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Based out of Auckland, New Zealand, we bring an institutional trading experience to the retail market.

Expert Advisors can be a godsend for Forex traders. Automatically finding new opportunities based on your parameters, emotionless trading, timesaving, back-testing – the benefits speak for themselves.

However, what if the promise of a Forex EA is too good to be true? What if the hours spent carefully crafting an automated version of your own trading strategy ends in an EA that isn't up to scratch? It's often the case that an EA simply isn't good enough, either through inconsistent work performance or perhaps not working at all.

But don't throw the towel in just yet. We've put together 11 tips to transform your EA into the trading maestro you always hoped it would be. And if you're already satisfied with your EAs performance, these tips will help take their output to the next level.

11 tips to improve the performance of your forex EA


#1. Taking advantage of market conditions:

One of the main reasons some Forex Expert Advisors don't work correctly is because they struggle to adapt to dynamic market conditions. Programming your EA to perform in any situation optimally can be a nigh-impossible task. The alternative is to program your EA to work optimally under specific conditions and only use it when those conditions arise.

For example, if the market is trending, you could deploy an EA that's specifically programmed to perform in trending markets. Then if it's a choppy market, you can switch it up and run your range trading EA.

Ranges and trends can last for long periods in forex markets, providing you with an opportunity to take advantage of this with your specially programmed EAs.


#2. Always have an exit plan

Be honest with yourself. Do you have an exit plan ready for when things turn sour? What's your plan if your range trading Forex Expert Advisor is caught in a breakout? Or if your momentum EA becomes the victim of a short squeeze?

Identifying market conditions is one thing. However, it means nothing if you don't have an appropriate exit plan in place for when the market shifts.


#3. Properly utilising non-correlated EAs.

The use of non-correlated Forex EAs cannot be underestimated. By running multiple non-correlated EAs across different strategies and timeframes, you'll have all your bases covered. For example:

Diversifying your EAs will make your trading more robust and will ensure that if one of your EAs isn't optimally performing, you'll have another EA offsetting this.


#4. Allocate funds to your EAs according to performance

How much are you willing to allocate to your best and worst-performing Forex EAs? If you're underfunding your best performing EA, you're doing yourself a great disservice. Vice versa for your worst-performing EA.

 

#5. Trade less when in a drawdown:

It may seem obvious; however, you'd be surprised at the number of forex traders who don't reduce the size of their trades when their Forex Expert Advisor is experiencing a drawdown.

Spend time analysing your EA, so you know what to expect from it over time. That way, it's easier for you to identify when it's going through a losing period, and you'll be better prepared to cut your trade sizes accordingly.


#6. Trade on a low spread account to reduce costs

Reducing your costs is the quickest and most straightforward way to improve overall returns. Trading on a high spread account can be risky in two ways:

For this reason, you should also consider a low spread with a commission option, which may be better suited for Forex EA trading. The BlackBull Markets Prime account may be more suited to your trading style.


#7. Minimise your MT4/MT5 workspace

Execution can mean the difference between a profitable or losing trade. In the world of trading, milliseconds can have a considerable impact.

One way to boost execution is to minimise the number of windows open in your MT4/MT5 workspace. Small things such as closing the market watch window and other data-heavy applications can make all the difference to execution speed.

 

#8. Utilise a co-located VPS:

In an ideal world, your Forex Expert Advisor would have zero delays in any of their order executions. You'll be pleased to know that with a co-located virtual private server (VPS), this is a possibility. With a VPS, your EA is installed on a computer in our data centre which you can access via the internet, cutting delays and improving reliability and redundancy compared to running the EA on your own server.


#9. Get familiar with your MAE and MFE:

By becoming familiar with your Maximum Adverse Excursion (MAE) and Maximum Forward Excursion (MFE), you'll be better placed to improve the performance of both systems.

For example, your MAE can inform you of how far your trades go into the red before making a recovery. This assists you in optimising your stop-loss placements which will improve the overall risk and reward ratio of your EAs trades. Knowing your MFE has similar benefits. The MFE can show you how much profit your trades are making before they start to reverse.


#10.Use live data to back-test your strategy

Just because your trading system looks good on paper doesn't mean it's going to be effective once it's live. More often than not, it's a result of poor-quality pricing data used in back-testing.

To avoid this downfall, ensure your strategy is tested on the exact data you plan on trading.


#11. Use a scale-in position sizing algorithm:

While it can be tempting to spend time improving your entry rules, it's far more lucrative in the long run to focus on position sizing.

