Posts Tagged ‘trading’
Expert Advisor
Building Expert Advisors For Metatrader 4
Traders with some experience are aware of the importance of including systematic methods to take advantage of markets. A systematic approach involves conceptualizing, defining, writing and testing rules for entering and exiting trades, then consistently trading by those rules going forward. This approach is structured after understanding that varying discretion or emotion eventually affects their trading performance, and that discipline and acute precision in decision making and execution is necessary to accomplish consistent profits systematically.
As traders become systematic, they write rules that are robust enough to accommodate unseen market scenarios. The building of such trading rules requires statistical verification and understanding of the market logic behind the action taken in the specific market. By measuring system performance, risk can be determined.
In the other hand, Trading with a system implies one will always take the same actions under the same circumstances, which requires the risk tolerance that allows withstanding the risk exposure of the system. Once emotion is controlled, experts say, consistency can follow.
The coding of custom Indicators and Expert Advisors is a step forward for some traders, who are willing to use those rules in an automated environment. That is not to say an Expert Advisor won’t generate lots of emotions from the trader who executes it. Losing trades from an EA are also difficult to swallow, but the immediate emotional reactivity of discretionary trading is eliminated.
An Expert Advisor will also, by construction, follow obediently the established rules for risk management and limiting loss, rules that can be difficult to adhere to when trading by discretion.
To take advantage of the consistency and emotional control that Expert Advisors offer, then you have at least two choices: You can develop Your Own Expert Advisor or you can buy one from a third-party developer.
The most important reason to build your own expert advisor is you will have full knowledge of when, why and how it trades. Also, by developing an EA yourself, you have complete control over the parameters of the system, such as the markets traded, time horizon, risk capital required, trading frequency and maximum drawdown to name a few. For instance:
- You can historically test performance under different market conditions.
- You know that there is no vagueness or fuzziness in your trading rules.
- With full knowledge of the Expert Advisor’s rules and trading tendencies
- You will have the confidence to trade through the inevitable losing periods.
- Having built your own Trading System, you also are more adept at modifying it when market conditions change.
When a trader builds his own Expert Advisor, he knows why it performs as it does and can make adjustments.
Of course, building an Expert Advisor has its drawbacks as well. First, it’s not necessarily easy and can be mentally draining, often with little or no payback. Also, if you are going to build your own Expert Advisor, you do need some knowledge of how the markets work, and that takes time to learn as well.
An Expert Advisor you build will be limited to your own trading knowledge. For beginners, this could be a significant, binding constraint. A successful Expert Advisor will likely need to have an edge over other competing systems. If you don’t believe that you can provide any edge, then it may be better to consider purchasing an EA.
Systems development can be very time consuming, making use of Metatrader 4, can take a level of technical background that the average trader does not have. Outsourcing MT4 development services, to program technical indicators or expert advisors is always a reasonable alternative. It is important to demand open source code and copy rights disclosure from your programming vendor.
Whether you have the discipline to stick to a defined set of rules is an important consideration if you are going to trade systematically, whether you buy or build. Expert Advisors require following all rules religiously. Successful system traders avoid the temptation of bypassing the rules, whether that comes in the form of holding a loser too long or being too quick to take profits. The beauty of trading systematically is that you have made those exit decisions beforehand based on strong research and statistical evidence, not in the heat of a fast market.
The Expert Advisor developer should have good experience actually trading his or her target markets. The developer needs to have a good background in technical analysis, and this includes knowing what technical methods have been tried in the past so that previous systems are not simply recreated
If you just make it up as you go along, then you’re going to lose money competing against traders who have a complete, tested, and positive expectation trading method. If you can’t or don’t want to put the effort in to design, develop, and Test Your own Expert Advisor, then you can’t expect to be successful.
Octavio Riano provides Metatrader 4 programming solutions. You can reach him at www.digitaltradingsystems.com
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