MT4 Forex Bot EA Best Performing Bots Beginners Guide
In this blog I take a good look at all the key characteristics to look for in a great Forex Bot and everything you need to know to get the best out of all the bots you are using and how to pick the best bots for you. There are a large number of bots for sale with all sorts of claims so this blog will guide you through step by step so you can confidently pick the right EA ( expert advisor) for you.
What is an MT4 EA Bot ?
So you are probably here because you are a retail investor/ trader. What this means is that you trade for yourself and don’t represent a huge investment or forex trading institution like Barclays or a Hedge Fund. You may even be completely new to forex trading and like the idea of getting started with automatic bots .
For retail traders a lot use spread betting as a way of trading the markets. This has a few advantages including a more favourable taxation on your profits. The main piece of software that forex traders who trade from home use is called MT4 and although it looks a bit dated and clunky its been used for years and is well trusted.
MT4 has lots of useful features, but the one of most useful here is the ability to download custom made programs that can trade automatically for you. These custom made programs are known as ‘Expert Advisors’ or EAs and also known as ‘bots’. They are rather like apps you download for your smartphone.
A forex robot or an expert advisor is a piece of computer software that automatically makes trading decisions on behalf of the trader. Forex robots are designed with inbuilt trading rules, which enable them to enter and exit trades without requiring the physical presence of a trader.
Without forex robots, we could still be hooked to the manual way of trading currencies: gluing our eyes on the charts the whole day in search of potential trading opportunities.
With the introduction of expert advisors, forex trading can be easier, less stressful, and more profitable. However, if you choose a wrong forex robot, you cannot enjoy these benefits while using them for executing trades in the market.
Therefore, to avoid losing your hard-earned money, you need to make a good decision before buying an expert advisor for automated trading.
There are hundreds of bots out there with various wild claims for their potential profit making ability but it wont come as a surprise to you that in testing we find 95% of them don’t stand up to any long term scrutiny over a period of 2 to 3 months or more.
Human Manual trading versus Bot Ea robot trading
If you are trading manually, you’ll need to develop a trading plan that will define the types of decisions you make in the forex market. Essentially, you’ll be forced to scour the charts continually looking for setups that match your established trading plan.
As a result, manual trading will leave you exhausted and prone to making emotion-based decisions, which can be detrimental.
Imagine gluing your eyes on the computer screen for an entire day without spotting any profitable trading opportunity; what would you do? Some traders, if caught in a such a situation, will become emotional and start entering trades without careful thought. In the end, they can make decisions that wipe out their trading accounts.
However, a forex robot saves you from such hassles. After identifying trading rules, you can simply implant them in a robot. This allows the piece of software to trade on your behalf while you spend your time doing other things.
So Do ea Expert Advisor forex robots really work ?
If you have a trading robot that has been programmed correctly and sufficiently tested, it can work. However, if you go for a poorly developed EA, which is promoted by its developer’s thirst for quick money, and nothing else, it may not work well.
A trading robot can be developed to carry out various useful trading functions, including:
- Entering trades automatically
- Managing opened trades
- Exiting opened trades
- Giving trade recommendations
- Copying trades from one account to another
With a trading robot, you’ll have the ability to trade 24 hours a day, 5 days a week, something that is impossible with manual trading. After setting it up, the EA will continuously look for trading opportunities, without going for lunch breaks, bathroom breaks, or holidays—ensuring you do not miss profitable opportunities in the market.
The EA will also assist you to dissociate emotions from your trading decisions. One of the primary reasons why most forex traders make losses is from the uncontrolled feelings, such as fear or greed, which impair their trading decisions.
However, such feelings cannot force EAs to move away from the pre-determined trading decisions. The robots are programmed to make trading decisions, without the fear of making losses or the greed of desiring more profits.
Another reason why forex robots work is that they enable you to reduce trading errors. Manual trading is prone to several mistakes, such as erroneously entering trades, placing incorrect position sizes (one type of the famous Fat Finger error), and failing to react quickly to changing market conditions.
