Expert Advisors can be created in programming language. They are then tested using MT4’s Strategy Tester. Coding is done using a text-editor and the program language used by MT4 is very similar to C. Strategy testers use historical data in order to test the programs and then output the summaries results. User can choose to back test for a certain period of time, to make currency trades, to chart the data over a specific period, to apply different algorithm models, etc. Learn more?
What matters is the backtesting results.
Expert Advisor can automatically trade any strategy for those with programming backgrounds. We’ll look at some results from back-testing the code before we put it into live trading.
Profit is the key factor to be considered. It is calculated by dividing the total earnings by the overall losses. In the long term, anything above 1 results in profit. However, due to changing market conditions and the emergence of trading news, a profit ratio of 2 would be more ideal. It is important to have multiple strategies to support anything from 1.3 to1.8.
Max Draw Down
A drawdown is the minimum possible loss for the account, at any moment. Max Draw Down is simply the minimum amount of capital you possess at any moment (whether it’s realized profits or unrealized gains). The setting is crucial to avoid margin calling out. A general rule of thumb is to limit the drawdown on an EA’s product to less than 20 percent. Anything between 50% and 21 % is dangerous. It must be carefully set up to avoid margin calls. Anything above 70% is considered too high-risk.
The expected payback
This is a measure of gross income, gross losses, time and initial deposit. It is important to note that the higher this number, the more profit-oriented and better your program. Anything above 100 will produce profitable results.
The duration of the test
Test the strategy using at least 12 month of historical data. This will allow you to cover major events and changes in seasons for the vast majority of traders. As fundamental news, such as non-farm employment or unemployment levels are reported, the forex market’s price will be affected. In addition, the holiday break of United States in Europe and Japan can also have a significant impact on forex volume. Prices will fluctuate wildly. It is important to run the EA through these major events throughout the entire year.
What is the maximum loss and what is average?
It is more important to look at the loss trades than I do winning trades. Margin calls, for example, will be based on this information. You should avoid EAs that have no or very little losses. Instead, you need to look at the average loss. Although it has large losses on average, in the long term, the average will yield small losers and increase your profits.