In his book, The Definitive Guide to Position Sizing, Van K. Tharp found that scale-on models that follow this approach are one of the best ways to improve the performance of any strategy. Adding scale-in rules to your EA is a quick way to make incremental improvements to your EAs performance.


Final thoughts

Reduce stress and improve the performance of your Forex EAs by following the above tips. Being proactive and appropriately managing your EAs can make all the difference in long-term performance.

As a trader, it's a general rule of thumb that we should always be looking to maximise potential returns (per unit of risk) with each transaction. We should always be looking to squeeze as much out of the market as we can.

There are times when this can occur by simply letting the trade run its course. However, sometimes market conditions align perfectly for savvy traders to "press the trade" or  Pyramiding into the trade.

Don't press your luck; press the trade instead!

Attempting multiple entries in the direction of a trend is one strategy savvy traders use in an attempt to maximise return (otherwise known as Pyramiding). The problem with this tactic is that while it may increase the potential reward, having a larger position in the market also opens you up to more risk. As a trader, you need to find the perfect balance of pressing the trade while not pressing your luck.

There are a few ways to achieve this:

 

Pick your battles carefully when Pyramiding

You may find that as time wears on, you're left with a large portion (>2% of total equity) in a single trade. The tactic of adding exposure will generally make for a "short" pyramid, which typically won't grow over 2.5% of overall equity. This Pyramiding tactic ensures you're exposed to additional upside while minimising downside to a level with which you're comfortable.

Here are a few things to be wary of:

Final Thoughts on Pyramiding

Remember always to start small and slowly. There's no need to rush in. Experiment with pyramiding until you're comfortable with your approach. Always remember the two key elements to consider:

  1. Resist the temptation to take profit early when the opportunity arises. Sometimes it's best to sit on an existing trade.
  2. Be wary of adding to your trade at "worse" levels. Trends will always end at a certain point, so you don't want to be pyramiding into an extended, ongoing trend. Look for new trends to pyramid in, which will reduce your overall risk.

The FX market is immense. There are seven major FX pairs and over 70 crosses! How can one person possibly keep track of everything and identify the best pairs to trade at any given time? That's where the correlation matrix can come in handy.

Most traders, when exposed to the word “correlation”, automatically think of intermarket analysis.

For example:

Setting Up Your FX Correlation Matrix

It is very easy to manually determine a correlation matrix in MT4 and MT5.

  1. Select your currency pairs to compare.
  2. Select the time frame based on your trading style:

Of course, these are only suggestions. The key is to select a time frame and a lookback period that compliments your trading style and commit to it.

  1. Highlight the strong correlations that are visible. Identify which pairs are either moving strongly in lockstep or strongly opposite one another.
  2. Determine what market event is enacting a similar influence over the different currency pairs.
correlation matrix

Alternatively, custom indicators can be added to your account to do some of the heavy lifting for you.

Tracking Common FX Themes

When all the crosses of a currency pair are moving in the same direction, there is usually a fundamental reason. Even if you don't know the fundamental cause, you can still identify the overwhelming dynamic and keep that currency pair on your watch list.

Using Correlations To Allocate Risk

When correlations are high, you can spread your risk capital amongst two or three different FX pairs. This way, you reduce the risk of identifying the market drivers correctly but on the wrong instrument. We will never know ahead of time which pair will be “the winning horse”. Consequently, when there is a strong correlation amongst crosses, splitting our risk allocation amongst two or three candidates makes more sense. We can then ride the winning horse and reduce risk on the slower performers.

It's already difficult enough to identify clear drivers and strong themes in the currency markets. If we think we're good enough to pick the best currency every time, we fall into yet another mental bias that will harm us more than help us. So, instead of risking, say 2%, on one single currency pair, try risking 0.5% on three pairs. As a result, one of them might develop into the multi-day trend trade we all aspire to catch.

What’s Next?

The correlation matrix is a very neat tool that allows us to spot strong FX correlations amongst the major pairs quickly and amongst the crosses of a given regional currency.

You should attempt to:

  1. Identify the situations that show high correlation amongst pairs.
  2. Track them back to the fundamental influences that are driving the correlation.

If you take these simple steps, you will be in an ideal situation. You will understand why the currencies are behaving the way they behave, and you will be able to make sense of the technical behaviour on your charts.

It's like boxing with both arms (technical and fundamental) instead of just one (technical).

The 5 Types of Forex Traders

There are 5 types of Forex Traders. These traders are separated by their trading style, risk profile, and trading objectives.

