Top 5 Expert Advisors to help you automate your trading
More and more advanced traders are now using robots or expert advisors (EAs) to apply automated trading programs on their MT4 accounts.
However, trading robots aren’t only for advanced traders.
Beginner traders can also use them if they take the time to learn how to automate their trading strategies.
As a foundation, every EA should have sound money and risk management rules.
What is an Expert Advisor (EA)?
An EA is an automated piece of trading software that works with Metatrader (MT4 or MT5) platforms.
The main idea behind using EAs is to automate your trading orders based on criteria you set.
You can have different kinds of EAs on Metatrader, such as News EAs, breakout EAs, scalper EAs and others.
Advantages of EAs
The main advantage of EAs is they remove many of the psychological pressures of trading.
Once you’ve written and implemented your chosen EA, there is no more emotion involved.
Your automated trading program will be able to analyse a greater amount of data and markets than you can, and it will also react faster when a trading signal appears.
Another major advantage is EAs can help you simplify your strategy.
As an FX trader, you want your trading strategy to be:
- easy to understand; and
- easy to be programmed as well.
This is because an outlined trading strategy will give you the chance to have an in-depth look at it and adjust parameters if needed.
Once your strategy is automated, it’s easy to test it out on different asset classes, such as FX, commodities, CFDs or precious metals.
You then need to analyse how it performs in different market conditions.
The key market types are trending and range-bound markets.
Let’s have a look at the top 5 EAs for beginner traders
#1. Moving Average Crossovers
Moving Averages are one of the easiest and most used trading tools, as they smooth out the price action to remove the noise of the market, showing the average price at which an asset has been traded over a certain period.
There is two main kinds of moving averages you can use, depending on how much weight you want to give to the last price:
- simple moving average (SMA), which gives the same weight to each new price
- exponential moving average (EMA), which gives more importance to the last price.
Moving Average crossovers are simple but powerful trading systems.
Usually, this trading system is developed with two moving averages, with the shorter moving average, the faster of the two, breaking above the slower moving average.
Buying signals appear when the shorter moving average crosses above, the longer one, and vice-versa.
#2. Bollinger bands and overbought/oversold Relative Strength Index
The Bollinger Bands indicator (BB) is used to measure the volatility of an asset by adding and subtracting two standard deviations from a 20-day simple moving average.
It creates a channel enveloping prices, and extreme situations can be observed when prices are trading close/above the upper band, or close/below the lower band.
The Relative Strength Index (RSI) is a bounded oscillator indicator. Overbought is when the indicator is above 70 and oversold is when the RSI is below 30.
When the indicator evolves in these levels, then it means prices could reverse, or that they are at least losing momentum.
A profitable trading system could be developed with these two indicators: when prices are above the upper BB, and the RSI is above the 70-level showing reversal signs, then a selling signal will appear.
On the other hand, when prices are below the lower BB, and the RSI has been below the 30-level and is showing signs of exit this area, then a selling signal will occur.
#3. Pivot Points
Pivot Points (PP) are used to identify potential support and resistance levels, where prices can react, whether upward or downward.
Given that so many traders look at these levels, it’s highly likely there would be a reaction when prices reach these levels.
There are some different ways you can use PP in your trading strategies.
If prices are above the PP, then it could be taken as a buying signal, with the computed resistances as price targets.
On the other hand, if prices are below the PP, then it could be a selling signal, with the support levels as price targets.
You can use these levels to anticipate breakouts, and place stop-loss and take-profit orders.
#4. Bearish/Bullish Engulfing Pattern
Engulfing patterns happen with candlestick charts and usually appear at the end of an upward movement (bearish engulfing), or downward movement (bullish engulfing).
There are big candles with little or no shadows completely covering the previous candle, which is usually a trend reversal sign.
A buying signal happens when prices reverse – a bullish engulfing candle appears and covers several previous bearish candles.
Stop-losses can be placed below the last bottom, and the take-profit can be placed at/above the last top.
