I would like to seek your opinion on the two trading methods: Manual Trading vs EA. I have traded demo manually for almost 6 months now and at some points in time I did the mistakes most new traders do, such as overtrading. I realized that to be a good trader you need to have a system and stick to it all the time. And there is no better way to stick to your rules, as compared to have an EA do the trading for you.
Supposed you can come up with an EA which when backtested for a couple of years could still give you a net profit. Wouldn’t it mean that you can have higher probability of success in the future? Essentially trading is all about tweaking the probability in your favor, right?
Please give your inputs if you agree/disagree to what I think. Cheers!!
first of all forget about ea’s even if the one you had in mind worked today it might not work tommorow.
a couple of thing you have mentioned is what devides traders from winner’s and lossers,
you your self need to be deciplined if your not you have already failed, what system you use is up to you but when it comes to managing money you must absolutly without doubt have decicpline or forget trading for a living,
A problem with developing EA’s based on backtesting is that it can be over-optimized to work perfectly. What really matters is how it works on forward-testing. There’s a risk that any strategy may not continue to perform going forward which is why forward testing is important.
A second point, which I think would be fairly obvious, is to make sure you undestand why your strategy is making money and why it is losing money. Not understanding how your strategy works means you have to guess at what’s wrong when it stops working. Case in point, with many of the commercial expert advisors you see advertised, you have users guessing what parameters they need to set their EA to. You don’t want to have to guess when something stops working.
If every situation and set-up in the market is unquie, is it then futile to try profiting from trading? I would take this to mean the market is random and can’t be predicted.
No its not impossible to profit from trading as many have proved. The market is definitely random IMO. A set of matching criteria doesn’t always produce matching results. Another reason why theres no “holy grail”.
Hi guys!! Thanks a lot for the opinions given. It sure is interesting to see different opinions on the subject.
I totally agree that money management is paramount in trading, otherwise you would not survive the game for long. But you can still have good money management with EA by making sure that you are not risking >5% of your account in every trade.
From what I know, every good strategy is conceived by backtesting, looking at how it performed in the past. You would consider a strategy only if it worked in the past. Platform such as MT4 allows you to do simulate this backtesting quite accurately for years behind. Suppose your EA backtest simulation looks great and you have great result forward test the EA for 6 months or so, wouldn’t it be a great way to trade then?
Most EAs performed great on backtesting during certain period, but it failed miserably when it is run on different period. From a statistical point of view, I believe this happens because the EA has not been exposed to a significant number of data. But let say you can backtest your EA for a period of >3 years and still making profit after >500 trades or so, doesn’t this tell you that you have enough samples of data on your EA and the statistic is in your favor?
I believe that Forex Market is not random since the price movement is controlled by human (and machines :p) and not governed by the law of nature. After all this is exactly why people are trying to formulate their strategy to get some profit from the market. Plus, if Forex Market is really random then we might as well stay out of it since “in the long run we are all dead” from the pip spreads :p.
Please kindly correct me if I am wrong. I am after all just a beginner trying to see the market from a statistical point of view.
If you have found a strategy that performs well in backtesting, and performs well in forward testing, then why not go with it. What’s the difference between manually entering the trade yourself or automating it to do it automatically, assuming the strategy can be automated.
I think the negativity around EA’s in general comes from new traders looking for the holy grail and buying into a black box system which they know nothing about.
I disagree with the idea that the market is random. It has some randomness but it also has some order. think of it like an am radio station, remember those? a signal with lots of static? The market is like that. lots of noise but with some predictable statistical characteristics.
why, it’s no more random than prime numbers.
Hi Jason:
Thanks for the comment. I totally agree that we should not spend our hard-earned money buying a black box designed by an unknown stranger on the web. By not knowing the strategy used inside these commercial EAs, we would not be able to stay calm when the market turns against us.
What I am trying very hard to do now is first of all to do manual backtesting on a certain strategy to gauge whether it worked well in the past. The next step is to translate this strategy into an EA and back testing for significant period of time followed by forward testing for six months to qualify this EA from statistical point of view. After all, what is nicer than having an EA which you understand fully to do the work for you while you are spending quality time with your loved ones?
Trading with an EA is better for lots of people as an EA has no emotion, when it’s parameters are met, it trades. If I’m asleep, it trades. Set up properly, an EA will have a proven track record of past performance that should continue in the future, if it doesn’t, tweak it till it does. I tweak my EA(s) weekly, analyzing every trade to see how they could have done better. EAs can and should have money management built in along with TP, SL, trailing stops, etc. I am working on my own EAs and have tweaked one that is 100% backtesting in 2009 and one that doubled my money in June / July 2009 with only one loss, forward testing ongoing. Ran into a bug live on order lot sizes that doesn’t show up demo or backtesting that I am working on. Surprisingly, my EAs produce better profit with a hard take profit than a trailing take profit (probably due to the market ranging more than trending).
I am a firm believer in developing your own EA over purchasing one, you know what’s inside, you are responsible for what’s inside, and you can change what’s inside to adapt to current market conditions. There is a MACD EA with source built into MT4 you can use as a shell to build your own. MT4 has great built in help for programmers. If it is your EA it won’t be in use by so many people that brokers change the spread to work against it (like FAPT) or it won’t simultaneously flood the market with so many orders you get off quotes. I believe brokers have most of the popular EAs running and when they see them opening positions, they mess with the people who are running them (freezes, off quotes, change of data stream just enough to keep it from trading).
Regardless of whether you support EA’s or not, I would highly recommend that you avoid paying for any EA off of a website. Like previous posters have said, even EA’s need to be tweeked week in and week out as the market is always shifting. Therefore by purchasing a “set it and forget it” type EA online, its basically guaranteed to become obselete after some time.
As a beginner, I am taking the time to learn how things work. I don’t plan on putting any real money into the game for at least another few months. As the emotion/greed/etc is taken out using an EA, I absolutely see the benefit to using one. I just hope I’m able to create my own. I don’t know how difficult that will be. I’m assuming once you’ve created your own set of rules, with the tools you’ve gotten proficient with, you somehow create a program to do all of this for you. I guess what I’m getting at is, how difficult is it to create your own EA? Do you need to know alot of programming, or is there a just plug-n-play type program that you can just add settings etc. to. Does anyone get what I’m rambling about??
It would help you a lot if you have done at least some basic programming before. The language used (MQL) is very similar to C language. If you have this experience, programming your EA is going to be a breeze since MT4 offers plenty of easy-to-use APIs.
