What Is EA in Forex Trading? How Does It Work?

Expert Advisor (EA) tends to cause quite a lot of debate on the internet. The Forex market is open for trading 24 hours a day. Being constantly active around these is obviously not possible for humans, however, a machine can trade for days without ever needing to take a break. One of the main reasons Forex robots are in demand is that they bypass the human factor.

However, there are some drawbacks involved as well. A robot, for example, cannot easily recognize forex market shifts. In this article , we will focus on what Forex EAs are and how they work and list the advantages and disadvantages of EA to help you decide whether to use it.

What Is EA in Forex Trading

Forex expert advisors are essentially a specific type of trading software with preprogrammed rules and algorithms for initiating, managing and exiting trades in the market. All tasks are performed automatically or mechanically, which is why the advisors are called experts or mechanical trading systems (MTS).

Another type of MTS is a Forex robot which, like an EA, is a program that works to identify market patterns and generate trading signals. However, unlike an EA, a Forex robot can also automatically trade on a trader's behalf. An EA, on the other hand, will always require a trader to manually authorise individual trades.

Created to help both experienced traders and complete beginners, most EAs will calculate the lowest price to enter a market and the highest price to sell, following a specific set of trade signals and user settings. Here are some types of expert advisors you may encounter:

1. The News Expert Advisor

The news EA works by monitoring financial news and reacts so that the user can take advantage of large price shifts. The main purpose of the EA is to take advantage of various news events and big price moves that can take place during big news releases.

2. The Hedge Expert Advisor

The hedge EA opens two opposing positions, reducing the risk and diminishing the loss on one whilst facilitating profit on another. It doesn’t need to analyse market conditions, it just needs to notify the user of the best time to sell in order to minimise losses.

3. The Scalper Expert Advisor

The scalper EA pursues the goal to secure small profits once they are available. By placing lots of small trades, the scalper takes advantage of small movements in prices and sells when they are in profit.

4. The Breakout Expert Advisor

The breakout EA is specially designed to open a trade when a price breaks through predetermined resistance and support levels. Such EAs carry out a constant technical analysis of market behaviour to identify when big movements are coming, placing the user in the best position to take advantage of that.

How to Install Expert Advisor in Forex Trading?

For most traders, EAs are primarily used for forex trading. But you can use them to trade any market that’s available on your MT4 or MT5. You can follow the steps below for installing the EA on MT4 or MT5 correctly.

1. Open your Metatrader and click in the above left corner on “File > Open Data Folder”.

2. Navigate to “MQL4 > Experts” respectively “MQL5 > Experts” and copy and past the file inhere. (For indicators copy the file into the Indicators folder instead).

3. Then restart your Metatrader. The Expert Advisor should show up in the Navigator under “Expert Advisors”. To open the Navigator click on “View > Navigator” or with Ctrl+N.

4. Double click the EA or drag and drop it to the chart. Allow live trading in the Common tab and set your settings in the Inputs tab and click on OK.

Pros And Cons of Expert Advisor

If you want to build and use your own EA, you have to know the pros and cons of it.

Pros for using a Forex expert advisor:

1. EAs works 24 hours

Forex markets are open somewhere in the world 24 hours a day/seven days a week. Using an expert advisor, or a similar trading tool called a forex robot, to carry out trades in your absence enables you to take advantage of trading opportunities while you're working, asleep, or otherwise occupied.

2. Eliminates Emotions

The effects of fear and greed in the market can be enormous and weigh heavily on our trading decision process. Due to all such reactions trader open more orders in order to cover losses but actually, it’s a way of heading toward a huge loss. Whereas the robot is a programme based on a set of coded rules which are capable of carrying out a complex series of actions automatically without negative emotions. That is why robot trading is the only way to overcome aforesaid limitations.

3. Faster Order Execution

EAs help us to pick each and every trading opportunity much faster as compared to a human being because it’s not possible for a trader are to watch multiple charts closely and continuously.

Simply put, EA’s react to trade situations in a speedier manner than can ever be expected from a human trader. This effect is enhanced if you are trading with an ECN forex broker whose infrastructure is built around optimal execution.

4. EAs are good for New Traders

There are a large number of free and commercial EAs that a trader can use . So there is no need to become an expert trader and programmer. A trader just needs to make a relevant decision before purchasing an expert advisor online. Before buying any EA, a trader should do a deep background verification of that vendor.

Cons of using a Forex expert advisor:

1. High cost of VPS

It must run on a VPS or a computer 24/7 so as to work properly. While the price for Virtual private servers are becoming much more affordable, the added cost may only make sense for those that have a reasonable capital base in their trading account.

2. EA can not reach fast on Economic events

This might think that since it is a robotic trading mechanism hence it is needless to understand anything regarding the Forex market. Most EAs do not work during important news and economic data this is because it is not possible for them. We know that market reacts too quickly as soon as data releases or when there are some important news flashes, but this sudden fluctuation can cause an EA to get stopped out, and/or enter too late.

3. Doesn’t Build Trading Skills

By relying on an expert advisor to trade the markets, new comers are not building up their own trading skills. Most expert advisors may work for a certain period of time, and then as the market dynamics change, that very expert advisor can become obsolete.

Conclusion

By using automated software like an EA, you can benefit from several advantages. However, it is hard to ascertain whether an EA will help you to achieve consistent profits. Whether you use someone else's EA or create your own, it's crucial to test it over various time frames in a practice account. If you are looking for a free Forex EA that works online, ensure you read plenty of reviews from other traders to find the best one possible.