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A Beginner’s Guide to Forex Expert Advisors

October 12, 2021
by Leon Marshall,

Article Recap

Expert Advisors are software used to automate market analysis. They mark potential trading opportunities and can be created by traders themselves.

Forex Expert Advisor (EA) is a form of software used in trading based on algorithms. An EA is programmed to analyze specific market conditions and react to them by notifying traders of potential trading opportunities. Essentially, they scan the forex market while you do your own things and keep you posted along the way.

Why expert advisors?

Even if you are new to Forex, you probably know that the market is active 24/5. Add time zones to this and you get an almost endless cycle of trading. This opens up potential opportunities during any time of the day. However, even the best traders have to rest, and that is where expert advisors come in.

Humans are biased but expert advisors simply follow the instructions given to them. Forex market sentiment runs on emotions and gut feelings. When you carry a certain idea, sometimes a spark of emotion can take the best of you. Expert advisors can focus on what is relevant based on their algorithm, bypassing the risk born from emotional trading.

What are forex expert advisors?

EAs use complex mathematical models and a set of yes or no rules to navigate through the market. The correct forex expert advisor for your trading strategy can narrow down the lowest and highest price levels for you to go long or short. Developers backtest the top strategies all the time, in order to find out how well the software performs by taking historical data and working from it.

With an expert advisor, you can have more time while relying on a sophisticated piece of software that tracks, analyzes and makes decisions on the forex market without rest. On a purely technical level, expert advisors are programmed in the MetaQuotes Language (MQL). This makes them compatible with almost any trading platform, and in almost every case with MetaTrader 4 and MetaTrader 5.

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Types of forex expert advisors

Your trading style is the primary factor when choosing a type of expert advisor. There are several groups that cover a wide range of EA functionalities. Those include adaptive EAs, EAs for breakout trading, hedging, news trading, and scalping.

Adaptive

Adaptive forex expert advisors are programmed to carry a number of regulations and characteristics that alter between each other in accordance with the situation at hand. Software that adapts to market changes is software that heavily relies on machine-learning algorithms. Experienced traders tend to choose adaptive EAs because they allow them more freedom when set up correctly.

Breakout

Technical analysis is in the roots of breakout expert advisors. It helps predict  large price swings by following when the value of a currency pair breaks a significant level. Breakout happens when prices drop below support levels, climb through resistance levels, cross a moving average or reach previous highs and lows, and so on.

Hedging

Hedging expert advisors take two conflicting positions – buy and sell – at the same time, which acts as an extra layer of risk management but also reduces potential profit. Market conditions play a small role in this EA, as they isolate a specific match and focus on that. Should the original position close at a loss, the hedge positions generate profit. Closing at a profitable position may trigger the hedge positions or cancel them entirely.

News

This EA tracks major announcements, financial press, and other forex-centric events. It reacts to changes in macroeconomic reports such as inflation, changes to policies of central banks, GDP, etc. News expert advisors alert you when a potential position to gain earnings is on the horizon.

Scalping

Expert advisors that utilize the scalping method can automatically go long and short multiple times of the day to make use of minor price movements of currency pairs. In forex scalping, assets with less exposure are not as risky to trade on, but also do not bring in as much profits. With your favorite technical indicators, you can set up a scalping EA that will rely on short-term trades in line with your trading strategy. The tighter the spreads and the faster the trading platform, the better performance this expert advisor has.

Building your own expert advisor on MT4 and MT5

You can always build simple EAs from the inbuilt wizard or directly use pre-built templates. However, if you wish to build your custom expert advisors on the MetaTrader 4 trading platform, you will have to use the MQL4 programming language. For the MT5, that language is MQL5.

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