Advantages and Disadvantages of FX Automated Trading Software (EA)

Nice to meet you. I operate the sites “How to Start in Cryptocurrencies and FX: https://self-investment.jp/” and “Bitcoin Wallet: https://btc-wallet.jp/”. We publish a lot of useful information, so please visit our site. While thinking about investment strategies in FX and searching the web for information, have you ever come across articles like “I made a lot of money in a short period by using FX automated trading software (EA)”? You may think, “There’s no way to earn that easily,” but as you read, you may find yourself being persuaded. In this article, we will calmly examine EAs (expert advisors) and discuss their merits and demerits. I hope this will help those who want to use EAs but aren’t sure how to approach them. h2　What is an EA h3　What exactly is an EA? EA stands for Expert Advisor. An advisor means “a person who gives advice,” but in the FX world, EA refers to a program that automatically executes currency trades. Since it is built by experts in FX (Experts), the name EA is used. When you combine EA with trading software, investors can have their currency buys and sells executed automatically according to the strategies embedded in the EA’s program, without relying on their own discretionary decisions. What EA promises is results through automatic trading. The key to achieving results is the strategy (conditions) that are executed automatically when buying and selling or closing positions. Just as there are as many strategies as investors, each EA has its own unique strategy. Even though they are both sold under the same term “EA,” which parameters (variables) are monitored and to what extent fluctuations trigger actions (sell/buy) vary greatly. Even in the same market environment, results can differ greatly due to different strategies. h3　You can create your own EA For FX investors who have traded with their own strategies using discretion, there are many occasions when they miss optimal trade timing. “I couldn’t check price movements during a business meeting,” “I dozed off at the timing of economic data releases,” and so on—these “ifs and buts” are universal. Humans have limits in time and energy. An EA can help surpass those limits. Purchasing EA from professional developers is standard. However, you can also build one yourself. A certain level of knowledge is required to create the program, but with software designed to assemble an EA, it isn’t that difficult. Analyze your trading tendencies and strategies, such as “sell when this market condition occurs” or “sell/buy if this result comes from technical analysis.” If you know the parameters you focus on, you can embed them in a program to create an EA that serves as your own “alter ego.” h2　The merits of EA h3　Don’t miss trading opportunities with EA When you trade FX, you can lose track of time. The market runs 24 hours, so prices are always fluctuating. Even if you try not to worry, it’s natural to wonder whether price movements are aligning with your targets. Prices tend to move more around the release of US economic indicators or during international conferences. To respond to emergencies, you may end up glued to charts. However, unless you’re a full-time trader, you can’t monitor price movements continuously. When you’re offline for business meetings or important events, opportunities to trade may arise. When trading manually, part-time traders can legitimately miss opportunities. Even for full-time traders, there are times when opportunities are missed. Human energy has limits, and staying up all the time isn’t possible. You need meals and restroom breaks. For those who don’t want to miss trading opportunities at any timing, an EA that trades around the clock according to a program is a very useful tool. h3　EA trades without emotion In discretionary trading, most investors set rules based on their own outlook. No one is an all-knowing deity, and trading on gut feeling alone is extremely dangerous. Investors typically have rules such as “buy if the price rises to this point” or “cut loss if it falls by a certain percentage.” Nevertheless, no one can escape desire, emotions, or expectations. No matter how you design your rules, you can be swayed by the feeling that “it might go higher a bit more” or “it might still drop,” and you may fail to act according to your rules. In this respect, EAs do not allow any emotional interference. They don’t trade optimistically or panic, and they don’t delay decisions. Trades are executed exactly as programmed, so you realize the trades you initially planned. The ability to trade without emotions is a core merit of EAs. h3　EAs bring professional logic to your fingertips If you truly want to win in FX, you should analyze market movements technically and systematically. However, even within technical analysis, there are many approaches. A vast array of FX-related books is available, making it difficult to determine a single “correct” method. FX is difficult and interesting because there is no single perfect method. Investors select methods that suit them, based on their own understanding, and build their own trading style. But many investors don’t have the time to study extensively. Some FX books are hard to understand. Jumping in without learning can be dangerous, and you risk becoming prey to seasoned investors. EA encapsulates professional knowledge in a program. For those who want to skip studying and still gain knowledge, buying an EA may be one option. h2　Why EA is not ideal h3　You won’t develop market intuition with EA EA is convenient because the essence of years of trader learning is embedded as a program. Buying an EA can save study time and effort. Once configured, you can leave it, and it will automatically trade without monitoring market movements