The popularity of Forex Robots can be attributed to the emergence of the MetaTrader 4 platform, allowing novice and experienced traders to earn significant profits from the forex market. Currently, the market is filled with forex robots and expert advisors which promise huge returns for its users. A trader naturally will look to invest substantial capital in the best forex robots available. However, not all of them are legitimate and there are quite a number of scams masquerading as normal EAs.
For a prospective buyer of an EA, its thus important to take a look at certain factors before they choose any particular EA. Preparing a shortlist of favorable EAs will help the users narrow the choices down. The shortlist of the Forex EA Top should be prepared after considering a number of different factors that help prove an EA’s effectiveness, legitimacy, and profitability. A lot of these factors depend on the statistics of each expert advisor, as explained below.
Examining a Forex Robot’s Statistics
In order to avoid picking a fraudulent EA, one should always look for EAs tested by an independent, authoritative site, such as myfxbook. Forex Robots encounter different types of markets such as range trading, volatile, and trending markets. There’s no guarantee that the fx robot will perform well, simply because it advertises favorable statistics. A trader needs to understand how each EA works in order to be able to change the settings to suit the market they’re in. Traders who simply buy an EA and let it run without supervision face the risk of substantial losses due to bad trade executions.
When examining the statistics of each EA and preparing a shortlist, potential buyers need to look at certain statistics that reflect an EA’s legitimacy. There are four particular areas to look at, namely,
- Expectancy or Expected profit per transaction
- The Profit Factor
- Drawdown Rate
- Risk-Reward Ratio
Expectancy or Expected Profit Per Transaction
By looking at the expected profit per transaction, one can get a clear idea of how much profit one can expect from each trade on average. Even though these statistics are mainly based on historical data and don’t necessarily guarantee future returns, it serves as a useful indicator while making this shortlist.
The expected profit is calculated as [ Percentage of winning trades (average profit per trade)] – [ Percentage of losing trades (average loss per trade)].
The Profit Factor
The Profit Factor is a representation of the relationship between profit and risk. In this context, an EA which delivers huge profits but risks all the money in a trader’s account should be avoided.
Profit Factor is calculated as (gross profit or sum of winning trades/ gross loss or sum of losing trades). While considering EAs to add in the shortlist, traders should eliminate those which have a profit factor less than one and look to add EAs with larger profit factors.
The drawdown rate is a perfect representation of the degree of risk an EA undertakes while delivering profit. It gives us the percentage of maximum loss recorded since the last highest profit point. A good way to look at drawdown rates is to first examine its equity curve. Generally, a rising curve is an indication that the EA is profitable. However, if the curve has large peaks and troughs, the EA may be volatile and is risky to use.
An EA’s appetite for risk is indicated by its risk-reward ratio. A risk-reward ratio of at least 89% is needed for EA to be classified as profitable. Higher risk-reward ratios don’t necessarily mean a profitable robot. For instance, a forex robot with a 15:1 risk-reward ratio is most probably using a high-risk strategy such as scalping and should thus be avoided.
Preparing a short-list of the most profitable EAs before making the final purchase decision will let traders save a lot of time and money compared to a trial and error approach. Another good way to make sure one is choosing the right EA is to take a look at the best forex robot reviews available in various trading forums and sites.