A Forex Expert Advisor is an automated system which serves to track the market movements and generates trading signals upon identifying relevant trading opportunities.
What is a Forex Expert Advisor?
Forex Expert Advisors are usually developed to identify and provide daily Forex signals and inform the trader of new opportunities. Similar to EAs is a Forex robot, which is also an automated system that serves to spot market patterns and provide trading signals.
One of the major distinction between the two is that a Forex robot can even place a trade on your behalf while with an EA, you need to place trade yourself. EAs are programmed on preset rules but not all of them follow the same rules. Just like any other automated system, EAs help traders avoid placing emotional trades, a very common issue among new Forex traders.
Forex Expert Advisors are available to buy and download from the internet and can be easily installed on your Forex trading platforms such as MetaTrader 4 or MetaTrader 5. There are four most common types of Forex EAs – The News Expert Advisor, The Breakout Expert Advisor, The Hedge Expert Advisor and the Expert Advisor Scalper.
How Does it Work?
Expert Advisors can operate in different ways. For example, some EAs utilize a group of technical indicators like the moving average or the MACD, while others look for relevant trends and identify breakouts.
By utilizing multiple technical indicators, an Expert Advisor can analyze the market and the performance of financial assets and based on that information it generates trading signals. As already noted above, some investors prefer Forex robots over Expert Advisors.
The main difference between the two is that an EA will produce trading signals while a robot will automatically place a trade on behalf of the trader. Nevertheless, those two terms are frequently used interchangeably, meaning that many Forex Expert Advisors are able to do much more than just provide trading signals.
There are some EAs that operate by taking full control over a trader’s account. This type of EAs will check your account balance before choosing what percentage of that balance can be put at risk. Overall, it’s not advised to risk more than 1-2% of your account balance per trade.
In addition, it can also analyze the trades and decide whether it should use a trailing stop, stop-loss or take-profit order. Once EAs gather enough information, they also look at the current market circumstances. Ultimately, they will notify you when it’s a good time to make your move.
In conclusion, The main advantages of using an Expert Advisor in Forex is that it can place trades when you’re offline, it doesn’t have emotions and therefore it can’t make irrational trades and it enables quick backtests.
Still, keep in mind that this is an automated system so it’s debatable how consistent EAs are in terms of bringing profits. That’s why if you decide to use one, make sure you spend enough time in research to find the best possible Forex Expert Advisor.
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