Such errors can be reduced with trading robots. Because the software makes decisions based on the coded rules, EAs are not prone to human errors.
Therefore, EAs work and to benefit from their advantages, you must be prepared to do sufficient background research before committing your funds to making or buying one.
What is MT4 Software for trading
So MT4 is a special piece of software that you can download here. Its the most commonly used piece of software for spread bet trading of forex online with Forex Spread Betting Brokers.
Its easy to install and only takes a few minutes . Here is a useful video to help you
How do you put a bot on your MT4 account and computer ?
Some ‘bots’ can be downloaded and you simply self install . Its actually not as complicated as you think, and in most cases its simply a few files that need drag and dropping into a few folders, and the person that made the bot will usually give you instructions on how to install. Some better programmers even create an auto install program for you so you are one click away from installation and don’t have to worry about the drag and drop and setting up part.
What should I look for in a great EA Forex bot ?
This is the BIG QUESTION. Its easy to get drawn in with the claims for profits first, in the same way we get excited about 0-60 time of a car but if we dig a little deeper there are some fundamental questions you will need answered before you are fully confident you want this piece of software to take the steering wheel of your trading account. Lets take a look at the key questions you should ask before you buy.
What is Drawdown ?
Getting the excited puppy dog is great ,but what we need to take into account is how much food and vets bills might cost as well. We see lots of bot companies tell you about their profits but few tell you what the costs or losses might be on the way.
Lets be very clear. No bot has a crystal ball, all systems will lose money at some point. There will be losing trades. We use bots accepting that this might be the case and expect some trades to lose. As long as we get more winners or bigger wins than the losses we know that in the long term we will be in profit.
Drawdown is actually a way of looking at how many consecutive losses this system should expect or has had in the past. Everyone has different attitudes to lose and losing so for example some people may only be happy with losing maybe 4 or 5 times in a row at best, whereas some people are willing to have a much more bumpy ride with many more losses on the way for the potential upswing of much more profit then thats ok too.
Ask yourself this. Imagine the longest row of losses ( drawdown) was 5% for a bot. This means you could turn this bot on and lose 5% of your initial trading pot before you get any winning trades. Now imagine you find a bot with a 30% drawdown. That now means that whilst it MAY make some huge profits you need to be absolutely comfortable that you are happy with losing a third of your entire account at any point during the trading process. If you think for any reason you would lose your nerve and turn the bot off if it had a losing streak of 30 trades in a row then a 30% drawdown bot is not for you.
Why is understanding the Risk Reward Ration of the Bot important ?
So what do we mean by a risk reward ratio. Imagine a simple coin toss. Now imagine you are simply betting £1 with another person. If you get tails you take £1 off him and if it falls head he takes £1 off you. This coin toss has a risk reward ratio of 1 to 1. What we mean by that is that you are risking £1 to win potentially £1.
Risk reward is important. You can have perfectly great profitable systems with a risk reward that is worse than 1 to1. If you were risking £2 to only win £1 each time you could still have a profitable system if you won 9 out of 10 times.
Is it all about the ‘Win Rate’?
“Do you think that a 45% win ratio is a good win percentage?”
Its a common question people ask me and the answer is ….it depends…..
I then follow up with another question, “I have a strategy that wins on 90% of its trades. Are you interested in seeing the strategy’s buy and sell rules?” Inevitably, I will get several interested parties who raise their hand.
I’ve seen too many traders drawn to higher win ratios thinking they are better strategies when in fact the ratio is not giving insight about the strategy profitability. The point here is that judging a strategy solely based on its win ratio is like judging a book solely based on its cover. You don’t get the whole story and a win ratio in isolation could be misleading.
How can a strategy that wins on 90% of its trades be a losing strategy?
How can a strategy that wins on 45% of its trades be a winning strategy?
