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For many traders, EAs represent dozens of hours spent carefully crafting an automated version of their own trading strategy.
It is a labour of toil and love, but more often than not all the donkeywork ends in an EA that does not come up to scratch. Perhaps it works inconsistently, or worst case it does not work at all.
But don’t throw the baby out with the bath water just yet. With these tips, not only could you turn your not-so-hot EA into a winner, but you could also enhance the performance of your existing profitable EA.
01. Identify the Market Conditions
The number one reason that EA’s fail to last the distance is because they don’t adapt to changing market conditions.
Building an EA to work in all conditions is, if not a fool’s game, then close to it. It’s much easier to build an EA that works well in some conditions and then switch it on when those conditions are in play.
Market trending? Run your EA that is designed for trending markets. Conditions become choppy? Run your range trading EA.
In the forex markets, both ranges and trends tend to exist for longer than you might think, so use your discretion to take advantage of that.
02. Have an exit plan
Do you know what to do when your range trading EA gets caught in a breakout, or your momentum EA is the victim of a short squeeze?
Having an exit plan when market conditions change is just as critical as identifying the market conditions in the first place.
And doubling up and hoping for the best is not a good exit plan!
Pre-plan what you will do in an adverse situation. Should you cut your losses completely, or reduce your trade size? Perhaps you could hedge using an option, or place a manual trade to offset the risk.
03. Use Non-correlated EAs
That brings us to our next point. Run multiple non-correlated EAs across different currency pairs, timeframes and strategies.
- Got an EA that works on the short-term? Now build one that works on daily charts.
- Got an EA that runs on majors? How about designing an EA that works on exotic currency pairs.
- Got an EA that is Algorithmic? Why not add in a discretionary copy-trading strategy to your portfolio?
The more you can diversify your basket of EAs, the more robust your trading could become. Ideally, you want to be in a situation where one EA offsets the performance of another so you have a steadily growing equity curve.
04. Allocate more funds to high-performing EA’s and less to lower performing EA’s
Possibly the most important question you have to ask yourself as a system trader is “how much?”
How much funding you allocate to a system is going to determine whether you reach your goals. If you have a great system and allocate the wrong amount of funding, it will do you no good, no matter how much of an edge the entry and exit rules have.
This error is very common.
Not every system needs to have the same allocation of funds. A higher quality system can take a larger chunk of your capital, and a lower quality system (that is worth trading) is provided less.
This is the discretionary element of system trading that can have a huge impact on your returns. As a manager of systems, you need to be proactive in taking control of your performance, and not simply leave it up to your code.
05. Trade less when in a drawdown.
The fifth way to improve your system is to cut the size of your trades when your EA is experiencing a drawdown.
Sitting on your hands when your EA is losing is a recipe for disaster. Get to know your EA and what to expect from it, and when it starts to go through a losing period then cut your size.
Sure, you might miss out on some profits every now and then if your EA recovers quicker than expected, but you can chalk that up as simply a cost of having an effective risk management plan.
06. Reduce costs by trading on a low spread account
One of the simplest ways to improve performance is to reduce your costs. High spreads are harmful in two ways. One obvious and the other not quite so.
- They reduce your profits. Every extra fraction of a pip you pay comes out of your system’s pocket
- You have more losing trades. The wider your spread, the more you get stopped out. Simple as that. So while you may be paying a fraction of a pip more, it might mean you lose several pips more if a trade is stopped out.
This is also why you might find a low spread with a commission option better suited to EA trading. If the cost is not included in the spread, then the spread will be lower meaning you get stopped out less.
07. Minimize your MT4 workspace
Execution is important, as at the end of the day it can mean the difference between a profitable and a losing trade. When it comes to the fastest market movements, milliseconds can make a large difference to the price you receive.
One little known trick to Improve execution is to reduce the number of windows you have open in your MT4 workspace. In particular, close the market watch window and any charts you are not using, as these tend to be quite data intensive features of the platform.
Over volatile periods in the market, the volume of price ticks increases – leading to an increase in the amount of data that MT4 is required to update. This can slow down the processing speed of your terminal, and therefore the time taken for your EA to route orders in to the market. Making the changes above reduces the platform to basics and streamlines the functioning of the system.
