There are three key trading automation tools that all forex traders should be aware of. By using automated trading tools such as expert advisors (EAs), custom indicators, and scripts, traders can automate almost all of their trading activities. These activities include research to identify potential trading opportunities, determining appropriate risk levels on each trade, and deciding on the best time to execute a trade.
This article explains the main differences between expert advisors (EAs), custom indicators, and scripts, as well as how traders can make best use of them.
Expert Advisors (EAs)
An expert advisor (EA), sometimes referred to as a trading robot, is designed to automate all of your trading activities. An EA is not a physical robot like the ones used by manufacturers on a production floor, but is instead a computer program that lives inside your trading terminal. EAs can perform a range of tasks including generating trading signals based on your instructions, placing trades, and determining stop loss orders and take profit levels. An EA or trading robot can also close your trades once a stop loss order has been activated, or your profit target has been hit.
The MetaTrader 4 and MetaTrader 5 platforms allow traders to download community-created EAs, as well as to create your own. You can also customize the EAs that you download, so that they generate and execute trades based on your defined trading rules. EAs can be extremely useful for all levels of traders given that they monitor the global financial markets around the clock, which most human traders cannot do.
Once you have programmed your Expert Advisor with all your trading rules, you can rest assured that the EA will execute each and every trade in accordance with your instructions. Using an EA is a good way to eliminate the impact of your emotions, with the program executing trades according to your earlier instructions regardless of your recent losses or gains.
An important point to note is that for EAs to work you must have a terminal open and running. To get around this, traders can make use of the free VPS service from Exness to host their terminal remotely.
A custom indicator is a technical indicator that that helps a trader conduct market analysis in order to identify potential trading opportunities. The difference between an EA and a custom indicator is that the indicator does not perform any actual trading activities, such as entering and exiting trades. Instead, traders use custom indicators to identify trading signals, and then manually place the trades themselves. The MetaTrader 4 platform allows users to easily add their own custom indicators to the ones that are already part of the platform.
A custom indicator is very similar to the indicators that are already included as part of the MT4 and MT5 platforms, such as the RSI and the moving averages. Although most traders use custom indicators for technical analysis, you could go a step further and use custom indicators for fundamental analysis. You can program all the news events that you follow into the MT4 or MT5 platform and use the custom indicator to give you notifications of important market developments.
A script is a short program code that is created and set up in the same way as an EA or a custom indicator, but is programmed to perform a single action. A script is the most basic type of program created using the MT4 or MT5 programming languages, MQL4 and MQL5 respectively. The main difference between EAs and scripts is that the EA and custom indicators work continuously, while a script only works once.
You can use a script as a shortcut to performing some of the repetitive actions that you would perform manually in the terminal. A script can close all open trades in an account, or all open trades including a particular currency, or all pending orders involving a particular currency pair. Scripts can be extremely useful for regular traders with multiple trades open at any one time.
Automated trading using expert advisors, custom indicators and scripts is something that all traders should experiment with. Nevertheless, beginner traders should exercise caution before using automated trading given a need for fundamental forex knowledge to make full use of the tools. Intermediate level and professional traders on the other hand should consider implementing automated trading as part of their overall trading strategy.
The main advantage associated with automated trading is that it can help you follow your trading plan regardless of previous outcomes. Using EAs can also be a good way to eliminate the influence of your emotions in your trading activities.