Get to know your EA and yourself
- As a general rule, before using any EA on a live account, it is advisable to run it in the demo environment until you understand how the EA works.
- When testing an EA in a live environment for the first time, you should limit your risk by only investing a small amount of capital. If the EA performs well, you can invest more.
- Watch your EA carefully and try to understand whether it performs well (or badly) in trending markets or ranging markets.
- Before choosing an EA, assess yourself; decide what kind of trader you are and your appetite for risk. Do not change the settings of your EA on a regular basis, but when you do,make sure that you understand the changes you are making and the impact they may have on your EA’s trading performance.
Monitor your EA and manage your exposure to risk
- Monitor risk parameters on a regular basis (i.e. drawdown, leverage, number of open trades, frequency of trades and maximum loss per trade).
- Consider halting your EA prior to important news announcements. Pausing the EA will protect you from the risk associated with a specific event. High impact news can result in price shocks that can lead to substantial losses, even when an EA is utilising stop losses.
- Consider halting the EA and closing open trades prior to market close for the weekend, to avoid uncertainty during the weekend and the risk of a weekend gap that can lead to large losses.
- Avoid over-leveraging your EA.
- Avoid overexposure as a result of excessive time in the market.
- Use the recommended risk management settings to avoid excessive bleeding / draw-downs.
Test the limits of your EA
- Back-test small changes in input parameters to evaluate the sensitivity of your EA.
- Each EA is optimized based on past performance and back-tested to maximize a profit or other function while meeting certain money management rules. The optimization and back-testing is usually done on various instruments, time-frames and specific EA parameters. Other instruments and time-frames may require different input parameters. In other words, an EA’s performance may vary depending on the particular instrument and time-frame.
Maximize your trading experience
- Expert advisors are automated strategies designed to instill discipline in trading and improve profit targets, which both enhance your trading experience.
- Enhance your speed of execution. Your EA is doing the clicking and as a result, you enjoy faster execution than if you were trading manually.
Be aware of the risks and limit emotions
- An EA formulates a consistent strategy and incorporates money management parameters such as lot size, stop loss, take profit, max drawdown, frequency of trade, number of open trades, etc.
- Expert advisors help you to adhere to specific trading rules and take emotions out of the equation. Computers are emotionless; they don’t freak out about a bad position or jump into bad trades just because they are overconfident following a series of good trades. EAs will stick to the rules and the parameters that you set. They will only enter a trade when ALL the conditions are met, and will never over-trade or under-trade because of emotion.
Easily Calculate Trade Risk
- The capital in your trading account is your primary asset and your responsibility as a trader is to protect it. Professional traders focus on their losing trades more than on their profitable trades. With the help of back-testing, EAs will help you to calculate your potential risk in a trade. The first question you should ask before opening a new position is how much I can “potentially” lose if the market moves against the position, i.e. the position goes the wrong way. An expert advisor can perform all the calculations for you to determine the trade size and the associated risk parameters to limit your risk on a single trade.
Trade while you are sleeping – never miss a trade opportunity
- EAs are on the job 24 hours a day, 5 days a week (the time the forex market is open), allowing you to have a normal life without being tied to your computer. Whenever the markets are open, your EA is watching and will ensure that you don’t miss any opportunities to trade (according to the predefined rules of your EA).