DAY 5: Selection criteria for EA — what does a "good EA" refer to

So far, we have reviewed the basic environment setup and required settings to operate an EA.
Around this point, some of you might be wondering, “Which EA should I actually choose?”

Today, we will整理 the main evaluation points for distinguishing a “good EA.”
Since there are many different EAs in the world, let’s think not only about win rate or profit and loss, but also from what perspectives to choose so as to minimize regret.

Don’t chase only win rate and returns

When many traders start looking for an EA, they tend to be attracted by catchphrases like “high win rate,” “monthly return ○○%,” or “big profits!”
Of course, high win rate and profitability are attractive, but you must not overlook hidden risk factors here.

• High win rate does not mean low risk
  A logic with extremely large stop loss and small take profit can be pushed toward a “win rate of around 10%,” but there is a danger of wiping out profits with one big loss.

• Single-month performance cannot be the sole judge
  EA performance can vary greatly with market conditions. Even if it shows short-term favorable results, long-term stability may be lacking.

Check the magnitude and frequency of drawdowns (DD)

What you want to avoid most in EA operation is losing a large amount of capital due to a sharp drawdown.
Therefore, you might want to check items like the following.

• Maximum drawdown level
  From backtests and forward tests, understand roughly how much capital could drop. Anything beyond your tolerance should be considered with caution.

• Timing and reasons for drawdowns
  Is it weak during trend reversal periods, or does it lose more in range-bound markets? EAs have strengths and weaknesses in different market conditions, and being able to imagine where losses occur in advance can be reassuring.

Profit factor (PF) and average profit/loss and other indicators

In addition to win rate and drawdowns, looking at the following indicators collectively makes it easier to understand the EA’s characteristics.

• Profit Factor (PF)
  The ratio of total profit to total loss. A PF above 1.5 is often viewed as an EA that tends to be profitable, but it should be judged in combination with other indicators.

• Average profit/loss (expected value per trade)
  Understand the average values of winning and losing trades and consider risk-reward.

• Trend of losing and winning streaks
  To set lot sizes that can withstand consecutive losses, you need to understand the tendency of losing streaks.

Transparency of the logic and support system

Some EAs are sold with no clear, explicit logic at all.
You don’t need to know everything in detail, but it’s desirable to have at least a basic outline of what indicators are used and what market views underpin the trades.

• Clear outline of the logic
  Whether it is trend-following, range-break, or scalping-oriented, etc. Choosing an EA that aligns with your own market view is meaningful.

• Whether support and updates are available
  When market conditions change, the EA developer may provide updates. It’s reassuring to have a system to consult if issues arise.

Ultimately, assess your own risk tolerance and compatibility

Even an excellent EA may be hard to sustain if it does not fit the trader’s capital, risk tolerance, and lifestyle.

• How many trades per day the EA makes
  Frequent trading can increase transaction costs (spreads and fees).

• Whether you want high returns with significant drawdowns or a stable, steady growth with smaller profits
  Align the EA’s character with your goals and personality.

Today's summary and next episode preview

• “A good EA” is not simply about chasing high win rates and high returns; whether it matches your capital management and drawdown risk with your own strategy is critical.

• Don’t judge by win rate or PF alone; also check drawdown magnitude, profit distribution, and the logic’s characteristics

• The appeal of an EA is as a tool. Before purchasing or implementing, carefully determine its compatibility with your risk tolerance and operating policy

Next time (DAY 6) we will delve deeper into the theme “Quant Analyzer’s basic parameters – what points to look at,” with more detailed perspectives for evaluating backtests and EA performance. Reading numbers correctly is the key to achieving long-term, stable trading.

Introduction to the EAs I sell

If you are interested in choosing an EA, please also consider the EAs I sell as参考.
https://www.gogojungle.co.jp/users/147322/products

While keeping the perspectives for selecting an EA in mind, why not find an EA style that suits you?

In the next article, we will learn how to interpret even more concrete indicators.
Be sure to click “Read more” to continue deepening your knowledge.