The Day Trader

Marty Schwartz's trading was at one time accounting for 10% of the daily volume on the S&P 500 futures contract. He is the author of "Pit-bull, Lessons from Wall St's Champion Trader".

To the uninitiated, the day trader may seem like a person of action. But they are just as comfortable stalking their trade as they are decisive when it comes time to execute. Typically surrounded by multiple screens, the day trader monitors dozens of inputs while waiting for a trade with an edge to appear.

Some trade rapidly, moving in and out of the market in a heartbeat, taking 5 pips here, 10 pips there. Others may be more serene, placing only one or two trades per session, carefully waiting for the optimal time to catch the day's move. The day trader may be boisterous and rowdy, but they have learned to separate their ego from the trade.

What if the market doesn't go for them? They either out or going back the other way. To the day trader, it's all the same. What matters is whether they cut their losses short or let their profits run. Whether they are right or wrong is irrelevant. They may only win with half of their trades. But through superior risk management, they end each day well in the black.

The Technical Analysis Trader

William Delbert Gann was famous for his ability to forecast market moves using technical analysis.

The charts weave a compelling story to the technician. They know that technical patterns provide a window into the market's soul and a snapshot of its psychology. It is through technical analysis that they surf the waves of market participants' fear and greed. Be it Fibonacci, Elliot Wave, or Gann theory; the technical analyst has the tools to help them predict the market's near-future. The skills to implement a winning trade are based on their ideas.

The technician can analyse both short and long-term moves. Some will combine their technical analysis with fundamentals, trading primarily when both are in alignment. Others trust the price. They trade first and seek reasons later.

The technician's charts are brightly adorned with trend lines, moving averages, stochastics and MACD. But underneath it, all is a beautiful simplicity that guides them to trade with accuracy and aplomb.

The System Trader

Ed Seykota is a system trader beyond compare. He understands that trading is about psychology first and the system second.

The system trader is the god of the trading machines. Through a rigorous process of development and testing, the system trader has automated their trading strategies. Their computer essentially does the trading for them. A picture of discipline, the system trader, sits calmly through rough periods. They know that when the trends appear, their profits will be significant.

System traders are in a research war. Markets change, and as they do, systems need to adapt. System traders spend more time researching than trading. That is unless they are roaming the world, as the master system trader is prone to do. His machines afford him the luxury of free time.

The Macro Trader

Famous for predicting the Black Monday crash in 1987, the billionaire Paul Tudor Jones is now the head of the philanthropic Robin Hood Foundation. The Global Macro Whizz Kid is known for trading big market moves with skill and tenacity.

The best global Forex traders know that it's hard work and discipline that has led to their success. They search tirelessly for opportunities in currencies, indexes, and commodities. Then, they work even harder to ensure the best risk/reward profile for their trade. They understand that ideas are only going to get them so far and that implementation is the key.

The best global macro traders (the true whizz kids) never have a losing year, profiting in all market types.

The Hedge Fund Trader

Ray Dalio is the founder of the world's largest hedge fund, Bridgewater Associates. In 2012, Dalio appeared on the annual Time 100 list of the 100 most influential people in the world and is currently worth over $15.2 billion.

It takes a leader to build a successful hedge fund, but it takes true leadership to build a business based on its people. Hedge funds are experts in selecting traders who fit their criteria, be they mechanical, macro or quant.

First and foremost, they are risk managers, with each trader having their place in a greater risk management plan. Traders that are performing exceptionally well are allocated more funds, while allocations are cut to those that are not.

The hedge funds trader knows that their team can produce returns far greater than their individual parts' sums.

Trade Tactically With Liquidity Pools & Stop Orders

Have you ever been stopped out, just to see the price reverse from that very same level? Don’t worry, you’re not alone.

Many traders tend to place their stops in the same types of places, without sufficiently weighing the fact that they are incredibly easy and worthwhile to hit. In the grand scheme of things, these stops end up becoming little more than useful liquidity pools for larger players with the firepower to influence the market’s direction.

What Is Liquidity & Why Is It Important?

If you want to buy EURUSD at 1:1000, you need someone to sell it to you at 1:1000. The same applies in reverse: if you are selling, you need a buyer. This is just the nature of the market.