constantly. Yet, nothing in life is all good. There are trade-offs, and what you gain comes with what you lose. In the case of EA, you give up money (the purchase cost) and your market intuition. Especially losing the latter is fatal for an investor. Suppose an EA is underperforming and your paper profits deteriorate into a loss. You might feel “I was deceived,” but you may not be able to explain what exactly deceived you. For someone who has skipped studying FX or technical analysis, you may not understand the reason. You won’t know whether the loss is temporary or will continue to grow, whether you should close the position or hold it. Typically, if the drawdown becomes unbearable, you’ll stop using the EA. h3　Backtesting is just testing Economics and politics are social sciences in which experiments aren’t possible. Unlike natural sciences, economics and politics change constantly, and reproducing exactly the same environment is impossible. Backtesting and forward testing are methods to evaluate an EA’s performance. Backtesting simulates how much profit or loss would occur if the EA had been used in past FX trading. Forward testing simulates how much profit or loss would occur if the EA were used in the current market in real time. Backtesting applies the EA to past market conditions, so you can “play hindsight.” In other words, backtesting can showcase environments where the EA performs best. But forward testing is not inherently superior. Real-time markets are unique and will never be reproduced in the future when you use the EA. All tests are tests, and no test guarantees your future. This means there is no absolute correct answer when choosing an EA. h3　EAs have strengths and weaknesses Because EAs are programs, they excel when confronted with market conditions that the program anticipates. If those conditions recur or a trend forms, their effects grow. But if the market deviates from those expectations, what happens? An EA strong in uptrends may falter in downtrends or range-bound markets, because the program’s assumptions are violated and it cannot perform effectively. Even a single range can take the form of a rectangle, a descending triangle, or a diamond. It’s not an exaggeration to say there is no EA that can flexibly handle every market condition. There are services that automatically rebuild the EA to suit market conditions. They may switch to EA A for range markets and EA B for downtrends, giving the impression that you can win at all times. But the market is a “living creature.” Asian currency crises, the Lehman shock, the Greek crisis, and intensifying US-China trade tensions all show that markets continuously undergo unprecedented changes. An EA that can cope with such sudden shifts does not exist. h2　How to relate to EA h3　Make your own EA We have discussed the merits and demerits of EAs. EAs do not guarantee absolute victory, and misusing them can cause significant losses. If you are determined to use an EA, think about a way to interact with it that benefits you. EAs are sold as products, ranging from several ten thousand to several hundred thousand yen. Some are fully black-box, others disclose parameters. However, you don’t need to buy an EA to obtain one. You can create one yourself. As you develop your FX trading, you will likely establish your own trading style. If you want to pursue that style beyond time and energy limits, consider building an EA as your own avatar. Materialize the investment strategy that only exists in your head as an EA program. Of course, don’t entrust all your assets to an EA, even if it’s your own. The important thing is to allocate a portion of assets to the EA and observe and analyze its results. You may discover market conditions unsuitable for your strategy or parameters you had undervalued. Use the EA as a tool to review and adjust your investment strategy. h3　Keep your distance from EA completely If you find building an EA yourself is burdensome or you only view EA as a means to “make big money automatically,” you should keep your distance from EA. Humans tend to seek ease. Indeed, this attitude has driven much technological innovation and automation and productivity improvements. However, with FX investments, “going with ease” can lead to failure. There are many stories of making quick profits with EA, but think calmly. In markets, someone’s profit is funded by someone else’s loss. If you want to maximize your own profits, you must accept someone else’s losses increasing. Suppose you could create an EA that is 100% winning. What would be the rational action? Reinvest the profits from EA into growing your investment, and keep expanding the investment. It would not be to sell a “100% winning EA” to others or incur costs to market it. If you create an EA that sometimes wins and sometimes loses, it will not differ much from discretionary trading in terms of win rate, and you wouldn’t want to risk all your assets on it. Selling to others a program that highlights only the profitable aspects of EAs or exaggerates them is a common temptation. While not all EAs on the internet, many EAs in circulation tend to be this kind of program. h2　Summary In this article, we examined the merits and demerits of FX automated trading software (EA). We pointed out that EA can help you seize trading opportunities, trade without emotions, and gain professional logic without much effort. However, relying on EA can inhibit the development of the trader’s own skills, does not guarantee trade success, and can lead to large losses in some cases. Risk is inherent to reward in investing. But relying on others (EA) for risk is dangerously precarious. Building your own EA can be educational, but remember that there is no method to make easy money in this world.

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