Look on the internet for a trading robot and we will be bombarded with web pages with many sellers making the claim that with their robot easy money can be made. The robot alone is enough to make us rich!
All this carefully crafted sales junk creates an illusion that using an Expert Advisor is easy, just set up the robot and it will make you money.
Making some money in the short term is not difficult however the difficulty with EA’s is keeping your trading robot making money over the long term.
An expert advisor works through a mechanical trading programme. These are set trading rules that dictate the EA’s behaviour. This could be either an indicator based strategy or a series of rules programmed by the developer.
The developer runs their mechanical trading programme on historical currency data. In this way the trading rules are refined to produce a mechanical system that produces a profit.
A developer has to be aware of some pitfalls such as the length of time the system has been tested over. If the system has been tested over a short time period the system would only perform if these conditions continue but remember all markets change with time.
If the EA is subjected to different market conditions it stops making you money. You will need an EA that can cope with different market conditions or you can use different EA’s in different market conditions.
Checking the sales pages of the EA you can see how long the EA has been tested for. This will not tell you whether an EA will be good to use, however it is a positive indicator. Scam robots are tested over recent data and over optimised to produce fantastic short term results.
By looking at the length of time the automated system has been tested for will give us an idea if our trading system will be able to cope with changing market conditions.
Once you have selected robot to buy and test you should always check who the payment merchant is and you should use EA developers who use clickbank marketplace as clickbank offers a money back guarantee (within a certain time limit).
Now we can purchase our trading robot and be sure that if the robot doesn’t meet our testing standards we can get our money back.
Once you have you EA set it up on your Metatrader 4 (online trading platform) you can start testing (In this case testing means running your EA over past data to see how it fared). When you start to test in Metatrader 4 you have access to the meta quotes data. This data is short term and is for all currencies in Metatrader 4. It is broken down into different time frames such as 1minute, 15 minute, 1 hour, 1 day etc.
A word of caution – the data provided by Metatrader 4 is not long enough or detailed enough to provide high quality backtesting results. You will need to get high quality Tick Data to backtest efficiently and lots of it.
By accurately testing we can see if a robot is good or not, but before we test we need to look to see if the trading robot has a stop loss as this gives us control of our trading risk.
When a robot has a stop loss we can be sure that only the amount of money we are willing to risk is risked. Next we should look at the systems parameters, do we have the ability to control how the trading system behaves as this allows us to control the robot over different market conditions.
If my initial testing shows me that the EA fails on either point I will get my money back and if the robot passes I will test it in more detail. My testing uses tick data and software patches to produce 99% modelling quality testing.
We are looking to use the historical data to provide the settings we will use in our forward trading. We do this by first selecting how long we wish to forward trade for. This could be weeks or months. Now let’s say we are forward trading for a week so we would need to back test the previous 2 weeks with various settings.
I use these settings for the next weeks forward trading. After I have traded all week, I will backtest for another 2 weeks which includes the week we have just traded. In this way I keep my EA in tune with the current market conditions.
By selecting an EA that can be tuned to market conditions and having the skills to be able to do high quality backtesting will give you the edge you need to select expert advisor’s that will be profitable over the long term.
Author: Dean WattThis author has published 1 articles so far.