language or classic HTML.
It depends on the Trader who programmed it: if the values entered are “correct”, the EA will be too. However, it is necessary to properly set the Robot every month to adapt it to the new market scenarios.
The best for these robots is definitely the Metatrader.