08. Decrease latency with a co-located VPS
Imagine if your EA was running on the computer sitting right next to your broker’s, cutting out any delay in order execution.
With a co-located virtual private server (VPS), this is exactly what you get. Your EA is installed on a computer at the broker’s data centre, which you can access over the internet.
Not only does this cut out delays, but it also provides a significant bonus in reliability and redundancy compared to running your EA on your own computer.
09. Know your MAE and MFE
Knowing your Maximum Adverse Excursion (MAE) and Maximum Forward Excursion (MFE) gives you a significant edge when it comes to enhancing the performance of your system.
Your MAE will tell you how far the trades your system places typically go into negative territory before they recover into profit. This is a big help in optimising stop-loss placement, which can improve the risk/reward ratio of your system’s trades.
Similarly, the MFE will tell you how far your trades typically go into profit before reversing. This allows you to optimize the profit taking component of your trading strategy.
The good news is services like [You must be registered and logged in to see this link.] allow you to run these reports for free, simply by connecting your account to their analysis software.
10. Back-test your strategy using live data
Too often trading systems that look good on paper fail to make the cut when they go live.
Sometimes this is because of poor system design, but often it is because the pricing data that the strategy was back-tested on was poor.
Make sure you test the strategy on the same data that you are going to trade it with. Of course the same issue occurs when you run your EA on a demo account.
11. Use a scale-in position sizing algorithm
Instead of focusing on improving your entry rules, divert your attention to the more lucrative area of position sizing.
In particular, test your strategy by running a scale-in model that adds to winning trades as they go for you. In his book The Definitive Guide to Position Sizing, Market Wizard Van K. Tharp found that this was one of the most effective ways to enhance the performance of a strategy.Try adding some scale-in rules to your EA, and you might be surprised how much of an impact it has.
Now it’s your turn.
Using some or all of the techniques outlined above can make the process of system trading a lot less stressful, and a whole lot more fun.
By being proactive and managing your “system trading business”, you will provide your EAs with a significant edge. So don’t wait, ask yourself the following question: Which of these ideas can you implement to improve your EA’s performance?
Try adding some scale-in rules to your EA, and you might be surprised how much of an impact it has.
It is a labour of toil and love, but more often than not all the donkeywork ends in an EA that does not come up to scratch. Perhaps it works inconsistently, or worst case it does not work at all.
But don’t throw the baby out with the bath water just yet. With these tips, not only could you turn your not-so-hot EA into a winner, but you could also enhance the performance of your existing profitable EA.
01. Identify the Market Conditions
The number one reason that EA’s fail to last the distance is because they don’t adapt to changing market conditions.
Building an EA to work in all conditions is, if not a fool’s game, then close to it. It’s much easier to build an EA that works well in some conditions and then switch it on when those conditions are in play.
Market trending? Run your EA that is designed for trending markets. Conditions become choppy? Run your range trading EA.
In the forex markets, both ranges and trends tend to exist for longer than you might think, so use your discretion to take advantage of that.
02. Have an exit plan
Do you know what to do when your range trading EA gets caught in a breakout, or your momentum EA is the victim of a short squeeze?
Having an exit plan when market conditions change is just as critical as identifying the market conditions in the first place.
And doubling up and hoping for the best is not a good exit plan!
Pre-plan what you will do in an adverse situation. Should you cut your losses completely, or reduce your trade size? Perhaps you could hedge using an option, or place a manual trade to offset the risk.
03. Use Non-correlated EAs
That brings us to our next point. Run multiple non-correlated EAs across different currency pairs, timeframes and strategies.
- Got an EA that works on the short-term? Now build one that works on daily charts.
- Got an EA that runs on majors? How about designing an EA that works on exotic currency pairs.
- Got an EA that is Algorithmic? Why not add in a discretionary copy-trading strategy to your portfolio?
The more you can diversify your basket of EAs, the more robust your trading could become. Ideally, you want to be in a situation where one EA offsets the performance of another so you have a steadily growing equity curve.
04. Allocate more funds to high-performing EA’s and less to lower performing EA’s
Possibly the most important question you have to ask yourself as a system trader is “how much?”
How much funding you allocate to a system is going to determine whether you reach your goals. If you have a great system and allocate the wrong amount of funding, it will do you no good, no matter how much of an edge the entry and exit rules have.
