DAY 25: Understand the limits of EA — leaving it completely alone does not guarantee good results

Last time (DAY 24), I described the time and mental bandwidth created by using EAs and the image of freedom that comes from it.
However, if you misunderstand that with an EA you can make money forever without doing anything, you may fall into an unexpected trap.

Today,the limits of EAswill be the theme, and we will again sort out “where the risks are” and “what problems arise if you neglect too much.”
While dreaming, you must also have a grounded understanding of risk.

1. Performance can vary greatly when market conditions change

• Risk of overfitting
  EAs are built based on historical data, so if the current market environment differs greatly from the past, the results may not be as expected.
  In particular, EAs that have been excessively optimized for past data are more likely to experience large drawdowns with even small market changes.

• Shifts between trending and ranging markets
  An EA that excels in trends may incur a series of losses in sudden range-bound phases, or a range-break EA may fail entirely during a long trend.
  With each phase change in the market, be aware that the EA’s weak points may become apparent.

2. If you neglect too much, you won’t notice losses

• VPS or network troubles
  If your home PC or VPS stops for some reason and you leave it as is, orders might be cut off or the logic might be running with errors, unnoticed.
  Regularly checking logs and fill history enables early detection, but leaving it fully to automation might delay noticing problems.

• Ignoring major fundamental changes
  For example, when market conditions suddenly change due to major monetary policy shifts, political upheavals, or geopolitical risks, an EA’s filters may not keep up.
  If you can handle it discretionarily, you might decide to pause operation, but leaving it completely unattended increases the risk of a large loss.

3. Not all logic is universally effective

• There are markets that are easy or hard to handle
  No matter the EA, under certain conditions it can perform well, while in the opposite market environment it may experience ongoing losses.
  As learned previously, portfolio management and combining discretionary judgment to adapt to market changes is ideal, but even that isn’t perfect.

• Limits of system updates
  As time progresses, many market participants adopt new strategies, which may require rebuilding or adapting the EA.
  Without regular “reworking of the logic” or “adding new filters,” there is a risk it stops working effectively.

4. Psychological complacency and overconfidence

• The belief that “EA will take care of everything”
  If performance is good for a while after starting, it’s easy to become overconfident that “there’s nothing to worry about,” but market conditions change daily.
  During euphoric phases, traders may increase lot sizes too much or add unnecessary EAs, which often leads to major failures.

• Neglecting regular checks
  As the period of success lengthens, the likelihood of psychological complacency rises, leading you to stop monitoring operating status and drawdowns.
  At least weekly or monthly,check operation history, drawdowns, and market changes

5. Still, EAs are a reliable partner

Thus far I’ve explained the limits and cautions of EAs, but naturally EAs have many great advantages as well.
Ultimately, isn't it better to use EAs safely and effectively by establishing systems and operating rules that compensate for their weaknesses?

• How to detect weak market conditions early
  As introduced previously,a rule such as “pause and verify when drawdown exceeds ○%”and creating a portfolio of short-term and long-term EAs are examples.

• Hybrid operation combining discretion
  Pausing during key announcements or adapting flexibly during sudden market moves, leveraging the experience of a discretionary trader can greatly help compensate EA limitations.

Today's summary and next preview

• There is no magical power in EA to earn automatically forever; if market changes or troubles occur, losses may grow.By addressing market changes and issues, and implementing rules and checks, stability improves

Next time (DAY 26), titled “What I Built into My EA — Logic and Operating Patterns (Overview),” I will conceptually introduce the logic examples and operating styles of the EA I developed. I won’t present specific numbers or charts, but I hope it helps you understand how I structure EA.

Introduction to the EAs I sell

If you’re considering an EA, please also take a look at the EAs I sell.
https://www.gogojungle.co.jp/users/147322/products

While considering limitations and risks, I hope this will assist in achieving stable trading.

In the next article, I will discuss conceptually the logic background and operating image of the EAs I have created.
Please click “Read more” and continue learning.