The answer lies in analyzing the strategy’s win ratio alongside the risk-to-reward ratio. The result of the analysis provides us with an expectancy of the strategy.
For example, the reason the 90% win ratio loses money is because it wins a lot of small trades, and then loses big. This is exactly why the majority of traders lose money in Forex according to our Traits of Successful Traders research.
You can do the maths yourself to see if a strategy is expected to produce positive results over time. Simply take the average number of winning trades multiplied by the average size of the winner in pips. Then, subtract the average number of losing trades multiplied by the average size of loser in pips. The result is your expectancy.
Show me the Money
Ok so profit is profit right? In this case YES ! You need to be able to see that a LIVE ( not backtested theoretical bot) has made consistent profits over at least 3 to 6 months and ideally for more than a year. Be wary of the ‘Too good to be true’ profit figures. A bot claiming its made 4000% return in a month will not be real but we find that bots that actually strive to make 1 to 20% per month are probably in a realistic ball park.
Virtual Server or Tradecopier ?
So getting back to the new puppy analogy who’s looking after your dog when you aren’t around? If you think having a bot that works for you all the time means you can go to the Golf Course and relax you would be right …most of the time.
What happens if there is a power cut at your house or your computer does an unexpected Windows update? Having a bot running is also committing to leaving your computer on permanently for as long as you now want to trade.
What you should consider for running bots is a ‘Virtual Server’. What this means is having access to a computer via a secure password that exists elsewhere by a hosting company with lots of failsafes for power or crashing. Better still you can run multiple MT4 bots off of this server too. This means you can look at and check this special computer remotely using your phone or computer at any time, but you don’t have to worry about keeping your computer on or a power cut.
These often cost less than £20 per month. We recommend the guys at 4xSolutions here .
All brokers aren’t the same
Its not just the logos or where they are based. All brokers ARE NOT the same. Be wary of brokers that are betting against you and instead ask any broker if they are placing your trade actually ‘in the market’. A broker betting against you will want you to lose. They will do anything to make sure you lose in a sneaky way.
A broker that puts your trade in the real market actually doesn’t mind if you win or lose. In fact if you think about it the more you win the bigger your account gets and the more your trade size increases and the more they make so in many ways they are actually cheering you along.
Another key component to your Forex robot is the Forex dealer, an IB that you use for your trading. Choosing the appropriate dealer and taking advantage of the various perks and services offered by Forex IB’s can be the difference between success and failure with your Forex robot in some cases.
A great way to work with reputable broker while experiencing favorable trading conditions is to trade your robot with a Forex IB. Among other perks, they can reduce your transaction costs by providing you with cash bonuses for every Forex trade you make. For example, if your robot trades 30 lots per month and you are receiving a rebate of $5/lot, you will get $150 for free every month. This adds up to over $1500/yr just for trading. This will both enhance your trading success and help pay for various Forex robots and products that you may want to purchase in the future.
I work with Infinox in the UK as they make it clear that they place your trade in the market and don’t bet against you .
Bots need servicing just like cars
MT4 EAs have an easy auto update feature. Most bots are simply ‘set in stone’ and you get what you get. A feature to look for is that the designers or programmers of the bots review how their bot is doing and occasionally tweak or change some small parameters of the bot based on the latest market conditions. Given that ‘abnormal is the new norm’ with markets a bot written for a Pre Trump Pre Brexit vote might perform very differently in a Trump/ May Brexit world. A bot that is reviewed regularly can stay relevant to current market conditions and continue to be profitable over years rather than months.
What is Curve fitting ?
This is a big big giveaway. We are talking about the bots that advertise 4000% growth per day. They are bots that have been created to trade based on existing known outcomes and markets. What we mean is that a programmer takes the last years data for price movements and simply finds a set of trade criteria that gives the absolute best number of winning trades possible.
