EA's Recommendation ②: Thoughts on discretionary settlement (divine hand) during EA operation, considering it from the perspective of an EA developer
Good morning everyone. I’m Renmi.
I’m incredibly capricious and lazy, and I wondered whether the day would come when I’d write a second article, but it arrived surprisingly fast. In the previous article, I wrote about how difficult it is to control the mind (psychology) in forex trading, and the idea that using EA (expert advisor) can eliminate emotions and enable cool-headed trading.
If you haven’t read it yet, please take a look from here.
https://www.gogojungle.co.jp/finance/navi/articles/82736
Now, this time I’ll delve into a feeling that everyone who operates an EA has likely experienced at least once.
“What the heck is the EA doing?!” Have you ever thought this?
“Why enter at such a spot?” “I should have taken profits sooner…!”
Haven’t you ever thought like this? And what inevitably happens is the “manual close” in discretionary trading, commonly known as the “hand of God.” When you’re watching the trading screen, the moment the EA starts showing a nice unrealized gain, you want to intervene with, “If I close here, I’ll lock in profits!” But is that action really correct in the long run?
Understand the design philosophy of EA
EA is designed to have a positive long-term expectancy after data analysis, long-term backtesting, and forward testing. In the short term, it may seem to work well when your “hand of God” intervenes, but repeating that can significantly lower long-term expectancy. Everyone has thought, “If I closed here, profits would have increased!” However, that’s only a matter of hindsight. EA is a tool for making profits over the long term. The more you intervene emotionally, the more its accuracy deteriorates.
So why do we want to use the “hand of God”?
What is the psychology behind wanting to use the “hand of God”?
Humans have a tendency to prioritize certain profits. This is called prospect theory. In simple terms, the psychology is that “certainty of profit feels more attractive than the potential for long-term gains.” Therefore, when you see a position the EA holds, you become anxious, thinking, “If I lock in profits now, that’s a win!” or “Is it okay to enter at a place like this?” and you end up intervening.
Why I don’t use the “hand of God”
I’ve been operating EAs for eight years and I have never used the “hand of God.” There’s only one reason.
“Because I completely trust the EA.”
Why can I trust the EA? Because I created it myself, so even if someone else made it, I largely understand the logic. I understand how the EA’s algorithm works and its design philosophy, which allows me to feel secure entrusting its operation. Also, a person who is not good at discretionary control like me is better off letting EA handle it, rather than touching it manually, I suppose.
A world where everyone can create EAs
I often think, “It would be great if everyone could build their own EAs.” Because when you create your own EA, you can clearly understand “what logic it runs on?” and “under what conditions does it enter or close a position?” and thus trust it more. Eventually I’d like to offer tools that make EA creation easy for anyone. EAs become powerful tools to aid your trading. To achieve that, first you must trust EA and then understand it yourself.
Summary
Feeling tempted to use the “hand of God” during EA operation is a natural part of human psychology. However, being swayed by short-term profits can lower long-term expectancy. By understanding and trusting EA’s logic, you can prevent emotional interference. Creating your own EA allows for even greater peace of mind. By reducing emotions and leveraging EA, we can trade more rationally.
Responses to the above article
- Well, I think I would get a higher expectancy if I intervene manually, though...
- Discretionary trading can make far more money than an EA; an EA is inefficient (from a billionaire trader friend)
- etc...
There are various such responses. But I’m tired today, so I’ll delve into these topics in future articles.
That’s all for now. See you next time!
Renmi’s EA List
https://www.gogojungle.co.jp/users/189446/products
The following zone is paid, but there isn’t anything particularly useful written there.That is all of the article content above. I just wanted to try a tipping feature.