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Top 3 Expert Advisor Design Tips

forex robot

Almost nobody turns their first EA into a winning strategy. Like any new task, you’re more than likely going to fumble the first few attempts. It takes time and experience to anticipate design mistakes that may lead to trading losses.

I cannot promise that following this guide will turn your expert advisor into a winning strategy. But, what I can promise is that you’ll be less likely to lose if you following these three simple tips.

Time of Day

The forex market has a personality. Each currency pair also acts somewhat differently from all the others.

We’ve all seen the warnings to never trade the Asian session, but sometimes it makes sense. Australia shares that time zone. It’s one of the most liquid times of day for AUD/JPY.

You shouldn’t avoid sessions just because they are generally bad. On the other hand, you shouldn’t be trading all time sessions either.

Adding time restrictions is one of the simplest and easiest ways to only trade when it makes sense.

Choose the right currency

A strategy is more likely to outperform on one currency over another. So, it makes sense to focus your limited trading capital where it stands the best chance of suceeding.

EAs fall into one of of two categories: range trading or trend trading. Forex pairs fall into the same categories, too. Make sure thee currency pair that you’re trading matches the expert advisor’s style.

The GBP/JPY is among the most notorious trending pairs. The EUR/GBP is a total snoozefest. Trying to trade a trending EA on the EUR/GBP is a surefire loser.

Stop trading so much

Everyone wants a scalper EA. Unless you have a compelling reason to scalp, it’s not a good idea. Trading costs a lot of money.

Consider a strategy that trades 1 standard lot once per weekday. That’s about $20 per trade in spread costs on the EURUSD for most brokers. Multiply that by 260 (the number of trading days per year) and you come out with an annual cost of $5,200. That is a steep hill to overcome.

It makes a lot more sense to kick back and let your expert advisor do what it needs to do.


Trading is hard. Making an EA that earns a profit over the long run is even harder.

My advice is to focus on doing the big things right and worry about the little things later. It may seem obvious, but forcing a trend trading method onto a range bound pair is something many people try. As my old boss loved saying, “Remember the 40,000 foot perspective.”

You have to fit the expert advisor into the general environment. Only once that’s done will you be able to start tweaking the finer details.

Author: Shaun Overton

Shaun Overton writes a forex blog on trading with expert advisors for his company OneStepRemoved.com. The company specializes in building automated trading strategies with a particular emphasis on MetaTrader.

Best Position Sizing Practices

One of the key elements in risk management in Forex is position sizing. It’s a decision you have to make with every trade, and it’s best if it’s consistent. While many traders believe that the most important element of trading is having a good method and applying it, position sizing can be just as critical in determining your success or failure. We’ll start by looking at the simplest scenario, which is placing trades that you don’t scale up on.

There are many ways to complicate position sizing, but there’s no reason to do so. When you put together your trading plan, you need to figure out how much you’re willing to risk on each trade. When you figure this out, note that you’re considering how much money you can lose if a trade goes against you, not how much you can win if you succeed. Always base your position sizing off of worst case scenarios – losing 100% of your investments. New traders regularly make the mistake of risking way too much money on their trades. It is unwise to risk 10-20% or more on a trade, no matter how confident you are. Successful long-term professional FX traders usually risk no more than 2.5% on their trades. Consider 5% an absolute maximum. 2% isn’t a bad amount to risk, either.

Depending on the way your trading platform is structured, you may need to calculate your risk in a particular way each trade. The factors you take into account should include how much money you have in your total trading bankroll, the percentage you’ve chosen, and the distance between your entry and your stop loss. The pip value is a key element too. You can mathematically calculate your position size as follows:

Multiply the amount of money in your bankroll by your risk percentage and then divide that by the number of pips you’re risking (that’s the distance between the entry and stop loss). Then divide that number by the pip value per standard lot. Check whether your platform can do all this for you. Many trading platforms will do the math for you. With Oanda for example, you can choose your stop loss and the amount of money you want to risk, and it will put up the proper position size for you. Alternatively, you can use a free online position size calculator to help manage your positions precisely. Oanda was also used because it offers flexible lot sizes, which is an absolute must if you have a small account. You can’t do standard lot sizes if you only have $1,000 in your trading account. That’d be way too big a percentage for you to risk. Such brokers like Oanda, AGEA and MahiFX let you wager as much or little as you want, even if it’s just a handful of dollars.

Scaling Up

Scaling up, also called averaging up or pyramiding, is another topic that should be discussed. This is where you increase your position size if you’re winning on a trade. There are different practices for doing this; you should test any scaling up method thoroughly before you use it live since it can complicate your risk exposure. The benefits of scaling up are pretty clear; if your position continues to move in the right direction, you can become more profitable. The hardest part of making a good trade is often the beginning, and if you find that you’re in a trend, you may as well try to ride out the trend and get as much as you can out of it.

The drawback of scaling up is that if a position goes against you, it doesn’t need to go clear back to your entry to put you at break even anymore. If you doubled your investment and the price retraces 50%, you’re suddenly at break even, even though you’re not back to your entry. If price does go back to your entry level, you’re suddenly at a loss. If you don’t double your investment but choose some other amount, you have to carefully calculate the rate at which you’ll be losing money should the position reverse. So this is as much a trading style issue as it is an objective one. Some traders find this all too complicated and do better if they stick with a simple position sizing tactic. Others excel with scaling and go on to higher profits.