Imagine this another way. If you had a list of the lottery winning tickets for the last year a curve fit person would tell you that their bot won the lottery 52 times last year. This is a curve fitted system based on past data and is unlikely to do well with the same ticket numbers moving forward next year. The winning lottery ticket in the first week of January 2018 is unlikely to be the same ticket in the first week in January 2019.
What is Back Testing ?
As much as you may rely on third-party tests to verify the profitability of trading robots, it’s essential that you also carry out your own tests.
In some situations, the vendors may manipulate the trading results of the forex robots. With the fake backtested results, you may be convinced to buy the robot, but end up making losses.
Therefore, if you purchase a robot blindly without going the extra mile of trying it for yourself, you may be the loser, after all.
For example, if the forex robot has a trial version or the vendor offers another less superior version of the robot at a lower price, you can try it in a demo account or a micro account. This way, you can test in real time before you make a final decision whether or not to buy the full version at a higher price.
Also, you can use the inbuilt strategy tester tool found in the MT4 trading platform for testing the performance of the EA.
Even though it’s not possible to forecast the future, particularly in the forex world, using historical data in the MT4 platform will allow you to gauge the profitability of the robot. If the backtested results are poor, then exposing the EA to live trading conditions could be disastrous.
Furthermore, carrying out your own tests will assist you to determine whether the trading robot suits your needs and preferences. With the ever-changing forex market conditions (trending, sideways trend, volatile), selecting a suitable robot is not enough.
You should understand how the forex expert advisor works so that you can quickly modify the settings to suit the changing market conditions. If you go for a complicated robot that is not intuitive, you may make an improper adjustment to its parameters and blow up your trading account.
What are Stop Losses and Take Profit
This is a feature you should ALWAYS see on a trading bot. Its is a defined line on the chart and in the order that the bot has placed that clearly defines where the bot will cancel the trade for a loss if the trade goes too far in the wrong direction.
A take profit line is the opposite of a stop loss and is placed as a point on the chart at which the bot will be taking the profit and closing the trade for a winning trade.
Be very wary of bots that trade with no stop loss as they have the potential to empty your entire account in one trade. Also be wary of any bot that risks more than about 10 % of your overall account in one trade with a stop loss tha’ts excessively big.
Examples of Placing Stop-Loss Strategies with bots ea
The first strategy is known as the ‘Pin Bar Trading Strategy Stop-loss Placement’. The most logical place to put your stop-loss on a pin bar setup is usually beyond the high or low of the pin bar tail.
The second strategy example is the ‘Inside Bar Trading Strategy Stop-loss Placement’. Here, the most logical place to put your stop-loss is on an inside bar setup that is solely beyond the mother bar high or low.
The third stop-loss/take-profit strategy example is the ‘Counter-trend Price Action Trade Setup Stop-loss Placement’. For a counter-trend trade setup, your task is to place the stop-loss just beyond either the high or the low made by the setup that indicates a potential trend change.
The next example strategy is the ‘Trade Range Stop Placement’. Every trader often sees high-probability price action setups forming at the boundary of a concrete trading range. In such cases, traders may want to place their stop-loss just over the trading range boundary, or on the high or low of the setup being traded.
Consider this when learning how to use stop-loss and take-profit in FX. For instance, if we had a pin bar setup at the top of a trading range that was precisely under the trading range resistance, we would place our stop a little bit higher, just outside the resistance of the trading range, rather than just over the pin bar high.
The next example strategy is ‘Stop Placement in a Trending Market. When a trending market either pulls back or retraces to a level within the trend, we commonly have two options. The first option is that we can place the stop-loss just over the high or low of the pattern, or we can use the level, and place our stop just under it. Finally, we have come to the ‘Trending Market Breakout Play Stop Placement’. This will expand your knowledge about take-profit and stop-loss in Forex. In a trending market, we will frequently see the market pause and consolidate in a sideways manner after the trend makes a powerful move.
