MetaTrader Expert Advisors can be developed to make use of a number of different trading indicators. The simplest strategies may use just a single indicator while the most complicated my make several statistical comparisons across a range of indicators in order to time their trade entries.
A large range of EAs have been created for the Metatrader platform which means that there is a huge range of diversity in the trading strategies that you can use on your account.
Most are based on many of the well practised Forex trading approaches. For example, trend following, grid trading and scalping strategies can easily be found.
It pays to know the type of strategy that the EA is using before using it on your account. You don’t want to end up with too many robots pursuing the same strategy if the market dynamics suddenly change.
Although there is no official classification, the strategies which are used can be loosely grouped as coming under one of six main headings according to the dominant theory behind the technique used. These are Scalping, Breakout, Hedge, News, Neural and Trade Cloner.
Below you will find a brief explanation of the dominant characteristics of each strategy style.
Scalping based systems aim for small fast positions in the market, relying heavily on technical indicators on the charts in order to time trade entries.
They are generally traded on lower time frame charts (5 minutes/ 15 minutes) and will often make use of some form of overbought or oversold reading on an indicator as their signal to enter a trade. They are characterised by a high volume of trades and a tenancy to trade during quieter market sessions.
As their name suggests, Breakout strategy Expert Advisors look to profit from moves which take the market outside of a pre-defined range or through a prior identified level on the chart. The strategy profits from riding the market momentum that normally accompanies a move of this kind.
Hedge based Expert Advisors will hedge trades in the market. This means that they have the logic to open additional trading positions in the opposite direction to a position already opened by the strategy. This technique is normally used when the market moves unexpectedly against the initial trade position. The strategy then manages both open trades to maximize returns on one while mitigating any loss from the other.
These trade the market on breaking news events such as the release of economic figures or at times of rate releases. At these times they are looking to profit from sudden and strong shifts in the market following the news release, capitalizing on market moves as traders readjust their positions.
Neural Networks are a relatively new concept and claim to make use of simulated neural networks to read past market data and compare this with an analysis of current market behavior. Essentially they aim to mimic human behavior. This is said to make these strategies more adaptive to current market patterns and movements.
This approach does not make use of a preset strategy in the software itself but rather allows for a central strategy to be pushed out to your client terminal. Think of them as providing more of a signal service. The main trade is placed in the central account and then instructions to replicate are subsequently pushed across for your client terminal to execute with your broker.
Which are the best Expert Advisors?
This is an often asked question and one which has no real answer. Ultimately the best EA will be the one that offers you the highest profits with the lowest risk on your account!
Each style has its own pros and cons. What is more important that you are aware of these and when best to use them.
Market conditions can have a big effect on the performance of a system. As an example, EAs in the Trend following category are going to be more naturally suited to profiting when markets are strongly trending. However their performance is likely to dip and suffer from more false signals when price action becomes volatile or markets begin to range.
Your trading style will also influence your opinion of what is the best EA. Even in using an automated Expert Advisor you may find that some suit your temperament better than others. Within each of the above broad categories there will be individual approaches. Some will trade fast and furiously, while others trade infrequently but maintain a higher rate of trading accuracy.
The only way true way to find what will work best for you is to bite the bullet and start testing systems on your own account to become familiar with their performance.