Algorithmic trading and expert advisors: their advantages and disadvantages


We live in an era when computers help us perform many tasks. Many aspects of our daily lives are related to the use of technology, and this also applies to trading. In this article, we will consider what algorithmic trading is, and also talk about expert advisors.


What is algorithmic trading?

It all started with the invention of computers in the 20th century, first programmed to aid in mathematical calculations. Since then, information technology has developed rapidly, computers have become more powerful, complex and fast. Then the internet arose. It did not take banks, institutions, or people much time to understand how technologies can be useful in making a lot of money.

The first algorithmic systems were charting and trading software that helped facilitate price studies and order execution. In the end, they turned into full-fledged trading platforms that facilitate the work of the trader.

What is algorithmic trading like? Let's first determine the automation of trade in general. Trade automation is a trading activity that is fully (or partially) performed by software. In other words, with the help of trade automation, all or some of the trading tasks are performed by a computer program in your place.

There are several ways to automate trading activities, the main of which are:
  • Trading signals are services that you can subscribe to so that your software automatically copies the transactions of other traders. There are free trading signals, but most of them are usually paid.
  • Social trading is based on a social platform where traders can share their trades, while other traders can track and copy them.
  • Trading Advisors is software programmed to perform actions in response to certain triggers. You can download free expert advisors, buy paid ones or create your own.
Algorithmic trading has many advantages and disadvantages. Some traders manage to make big profits using algorithmic trading, but this trading method is not suitable for everyone.

What is an Expert Advisor?

An expert advisor is software that performs trading tasks on behalf of a trader. In other words, an expert advisor is a program that you can buy or create yourself.

Algo trading and expert advisors are directly related, as they are based on technical analysis, mathematical models and statistics. Expert advisors are ideal for performing tasks that respond to certain triggers. In algorithmic trading, triggers are determined by the rules and values ​​obtained as a result of a technical analysis of price movement. For example, a rule may be an indicator signal reaching a certain value. If this rule is met, a buy or sell order is sent.

Some trading platforms allow you to install third-party expert advisors, and some program your own. The MetaTrader trading platform and the MQL4 language are especially popular in this regard. If you do not have programming skills, I recommend that you contact professional expert advisor developers, for example, here: https://nordman-algorithms.com/metatrader-programming/

Tasks that can be performed using algorithmic trading

Let's look at examples of tasks that can be performed with the help of expert advisors. It is widely believed that expert advisors are used only for opening orders. However, in fact, making deals is only part of automated trading, and you can see it in the following examples. So how can an expert advisor be useful?
  • Performing technical analysis. With the help of an expert advisor, you can perform mathematical calculations. All these calculations are designed to understand and predict price movements.
  • Sending notifications. You can program the expert advisor in such a way as to receive notifications of price changes or market events.
  • Creating and sending reports. Expert advisor can create and send automatic reports. For example, if you want to receive a daily report on your transactions and the status of open orders, you can create an expert advisor that will send you this information.
  • Trading on the news. It may be difficult to program, but it is possible. The expert advisor can read the news feed and understand what events are happening, then notify you of these events or react in a certain way.
  • Make a deal. An expert advisor can execute orders on your behalf and without your participation.
  • Modify open orders. Expert advisor can be programmed to modify existing orders. For example, for a trailing stop, if you want your stop loss to move when the price moves in the direction you need.
  • Stopping the trade. You may need to stop all your trading activity and close all orders in response to some market events, and the expert advisor can do this for you.
The complexity of an expert advisor may vary depending on the tasks programmed into it.

Advantages of algorithmic trading

There are several reasons why it will be convenient for you to use algorithmic trading and automate your trading:
  • Free up your time. This is probably the most important reason you might want to automate your trading activities. We are all constantly busy, and time is the most valuable resource that we have. If you trade manually, you may want to have more free time to do other things, rather than trade. Algo trading allows you to perform many tasks without your participation.
  • Trade speed. A computer is much faster than we do all the calculations. In fractions of a second, an expert advisor can study the price movement over the past few hours or even months, compare with some rules and open a deal, while a trader would need minutes or even hours for this.
  • Testing on the story. An expert advisor can be checked on historical data. This is a powerful tool to test any strategy. Testing on the history will allow you to see how your strategy and expert advisor work in the past. This gives you the opportunity to understand how they will work in the future. Through history testing, you can also spot trading errors and aspects that you can improve.
  • Trade 24 × 5. You can set up a server that will be connected to the Internet and ready to trade 24 hours a day, 5 days a week. This is especially useful when trading forex, as the market is open 24 hours a day, 5 days a week.
  • Trading psychology. One of the most important skills for a trader is discipline. As we all know, many factors can influence discipline. The lack of discipline cannot affect the expert advisor, the EA itself is a discipline by definition. Expert advisors follow only the rules that are prescribed for them. Think of an obscure situation in which you are not sure. Or a deal that is not going as you expected, and you closed it due to panic. All of this cannot happen to an EA. Expert advisor always trades according to the rules and never deviates from them.
Algo trading, of course, can help improve your trading and make it psychologically easier to trade with a large deposit size.

Disadvantages of algorithmic trading

I emphasized the advantages of trade automation, but it is also important to understand that there are also certain risks and limitations. Here is some of them:
  • If your expert advisor contains errors, your funds may be in danger. Fortunately, history testing and a demo account will help you detect errors in advance.
  • Unexpected market events. You can program your expert advisor so that it responds to certain triggers and events, however, unexpected situations may occur on the market that you could not foresee, in which case your expert advisor may fall into a drawdown.
  • Limit in programming. An expert advisor can perform technical analysis, however, some price action, chart, price, and trend models can be very difficult to translate into mathematical functions and comparisons. Improve your skills as a programmer, and you will be able to perform more and more tasks.
  • The software is potentially risking your money, so always follow the strict rules of risk management when creating your expert advisors.
Trading automation, of course, has some disadvantages, but when used correctly, its advantages definitely outweigh.



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