Such consolidation periods mostly give rise to large breakouts in the direction of the trend, and these breakout trades can potentially be lucrative for traders. There are generally two options for stop placement on a breakout trade with the trend. You can either place your stop-loss near the 50% level of the consolidation range, or on the other side of the price action setup.
Get an email alert every time it does a trade
Some bots have the ability for you to subscribe via an email to get an alert every time it opens a new position. I think this is a great feature and allows you to keep an eye on what your bot is up to.
Don’t confuse activity with productivity
A lot of bots do hundreds of trades a week. Do not confuse the number of trades with the profitability of a bot. In fact over testing for many years we find that the ‘sweet spot’ is somewhere around 1 or 2 trades per day. If there aren’t many trades per month you’ll find it hard to know if you are making any progress. On the flip side any bot that trades 40 times per day is probably designed to simply ‘churn’ an account to generate profits for a broker rather than make you any money.
Compound versus fixed growth
the coin toss test
This is a very simple almost laughable base line comparison. If you bot can outperform a simple coin toss in win rate with a 1 to 1 ratio for your risk reward ratio you might as well toss a coin every time you trade. Always keep this in mind
Weekends Christmas and Summer
It sounds weird to look for a bot that takes time off like a human. Aren’t we looking to use a bot that will toil for us 24 hrs a day 7 days a week all year to make you as much money as possible? The answer is that that would be great ….BUT….. bots do best in predictable high volume busy markets. These ideal times come during the times when the Europeans, UK and USA are trading. These periods overlap as the sun rises on their part of planet.
We tend to find the best opportunities for trading are from about 7am UK time through to about 8pm UK time each working day Monday to Friday. These are when markets are most predictable as they have the highest volume and its therefore difficult for any one madman to move the market in a weird way.
So what does this mean for bots ? Well it means you should be suspicious of bots that open trades late at night when the markets are weak and unpredictable, or hold a position over the through the weekend past Friday evening when the forex market closes or during the Christmas or summer break ( Jul Aug ) when the big traders are out partying on boats in the South of France. We aren’t say avoid bots that do this, but you should be wary of any bot that seems to trade at any time 24 hrs a day.
How do I look up the reliable performance results of Forex Bots EAs
To avoid scams, don’t pick an Expert Advisor that isn’t tested by an independent website. It is best to filter offers for EAs by looking at stats on independent sites such as myfxbook or forexpeacearmy or on my site . The results look great, but past performance is no guarantee of future performance. Automated forex trading involves significant risk!
Robots don’t perform well in all types of markets (trending, volatile, range-trading). To obtain good results, it is not enough to simply choose the best robot. You also need to understand how it works in order to change the settings according to the type of market you’re interested in and your risk tolerance. If your objective is to buy a robot to let it run on its own without any supervision, you will probably lose your money after a while. The perfect robot that runs well in all types of markets does not exist!
How to Figure out if a forex Bot EA is any good
1) The Profit Factor
The profit factor is one of the most important statistics. It allows you to answer an important question: will the robot make money?
The profit factor is important because it shows the relationship between profit and risk. A robot that is profitable – but nevertheless risks all of the money in your account – is not an ideal robot.
To calculate the profit factor:
Profit Factor = gross profit (sum of all winning trades) / gross loss (sum of all losing trades)
If the profit factor is less than 1, you must eliminate it immediately, choose EAs with a big profit factor.
2) Expected profit per transaction (Expectancy)
The expected profit (Expectancy) is a statistic that tells you how much you could earn on each trade on average.
Obviously, these statistics are based on trading history, so it doesn’t guarantee future results, but it is a useful indicator when choosing an EA.
The expected profit is calculated as follows:
Expected profit = [% of winning trades (average profit per trade)] – [% of losing trades (average loss per trade)
3) The drawdown (max drawdown, average drawdown, drawdown recovery)
A robot that makes money is no good if it takes too much risk on each trade. Drawdown is a very important indicator of risk. It shows the percentage of maximum loss recorded since the last high point. This can give you an idea of the potential drop in your account when the robot is in trouble.