This error is very common.
Not every system needs to have the same allocation of funds. A higher quality system can take a larger chunk of your capital, and a lower quality system (that is worth trading) is provided less.
This is the discretionary element of system trading that can have a huge impact on your returns. As a manager of systems, you need to be proactive in taking control of your performance, and not simply leave it up to your code.
05. Trade less when in a drawdown.
The fifth way to improve your system is to cut the size of your trades when your EA is experiencing a drawdown.
Sitting on your hands when your EA is losing is a recipe for disaster. Get to know your EA and what to expect from it, and when it starts to go through a losing period then cut your size.
Sure, you might miss out on some profits every now and then if your EA recovers quicker than expected, but you can chalk that up as simply a cost of having an effective risk management plan.
06. Reduce costs by trading on a low spread account
One of the simplest ways to improve performance is to reduce your costs. High spreads are harmful in two ways. One obvious and the other not quite so.
- They reduce your profits. Every extra fraction of a pip you pay comes out of your system’s pocket
- You have more losing trades. The wider your spread, the more you get stopped out. Simple as that. So while you may be paying a fraction of a pip more, it might mean you lose several pips more if a trade is stopped out.
This is also why you might find a low spread with a commission option better suited to EA trading. If the cost is not included in the spread, then the spread will be lower meaning you get stopped out less.
07. Minimize your MT4 workspace
Execution is important, as at the end of the day it can mean the difference between a profitable and a losing trade. When it comes to the fastest market movements, milliseconds can make a large difference to the price you receive.
One little known trick to Improve execution is to reduce the number of windows you have open in your MT4 workspace. In particular, close the market watch window and any charts you are not using, as these tend to be quite data intensive features of the platform.
Over volatile periods in the market, the volume of price ticks increases – leading to an increase in the amount of data that MT4 is required to update. This can slow down the processing speed of your terminal, and therefore the time taken for your EA to route orders in to the market. Making the changes above reduces the platform to basics and streamlines the functioning of the system.
08. Decrease latency with a co-located VPS
Imagine if your EA was running on the computer sitting right next to your broker’s, cutting out any delay in order execution.
With a co-located virtual private server (VPS), this is exactly what you get. Your EA is installed on a computer at the broker’s data centre, which you can access over the internet.
Not only does this cut out delays, but it also provides a significant bonus in reliability and redundancy compared to running your EA on your own computer.
09. Know your MAE and MFE
Knowing your Maximum Adverse Excursion (MAE) and Maximum Forward Excursion (MFE) gives you a significant edge when it comes to enhancing the performance of your system.
Your MAE will tell you how far the trades your system places typically go into negative territory before they recover into profit. This is a big help in optimising stop-loss placement, which can improve the risk/reward ratio of your system’s trades.
Similarly, the MFE will tell you how far your trades typically go into profit before reversing. This allows you to optimize the profit taking component of your trading strategy.
The good news is services like [You must be registered and logged in to see this link.] allow you to run these reports for free, simply by connecting your account to their analysis software.
10. Back-test your strategy using live data
Too often trading systems that look good on paper fail to make the cut when they go live.
Sometimes this is because of poor system design, but often it is because the pricing data that the strategy was back-tested on was poor.
Make sure you test the strategy on the same data that you are going to trade it with. Of course the same issue occurs when you run your EA on a demo account.
11. Use a scale-in position sizing algorithm
Instead of focusing on improving your entry rules, divert your attention to the more lucrative area of position sizing.
In particular, test your strategy by running a scale-in model that adds to winning trades as they go for you. In his book The Definitive Guide to Position Sizing, Market Wizard Van K. Tharp found that this was one of the most effective ways to enhance the performance of a strategy.Try adding some scale-in rules to your EA, and you might be surprised how much of an impact it has.
Now it’s your turn.
Using some or all of the techniques outlined above can make the process of system trading a lot less stressful, and a whole lot more fun.
By being proactive and managing your “system trading business”, you will provide your EAs with a significant edge. So don’t wait, ask yourself the following question: Which of these ideas can you implement to improve your EA’s performance?
Try adding some scale-in rules to your EA, and you might be surprised how much of an impact it has.