On the other hand, a selling signal will happen when prices reverse downward with a bearish engulfing candle covering several previous bullish candles.
Stop-losses could be at/above the last top, while the take-profit can be at/below the last bottom.
#5. Moving Average Divergence Convergence
The Moving Average Divergence Convergence indicator (MACD) consists of 2 lines and one histogram and is used to measure momentum while comparing two moving averages, as well as spot when prices accelerate.
The MACD line is a 12-period EMA less a 26-period EMA, while the Signal line is a 9-period EMA of the MACD line.
When the MACD line and the Signal line crosses, it can generate trading signals. Bullish MACD crossovers trigger buying signals when the MACD line crosses above the Signal line.
On the other hand, bearish MACD crossovers trigger selling signals when the MACD line crosses below the Signal line.
All in all, EAs are great ways to use automated trading strategies to build new trading systems, but it requires trading knowledge and programming skills.
You can buy EAs from professional traders, but it means you will depend on the skills of the person who wrote the program.
Remember, even if your EA is initially profitable, no trading strategy works forever.
It will require some tweaking from time to time to keep up with market changes.
Top 3 Risk Management Strategies for Successful FX Trading
Consistently profitable trading positions can be hard to achieve for inexperienced traders.
This is especially true if they focus more on market analysis, rather than on building their trading strategy framework.
There is one thing to acknowledge when trading: you will have winning and losing trades.
You can’t always win at everything you do, every single day. Many traders lose money even if their win percentage is above 60%.
This is because when they are wrong, they lose more money than what they earn when they are right.
As an FX or CFD trader, using risk management tools can easily rectify this for you.
There are so many types of events influencing prices that can’t be seen in advance, such as large bank orders and natural disasters.
Remember this: markets are always right. They are, however, so erratic that you can’t be successful in forecasting future movements without risk management rules.
Risk management is used to protect you against the unpredictable.
Putting together your risk management strategy should be done in relation to which kind of trader you are.
A general rule of thumb, whether you’re an FX, CFD or commodity trader, you need to use risk management techniques and strategies to increase your chances of becoming more successful in your trading.
Let’s have a look at the top 3 risk management strategies for successful trading
#1: Set a minimum Risk/Reward Ratio of 1:1
With the Risk/Reward Ratio (RRR), the expected returns on your investment are compared to the risk you undertake to get these returns.
Of course, the optimal RRR varies depending on the trading strategy you use.
That being said, the ideal RRR for most trading strategies is 1:2, meaning that you are targeting twice the amount you are risking on a trade.
The underlying rule here is to always use stop-loss and take-profit orders.
They can help you better plan your trades, which can make a difference between success and failure.
Remember to always “plan the trade and trade the plan”.
#2: Modulate your leverage to suit your risk tolerance
Do not forget that leverage amplifies losses as well as gains.
Some studies have highlighted that traders’ behaviour regarding leverage changes depending on their trading capital.
Traders with smaller accounts tend to use higher leverage than traders with bigger trading capital.
RRR and leverage should be used together in relation to trading capital and your risk tolerance.
#3: Limit your trading activities
You should always have a daily or weekly loss limit, so then you stop trading when you reach it.
It’s important not to trade when you are in a “revenge” state of mind because you lost money and you want to get it back.
You also need to know your limits and recognise toxic behaviour when trading, such as when you are too upset, or too hurt.
The inverse situation can also be dangerous.
If you win too much, you are going to be too confident, and you will usually take bigger risks to make more money.
Some traders do not use stop-loss orders, or they invest most of their money on a single trade.
They have a scenario, and they want it to happen regardless of the time it takes.
They are willing to wait and be “in the red” until their positions go into the desired direction.
This is a very risky behaviour, as the position might never go their way.
Pro tips: Sticking to your risk management strategy can be hard sometimes, as you can be pushed out of the markets due to a temporary volatility spike – but that’s the game.
You just need to work on your parameters and adjust them, while you gain more trading experience. Always use stop-loss orders in accordance with your investment strategy and your trading plan.