Trading in the forex market is undeniably one of the most rewarding careers anyone could choose to venture into. However, research from various brokers worldwide shows more than 79% of forex traders worldwide end up losing their accounts.
Trading forex doesn’t guarantee that you’ll be profitable. There’s a lot of information that one needs to consider. For example, medium- to high-impact news, trading sessions, trading plans, etc. All these factors can mount unwarranted stress on a trader, which leads to emotional trading.
Emotional trading can impair a trader’s judgment, which can shorten their career rather quickly. To combat emotional trading, there’s been a recent development of algorithmic trading tools that use complex mathematical algorithms that can automatically execute trades without the need for human intervention.
However, to many traders, the thought of relinquishing control to a trading bot may cause them to be a bit jittery, yet the benefits of using well-programmed bots far outweigh the cons. In this piece, I am going to explore some of the pros of algorithmic trading (expert advisors) and how they can increase your profits.
What is the Definition of an Expert Advisor (EA)?
For the sake of easy understanding, I am going to substitute the term automated trading with expert advisors, since most experienced traders are familiar with this term as they have stumbled across it in trading forums at Forex Factory.
So, what is an Expert Advisor (EA)? Well, in layman’s terms, an expert advisor is the process of programming a complete automated trading system that executes and manages trades on your behalf.
Some of the components that can be coded into an expert advisor are listed below:
1. Entry-trade criteria
2. Trailing stop criteria
3. Positioning and size management
4. Risk management parameters
5. Breakeven rules
As you can see, the aforementioned information is suitable for developers, but for basic traders like you and me, we are only interested in learning the benefits that an expert advisor can add to my present trading strategy.
Benefits of an Automated Trading System
– Emotionless Trading
One of, if not the greatest, perks of using expert advisors are that they eliminate the impact of emotions on your trading. As someone who gets very jumpy when I see an open position even moving an inch in the opposite direction, the use of an automated system has helped me a great deal. You just need to have the courage to take the leap and relinquish control, since the EA can make more objective and rational trading decisions as opposed to the average smart person.
At first, it may seem impossible to let go and let the expert advisor manage your forex trades for you, but it could improve your strike rate and adhere to the rules included in your trading plan.
It is only by letting the automated trading bot execute trades that you’ll be able to approach the market from a more calculated and strategic standpoint.
– Improved Forex Trading Efficiency
Expert Advisors are programmed to execute market orders at lightning-fast speeds, provided you have a VPS (Virtual Private Server), as it will enable your automated trading system to take orders without you having to constantly monitor your trades.
Thus, Expert Advisors can capitalize on fleeting trade opportunities that you would have missed had you been preoccupied.
Imagine the feeling of opening your MetaTrader 4 software after a long day of work and gazing upon the profits generated from the forex market without your intervention.
It’s exhilarating, isn’t it?
– 24/5 Forex Trading
Another great benefit of using automated trading systems is the fact that the Expert Advisor will be executing trades around the clock, taking advantage of all the trading sessions.
How powerful is that? To be sleeping and to have an expert advisor trading the forex market on your behalf with a high degree of accuracy. This translates to improved profitability in the long run.
– Proper Risk Management
As humans, we are prone to emotions, which can get the best of us if we aren’t well-versed in managing them properly. One of the emotions that a lot of traders deal with is greed. There’s always that desire to strike it big, forgetting that forex trading is not gambling.
Well, most expert advisors have well-programmed and excellent risk management and position-sizing features. Some even have adaptive take-profit and stop-loss levels depending on market volatility, which can help minimize one’s exposure to the market.
– Currency Diversification
When I first started trading forex, my mentor always told me to only focus on a maximum of one to two pairs for the best results. So, I spent countless hours backtesting the GBP/USD and EUR/USD currency pairs, thinking I was creating an edge for myself.
However, most expert advisors are programmed to execute trades based on different currency pairs, thus helping traders cast a wide net. Diversification ensures that no matter the prevailing forex market condition, you are always in profit and spreading your risk.
Conclusion
There’s much to be gained from using EAs when trading, although they can be quite expensive and might set you back a bit if you don’t have some extra funds to play around with.
However, don’t look at its downsides, but look at it from the standpoint of making an investment that will take your trading career to the next level.
