Validation of the effectiveness of a portfolio construction for scalping EA, intraday scalping-type EAs, and swing-type EAs

Developing EAs specialized in scalping such as second-based scalping (seconds scalping) and minute scalping in automated trading is difficult, and practical EAs have not been released into the market.

This article examines the challenges and effectiveness of these seconds scalping and minute scalping EAs.

Challenges of Seconds Scalping and Minute Scalping EAs

1. Need for instantaneous price movement analysis

Seconds scalping and minute scalping are methods that make trading decisions not only from chart patterns but also from instantaneous price movements (price action). However, backtesting in MT4 makes it difficult to support seconds scalping.

Currently, the shortest timeframe is the 1-minute chart, and there are no technical indicators that support tick charts. Therefore, implementing a seconds scalping/minute scalping EA requires developing its own program to detect instantaneous price movements.

2. Difficulties in operating on real accounts

Even EAs that perform well in backtests often do not yield profits in real trading accounts.

The main reasons include the following.

• Impact of slippage and spreads:Slippage and spreads that are not considered in backtests become invisible costs that squeeze profits.
• Account freezing due to high-frequency trading:Many low-spread brokers prohibit seconds scalping, which risks account freezing.
• Spread issues during interbank order flow:When routing orders to a counterparty or liquidity provider, the interbank spread adds cost for the FX company.

In addition, FX companies pay system usage fees to Metacouters (MetaQuotes).

Also, when sending orders to the interbank market, you incur wide spreads.

If there were an EA that could win with seconds scalping/minute scalping, let’s calculate how much performance it could produce.

Assume a domestic low-spread broker that can run automated trading on MT4, and suppose the USD/JPY spread is 0.5 pips.

If you could take 1.0 pips per trade without considering the spread, and there is no slippage with a spread of 0.5 pips, you would win 0.5 pips per trade.

Let’s calculate assuming you enter 100 lots and scalp.

100 lots equals 10,000,000 currency units, so the winning amount per trade is 10,000,000 / lot = 50,000 yen.

If you trade 100 times a day, that would be a profit of 5,000,000 yen. Even about 10 trades could yield 500,000 yen in profit.

Would such profits be allowed by FX companies?

Without naming names, a famous EA developer claimed that using a scalping EA would immediately freeze the account, and only day-trading EAs could be run afterwards.

There are FX companies that officially allow MT4 automated trading for scalping, but their spreads tend to be wide.

If such seconds scalping/minute scalping EAs could be made, it would be better to use them as indicators rather than as automated trading, and to trade with low-spread brokers that officially support scalping.

I have repeatedly attempted to convert the methods of discretionary scalpers into EAs, but I could not encode the intuition derived from experience and feel into logic, so I cannot create a high-frequency scalping EA for seconds scalping/minute scalping with my current abilities.

I hope to create one someday.

For these reasons, seconds scalping/minute scalping EAs are not widely spread.

Considerations of Day Trading and Scalping EAs

Day trading and scalping EAs are styles that trade in relatively short time frames, such as morning scalpers or price-action EAs. Position-holding times range from a few minutes to several hours, with a few trades per day.

With this level of trading frequency, operating in real accounts is comparatively easier, and the risk of account freezing is lower.

There is no strict distinction between day-trading EAs and scalping EAs; they are classified by position-holding time and number of trades.

Considerations of Swing EAs

Some day-trading EAs perform better when positions are carried over to the next day. Such EAs are sometimes marketed as swing EAs.

EAs that use technical indicators tend to perform better when positions are carried over to the next day. On the other hand, holding positions for long periods can also introduce risk, so strategies that lock in profits with high leverage in short timeframes are also effective.

This is the idea of high-leverage, short-term decisions: even if profit per trade halves, if the position-holding time halves, the risk halves as well. If so, you can increase the leverage and trade with larger positions. Such strategies are also viable.

Benefits of Portfolio Construction

A portfolio that combines day-trading/scalping EAs with swing EAs has the following advantages.

• Risk diversification:By combining EAs based on different logics such as trend-following, counter-trend, and anomaly-based strategies, you can diversify risk.
• Expanded earnings opportunities:By combining short-term and mid-to long-term trading, you can generate profits across a broader range of times.

Summary

The development of seconds scalping/minute scalping EAs faces many challenges, and practical EAs are rare. On the other hand, day-trading/scalping EAs and swing EAs can be operated in real accounts relatively easily, and offer benefits such as risk diversification and expanded profit opportunities through portfolio construction.

Next article

• Differences between single-logic EAs and multi-logic EAs

I am writing this article while hoping that many investors will be able to use EAs.

Announcement

Recently, parts of the article are being generated by an AI.

It may read mechanically, but please understand.