Expert advisors have emerged as a major tool used by novice traders to generate substantial profits in forex markets. This automated trading software or the best forex expert advisors help traders make trading decisions, based on a few trading signals.
Expert advisors have proven to be remarkably successful for traders who have amassed fortunes as profits. However, just like every industry, the success of Expert Advisors has attracted numerous scams and frauds into space. Almost all of these claims to be the best at what they offer; using illegitimate means to entice prospective traders. Thus, as traders, it is absolutely necessary to check the legitimacy of each EA and then make an informed decision. There are some factors that can help traders make this decision more reliably. These factors are explained in brief below.
Expert Advisors to Avoid:
Expert advisors use a myriad of trading strategies in their system. Some of these strategies used are known to be disastrous in the long run or have been proven to be unsuccessful by many traders in the past.
1. Avoiding EAs with High Drawdown figures:
Many EAs can have an upward equity curve and a 99% modelling quality which may attract traders. However, if the drawdown figures are also high, the EA will not work even if it seems to. Simply ignoring the drawdown rate and looking at equity curves may fool many novice traders. Thus, EAs with substantial drawdown and expected drawdown rates should be avoided at all costs.
2. Avoiding strategies that long open trades for long periods:
There are expert advisors that tend to hold trades for a long period of time. Many traders argue from the point of view of long-term trades, but it stops making sense if the trades last for several years, instead of months or days. For instance, there are EAs who advertise their products with trades lasting for almost three and a half years. Such EAs should be avoided, no matter how satisfactory their back-testing results are. Even if a trader has chosen to use this type of EA, he/she should ask him/herself one question: Why hold on to a strategy that promises yearly returns but with such long trading periods?
3. Avoiding Scalping Strategies:
Scalping strategies are quite popular as indicated by the number of people who use them. However, most EAs which use scalping strategies tend not to work. Scalping strategies are sensitive to price ranges and thus do not work on most brokers. These EAs may fool traders with test results, but these tests can be fabricated as well. Scalping strategies may appear to work on one broker but may fail to work on another broker even if similar settings are applied. Traders could thus, end up with a scalping EA which does not work with the trader’s broker.
Spotting Expert Advisor Scams
Scams that pose as legitimate expert advisors have exploited many innocent traders over the years. However, there are some tell-tale signs which the trader can use to make a well-informed decision and avoid them.
- EA’s employing a grid style of trading should be avoided. These EAs simultaneously buy and sell a lot of orders at the same time, exposing the trader’s account to a lot of risks.
- EA’s which increase lot sizes while trading should be avoided. This is indicative of an EA using the martingale trading style, a very risky strategy.
- The maximum drawdown rate of an EA should always be checked in back-test reports.
- EA’s which do not use stop-loss functions should be avoided. Stop-loss is an essential tool to protect traders from losses.
- EA’s which hold strategies trades open for a long time and close them in seconds should be avoided. They can often produce great equity curves but fail miserably when tested in a live trading environment.
There are many poorly constructed Expert Advisors available in the market, parading themselves as great Expert advisors to entice novice traders. However, these invariably lead to poor trading results. Companies behind such fraudulent EAs can also produce back-tests that may look legitimate but are highly manipulated. If the above facts are taken care of, it can help traders avoid such fraudulent EA’s and protect their funds in the future.
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