To keep things simple, saying an asset is “liquid” means it’s easy to find a counterpart. The opposite is “illiquid,” meaning it’s difficult to find a counterpart. Here’s Bill Lipschutz, discussing what liquidity means to him:

"I'm short the dollar and I've misjudged my liquidity in the market, I've tried to hold the market down, but it's not going to work. And I can't buy them back." “All I wanted to do was to make it through to the Tokyo opening at 7 P.M. for the liquidity. If you really have to buy $3 billion, you can do it in Tokyo; you can't do it in the afternoon market in New York - you can't even do it on a normal day, let alone on a day when major news is out.”

– Bill Lipschutz, New Market Wizards.

"Liquidity pools" are levels at which price frequently "makes a decision" as many orders hit the market. They are, so to speak, intersections of orders. This helps with managing open trades, initiating new trades, and adjusting stop losses.

While it’s impossible to avoid losses in the market, it is important to understand the where and why of the market’s reaction.

How To Avoid Dumb Mistakes

The first order of business when talking about stops is to make sure we aren’t placing them too close to the market. Otherwise, we risk getting stopped out too frequently on volatility alone. Here are some reasons why traders get stopped out:

We want to avoid getting stopped out for the last two reasons. If we can eliminate obvious mistakes and understand why we are losing, then at least we’re losing intelligently.

This is already a big step ahead of many traders: especially those who don't know why they are losing in the first place. There are a few things you can do to avoid those unnecessary losses:

  1. Do not place your stop loss 1 pip below the most recent swing low, despite trading with the trend.

The market does not work off precise levels and exact prices. Levels can often be better thought of as “zones,” extending 10-20 pips around a given price point. Depending on the pair in question, and your broker, you’re already looking at a few pips of variance just in terms of spread.

Furthermore, it’s quite common for professional and retail traders alike to use swing highs/lows as logical places to place stops and/or reversal orders.

So, depending on the liquidity available in a given “zone”, the price can dip into the zone, find orders, and get rejected. In the case above, we would get stopped out of our trade, right where we should be looking for clues on continuation or rejection.

  1. Do not place your stop too close to the market

Liquidity is often found on either side of the Asian Range. As such, any trade taken in a range-bound situation should have a stop 15-20 pips outside the range barriers. This helps prevent being stopped out as a natural by-product of the market’s search for liquidity, or just pure volatility.

  1. Do not trade unless you have a logical and tested plan

This is possibly the worst mistake in the book. Attempting to trade without a sturdy plan in place will make you vulnerable. There are too many things the markets can throw at you. If you fail to prepare, prepare to fail.

Order Flow Intersections

We previously talked about liquidity pools as intersections of orders. Let’s now return to the point with some more context under our belt.

Common retail traders don’t usually have to think about liquidity. The market can easily absorb orders of up to $10m. This is far above the sizes they will trade, often even with high leverage.

Traders who trade above this size find liquidity to be a very real issue. They cannot think about the markets like common retail traders. Instead, they need to factor in where and how they are going to deploy their strategy. They need liquidity to deploy their bets without moving the market and without being detected. They also need to have a clear idea of where they will be able to exit, regardless of whether the trade ends up being successful or not.

Large traders (think big funds and Central Banks) cannot simply accumulate or distribute a large position whenever and wherever they wish. Instead, they must look for those places where liquidity is aggregating and stops are helping them in an indirect way.

Anybody looking to place a big order has a much safer opportunity to do so quietly. They don’t need to show their hands or influence the market too heavily. They don’t have to look or hope for liquidity if it’s already there.

Wherever stop-loss orders aggregate, there is a 2-way pool of liquidity being created. The traders that get “stopped out” are forced to issue opposite-side orders. They must thus give large traders the possibility to “fade” the stops that accumulate at those levels.

Since people are creatures of habit, they will usually use the same methods for deciding where to place their stops. For example, just below a recent low, or x pips away from market price. As we’ve discussed, those stop orders create liquidity because they issue a market order when they are triggered.

Major swing points on a major chart are the first place to look for liquidity. And they’re also the first places to keep an eye on what happens. Because, following the same logic, if large traders are active at these levels, then at these levels we have the first clues as to what the aggregate market knows and thinks.

  1. If an evident stop level gets broken (hurdled) and price continues in the same direction, that means the flow has become indigestible to the diverse participants and the price structure changes. This is usually driven by a significant event or strong fundamental reason.
  2. If an evident stop level gets faded, (a break, followed by a quick reversal) that means the flow is still in balance and it demonstrates that the fundamentals are still not strong enough to push forward.

 

 

Stop Being Exploited & Start Exploiting The Stops

Don’t get caught with the crowd. Understanding the dynamics of liquidity will help you protect your entries. It’ll also help you understand where on the price map the market is likely to make important decisions.