Setting a Target Profit

While we’ve focused largely on where you set your stop loss to determine your risk, it’s worth pointing out that another way you can ride out your winning trades without scaling is by moving your target profit and your stop loss after the trade is going in your favor. One thing traders will sometimes do is enjoy the benefits of a risk-free trade. A trade becomes risk-free when it goes in your favor and you move your stop loss to break even and push your target profit further out. If the trade continues to go in your favor, you can move the stop loss and target profit again. This locks in a small win, and gives you a chance at a bigger one. If you find out you’ve caught a trend, you can do this indefinitely, chasing larger and larger profits with no additional risk.

Why wouldn’t you do this? Depending on your strategy, it could result in a lot of break-even trades. It’s a more reliable and simpler method of riding out trades than scaling is for many traders though, and just one more idea to consider in regards to position sizing. Everything starts with making sure you don’t risk more than a tiny percentage of your account, but where you take your trades from there doesn’t necessarily need to be limited by your initial stop loss and target profit.

Pros and Cons of Fundamental Forex Trading

Many forex traders are technical traders, but there is a school of thought that says fundamental analysis is the best route. Fundamental analysis is the process of analyzing the market using both qualitative and quantitative factors that take into account economic and political factors.

Fundamental traders are concerned more with how the economy and political landscape shapes the world and affects trading activity. In forex, fundamental traders look at the macro and micro economic factors that affect a nation’s currency to determine the value of that currency relative to another currency. Since fundamental indicators don’t always result in instant market reactions, fundamental traders tend to have a more long-term view of the market.

While there is no shortage of trading software and tools for the technical analyst, fundamental analysts often find that they must put in more manual labor to realize a profit. Is it worth the effort?

The Benefits of Fundamental Analysis

There is a certain kind of romanticism surrounding fundamental analysis. The idea that politics and the economy drive financial decisions means that there’s more than just numbers that move the world along. This lends an artistic element to the process of analysis. Still, fundamental traders do look at numbers including:

  • the measure of overall economic growth for a country.
  • trade and current account balances.
  • interest rates and investment (i.e. bond) yields.
  • political stability.

The measure of economic growth for a nation is often measured by its GDP, but traders will often look at unemployment rates as well. Any decrease in the employment rate is seen as a weakening of the economy. When economies weaken, central banks have a history of lowering interest rates to spur growth. For traders, this means inflation. Inflation destroys the value of a currency causing traders to bet against that currency. If enough traders have the same view of a weak nation, that nation’s currency value could drop.

Trade balance can dramatically affect a nation’s currency. When a country has a trade deficit, it will generally result in a weak currency since that country will have continuous commercial selling of its money.

GDP, or Gross Domestic Product, can foretell a strong or weak nation. If GDP rises, there is an expectation of higher interest rates. These higher rates may be positive for a country. As interest rates rise, borrowers must pay more for their debt. Some businesses will default. Even so, the rising rates curb inflation by reducing the incentive to borrow. By curbing inflation, a currency grows stronger because it is not being devalued as much. Taken to the extreme, a deflationary environment would make a currency grow (sometimes rapidly) in value as fewer currency units become available in the marketplace.

An economy can still grow under high interest rate environments. This growth would be good for the economy, thus signaling a buying opportunity for forex investors.

The Disadvantages of Fundamental Analysis

Some critics of fundamental analysis point out that:

  • fundamental analysis requires a background knowledge of economics and is difficult to understand.
  • fundamental analysis is time consuming.
  • the information unearthed by fundamental analysis is already priced into the market.
  • it fails to give traders objective trading signals.

Economics is not an easy subject to master. There are two basic competing theories of economics: the Keynesian school of economics and the Austrian school. Keynesians believe that economic growth can be achieved through government stimulus. When an economy is sluggish, the central bank can “grease the grooves” by providing an infusion of capital to the market. The market then invests this money thus contributing to a recovery.

The Austrian school holds the opposite view. Instead of government stimulus helping the economy, it plants the seeds of its own destruction. The boom created by an influx of capital is really just a sign of malinvestment waiting to crash. This, according to the Austrians, is why central bank-induced boom periods are always followed by busts.

Many economists study just one theory for their entire life and still never master it enough to predict market trends. For traders, they must be able to pick the correct economic theory and know how it will impact the markets – a tough job at best.

Because of the nature of fundamental analysis, it’s time consuming. While some calculations can be done to assess the health of an economy, much of the analysis is qualitative. In other words, the trader has to know how to interpret the news and political speeches. This could take years of practice not to mention the fact that economic and political news may or may not have an immediate effect on the currency markets.

Many technical traders argue that markets are perfect and that this means that all of the fundamental indicators are already priced into the marketplace. This line of thinking is closely related to the efficient market hypothesis which states that financial markets are not over or undervalued. All relevant information is instantaneously priced into the markets. If that’s true, then fundamental analysis is a waste of time.

Technical traders also believe that fundamental analysis does not give investors the ability to make objective trading goals. Since much of the work is qualitative in nature, fundamental analysts are often perpetual “buy and hold” investors that seek gains over a long period of time. Because there’s no software that tracks historical trends, there’s no data mining. It’s this lack of historical data that accounts for this criticism of fundamental analysis.

Making a Choice

One option that you have open to you is to blend both technical and fundamental analysis into a new trading strategy. You don’t have to choose just one. In fact, an increasing number of traders use technical analysis to spot trends, then use fundamental analysis to confirm the validity of the trend before investing. A combination of the two methods might yield good results and provide flexibility in your trading strategy.

Author Bio:

Guest post contributed by Stacy Pruitt, a freelance forex strategy and finance writer. Stacy writes about advanced trading. Learn more about forex trading.