How Do Expert Advisors On MetaTrader 4 & 5 Work?

Technology has touched upon every sector, including the forex market. A few decades ago, it would have been almost impossible to think about online trading, let alone trading robots doing the job automatically. But today, it has been made possible. Automated trading has become the new norm in the forex market and for good reasons. So, let’s get into the details and find out how expert advisors work!

The Evolution of MetaTrader Expert Advisors

The MetaTrader 4 (MT4) and MetaTrader 5 (MT5) are by far the most sought-after trading platforms for a number of reasons. Both these platforms were developed by Metaquotes Software Corporation, with MT4 being released in 2005 and MT5 in 2010. The first version of MT4 didn’t come up with the facility to trade using expert advisors. Although automated trading systems have existed since the 1950s, they only gained traction in the 2000s. Thus, Metaquotes Software Corp soon began to work towards it.

MetaTrader 4, which is a standalone trading system, uses MQL4 scripting language, which not only allows traders to develop their custom expert advisors but also offers them thousands of ready-made solutions through the MetaTrader market. After almost 5 years, MetaTrader 5 was released with some added benefits, giving it a competitive edge over its predecessor, MT4. Choosing MT4 or MT5 for automated trading is a matter of choice, but certainly, the popularity of both these platforms stems from their support of automated trading strategies. If you know a little bit of coding, you can easily execute your expert advisors on MetaTrader and even try it out on a demo account before you begin trading with real money.

Signals And Execution in Metatrader Expert Advisors

If you plan to use expert advisors for your trading, you first need to decide the purpose you want to fulfil. Do you want to apply your expert advisor to generate trading signals for manual trading, or do you want to build a fully automated trading system that places trades on your behalf?

Most traders prefer to try a fully automated trading option as it allows them to actively trade in the market and seize opportunities without having to monitor the markets 24/7. However, while using an automated trading system, it’s extremely important that you give the right parameters for your EA to operate effectively, and for that, you need to have a solid trading strategy. When you lay entry/exit rules, stop-loss and take-profit levels on the basis of a strategy that is tried and tested, you naturally increase your chances of making good profits.

To Design or to Use the ones created by others?

Once you have decided to use a semi or fully-automated trading system, the next big question is whether you want to code an expert advisor from scratch or buy a ready-to-use expert advisor from another trader.

Building your own expert advisor from the ground up is not everyone’s cup of tea, as it requires programming skills. But if you are still interested, learning to code or hiring a professional programmer to guide you along the process is advisable. You can find a number of tutorials or guides on the internet that will teach you to set up an automated trading system.

If you are ready to give a try off-the-shelf EA, you can find plenty of them in the MQL community. Some of these trading bots are free of cost, while others may require a fee. Regardless of the trading system you choose, it’s worth testing its performance on a demo account.

What Are Some Of The Metrics Used In Expert Advisors?

If you are wondering how exactly an expert advisor works, let me tell you that it’s a pretty simple process similar to how we manually place trades. Let’s say your strategy involves using Bollinger bands as indicators. When the price hits the upper Bollinger Band, it triggers a sell signal; when it hits the lower Bollinger Band, it triggers a buy signal. You can set this rule in your system when you code an expert advisor. As such, the EA will potentially execute trades on your behalf automatically when the parameters fulfil. One of the notable features of MetaTrader platforms is that they offer a number of indicators, you can apply two or more indicators of your choice to suit your trading style.

Benefits Of Using Expert Advisors

There are numerous benefits of using Expert Advisors, but the most prominent ones are as follows:

1. The expert advisors operate on certain parameters that have been programmed into it. This means that there’s no room for deviation from the strategy. We all are humans, and we know how at times, our emotions take a toll on our decisions leading us to go against our plan, but with an automated trading system, trades are placed instantly and exactly as per the pre-set rules.
2. It’s not feasible for traders to be glued to their screens and monitor the charts every second of the day. Fortunately, we can use expert advisors to keep an eye on the markets and place trades whenever our criteria for trade execution are fulfilled. This frees up plenty of time and allows traders to focus on the other aspects of trading or their lives.
3. Using an expert advisor is not a hit-and-trial method. You can backtest it on a simulated trading environment to see how it would have performed in the past. Although past performance should never be taken as an indicator of future performance, backtesting certainly gives you the confidence to use an expert advisor on a live account.

Cons Of Using Expert Advisors

Despite the benefits, automated trading also comes with its own set of drawbacks:

1. The fact that EAs work on pre-built parameters means if you have not coded the EA or don’t understand how to code, you only have the option to watch the EA perform. This is not to say that you can’t make profits, if the EA lays strict rules, it will certainly bring you profits, but you will not be able to learn how to enter or exit at the right time and how to manage the risk properly.
2. EAs are prone to technical errors. If the platform crashes because of a connection issue, network failure or power outage, the EA will stop working.
3. To deal with the technical challenges of an EA, you can use a Virtual Private Server, but this will cost you extra money.

How To Set Up Using Expert Advisors

Setting up to use Expert Advisors (EA) is relatively easy, but the real work lies in researching and testing different expert advisors. In order to start, you first need to find a reputable forex broker that offers the MT4 or MT5 platform. It’s not a difficult task, given the large number of brokers supporting the MetaTrader suite. Once you have decided on the broker, you can create your trading account, download MT4 or MT5 on your device and then start creating your EA or researching a good one for downloading.

Final Thoughts

MetaTrader is an excellent online trading platform for using Expert Advisors because of its user-friendliness and functionality. Whether you want to develop your own code or buy a ready-made solution from the MetaTrader marketplace, make sure to run it on a demo account before you apply it to your real money.