The first step to analyse drawdown is to look at an equity curve chart. A rising curve indicates that the robot is profitable, but if the curve is rather agitated with frequent and large peaks and troughs, the robot is very volatile. A volatile robot will most likely have a high drawdown and pose a greater risk. You can therefore quickly filter the robots by selecting charts that display a smooth equity curve.
Maximum drawdown simply shows the maximum loss since the last high point. For example, a 50% drawdown means that at some point the robot lost 50% of the account value from its highest point. For example, if you opened a trading account with £10,000 and started to use this EA at the wrong time (just before the drawdown), you would have been subjected to a 50% loss of your capital from the start!
The average drawdown compares the EA’s various drawdown amounts. For example, let’s say that the expert advisor had 3 drawdowns, the first 10%, the second 4% and the third 12%. To calculate the average drawdown, you just need to add the three drawdowns and divide by three (10% + 4% + 12%) / 3 = 8.7%. The average drawdown is interesting to look at because it gives you an idea of what you can expect to lose during a drawdown period, while the maximum drawdown showed you the worst case.
Drawdown recovery is an indicator that measures the speed with which a trading system emerges from a period of drawdown (in time or in number of trades). As you can imagine, it is best to choose an EA that is able to quickly return to positive territory after a loss. However, a less volatile (and less risky) robot will recover from a drawdown in a slow and steady manner, unlike a riskier robot.
4) The risk-reward ratio
The risk-reward ratio indicates an Expert Advisor appetite for risk. An Expert Advisor that uses a 5-pip take profit and a 40-pip stop loss has a risk-reward ratio of 8:1. It therefore needs a success rate of at least 89% to be profitable.
Some EAs on the market – especially the ones that scalp – have a risk-reward ratio of 15:1 and higher, which indicates that it uses a very risky strategy. A high risk-reward ratio does not necessarily mean that the EA does not make money. An Expert Advisor with a 95% success rate will still be profitable with a 15:1 risk-reward ratio, but if that rate drops to 93%, the EA will lose.
Most EAs feature options that allow you to manage risk by adjusting the maximum SL and TP, which allows you to improve the risk-reward ratio. However, you need to make backtests before changing the settings to see if the changes do not affect the strategy.
The best Forex robot for you is going to depend greatly on your appetite for risk. Before you embark on your Forex trading journey, you will have to decide how much you are willing to risk. With your risk appetite on hand, you need to look for robots that suit your trading style and analyze various statistical factors including maximum drawdown, profit factor, expectancy and efficiency.
Generally speaking, the robots that make more tend to risk more in turn. Therefore a person that wants to make 10-20% per year on their investment may not be looking for the same robot that a person seeking a 1000% per year return on their investment would be. This nails down the point that your expected return is a huge factor in determining which robot is right for you.
You need to remember that the results that robot vendors display are often simulated and it is therefore essential to test your robot on a demo account before risking your hard earned money. Chances are, finding the right Forex robot for you will cost you both time and money. There are many things to pay attention to when choosing the best Forex robot for your trading. Much of the key statistical information needed to make a sound decision can be found in the best Forex robot toolkit. In this article, we will focus on one very important criterion referred to as robustness.
The majority of Forex robots only work effectively in certain types of markets. For example, some perform better in range bound markets while others are more effective in trending markets. However, it is often very difficult for a trader to determine if the market is in a range bound or trending. In order to achieve success with a Forex robot you should not give up the gains that it makes during a favorable market when the market is unfavorable.
Appropriately choosing a forex robot is critical to your success as a trader. If you do not invest your time and resources in making the best decision, you may fail to realize the benefits of trading forex using expert advisors.
If you apply the tips outlined in this article, you will undoubtedly make a good choice and attain the objectives of your trading career.