So, how do you do this?

The key, as with many things in the market, is to keep it simple and subtle.

18 Handy Resources For Busy Forex Traders

One of the hardest things for any busy trader to do is to get organised. Balancing commitments and keeping up to date with a thousand news sources can be stressful when it never seems to end. Luckily, the solution can be simple.

As a busy forex trader, the key to success is to separate your tasks into different compartments. Once you do that, open each compartment as necessary, but focus on only one thing at a time. If you’re planning, plan at the expense of everything else. If you’re reading the news, read the news like your life depends on it. If you’re trading, trade like a hedge fund manager! If you can find 10 minutes a day to do each of these, you can find success.

Here are some resources that help make your trading life much more efficient:

1. An up-to-the-minute News Source
Want to find out what’s important right now? Head on over to Forex Live for the latest market-moving news.
Resource Link: Forex Live

2. A Daily Market Overview
Stay in tune with the markets with a daily recap.
Resource Link: BlackBull Markets Market Reviews

3. Trade Ideas
Looking for well-constructed trade ideas? Browse through FX Street.
Resource Link: FX Street

4. Macroeconomic Data
Trading economics collates more statistical data on countries than you can shake a stick at.
Resource Link: Trading Economics

5. Stock Market Analysis
Forex traders should be keeping an eye on stocks to determine if the sentiment is risk-on or risk-off. Here’s an easy way to do it.
Resource Link: Weekly Stock Market Recap
You can also access free charts on Stock Charts

6. A Finance-focused Twitter Account
A twitter account directed towards financial news is one of the best and fastest ways to stay up to date.
Resource Link: Set up a Twitter account

7. RSS Reader
Combine all your news and analysis in one spot for easy viewing with the Feedly app on your desktop or iPad. This is a serious time saver!
Resource Link: Feedly RSS reader

8. News Event Calendar
While you don’t always need to follow the news in detail, it’s important to be aware of what upcoming events could impact your position(s). The last thing you want to do is enter a trade right before a volatile news event you did not know about.
Resource Link: BlackBull Markets Economic Calendar

9. Demo Account
Need to get familiar with how the markets work before you risk your trading capital? Get started with a practice demo account.
Sign up here for a free BlackBull Markets Demo Account

10. Pip Value Calculator
It is the amount you trade that determines your returns. Perfect your position sizing with this free calculator.
Resource Link: Pip Value Calculator

11. Trading Session Map
The timing of your trade matters. New York open is a different kettle of fish to lunchtime in Sydney, for instance. Those interested in exploiting volatility can consult a forex session map to discover the ultimate time(s) to trade.
Resource Link: Forex Market Hours

12. Alert System
Taking a break from the markets but worried about what might happen?
Resource Link: Netdania Alert System

13. Free Basic Education
When you are first starting out, it can be tricky to find a good source of basic information about how to trade. Check out Baby Pips, which is one of the more reputable sources. Also, don’t forget BlackBull Markets’ carefully cultivated education section.
Resource Link: Baby Pips Education and Learn to trade Forex with BlackBull Markets

14. Trading Glossary
Wondering what a “One cancels other order” is? No sweat. Head on over to BlackBull Markets’ comprehensive Forex Trading Glossary.
Resource Link: Trading Glossary

15. Trading Guides
Looking to upskill on technical analysis or any number of other topics? Check out BlackBull Markets’ comprehensive collection of free forex guides.
Resource Link: BlackBull Markets Trading Guides

16. Trading Performance Analysis
You know you should be monitoring the performance of your trading system. That’s why this free trading performance analysis tool for MT4 from FX Blue is so helpful.
Resource Link: Trading Performance Analysis Tool

17. Commitment of Traders Report
The Commitment of Traders report provides the current speculative positioning in the futures market, which can help decide if a market is overbought or oversold.
Resource Link: Commitment of Traders Report

18. Account Manager
Finally, as a client with BlackBull Markets, you’ll have unlimited access to our seasoned team of expert account managers who are available to assist you every step of the way in your journey as a trader with BlackBull Markets.

What’s Next?
By taking a mindful and dedicated approach to do a lot in a small space of time, we can greatly enhance our productivity.
Ten minutes of intense study is much better than a day’s worth of wishing you could focus properly on the news. Fifteen minutes of solid planning is priceless when the alternative is wishing you could find the time.
Simply be aware of what you need to do when and then give it your full attention when you do it. It takes some getting used to, but if you do it properly, you’ll never look back.