Why Are Expert Advisors Dangerous?

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Expert Advisors, as we know, are currently one of the most popular ways to trade. There are now hundreds of them scattered about the internet. You can download several of these from our Expert Advisor list for free. And whilst the concpet of having a small scrpit autotrade your trading system is naturally appealing, most of these EAs fall short.

Expert Advisors are not all the same but the majority you come acorss are based around similar design. Usually they are based around taking counter trend positions at extremes, such as highs and low readings on Stochastics or outside the Bollinger Bands or Moving Average Envelopes. But these entry methods are not what make an Expert Advisor look good on paper. It is the fact that most use the martingale system of money management somewhere along the process.

This will involved waiting for a losing position to move X number of points before adding another position. This can happen many times until the position returns a profit. Some EAs will add positions and then remove half and then add again the market goes against them. However the principle is the same.

Whilst on paper these methods look great, in real trading the can provide a serious risk to your trading cpaital. With the martingale method you will have such a bad Risk to Reward ratio that it could only take one or two bad positions that never come back into profit and that would be enough to end your trading career.

The reality is that these systems can be traded using no margin and over a set period of time you would probably return a profit. But the return on investment would be so small for the indepenent trader it wouldn’t be worth trading it. This is probably why traders use large amounts of margin whilst trading and hence why Expert Advisors usually cost them dearly in the end.

If you want to trade using an Expert Advisor I would suggest that you create a system first with sound money management and then get it automated. A sound trading system will always out trade some random EA.

You can compare your methods to the preformance of an EA by downloading, testing one of our free Expert Advisors.

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