Perhaps atop all of the different fully automated trading tools that can take over the process of trading from users in the forex market are the expert advisors or EAs.
These tools are installed on the trading platforms of MetaTrader and can be adjusted to carry out the process of trading according to their algorithm.
But the thing you need to know is that just because these tools are automated and work based on an algorithm, it does not mean that you should leave them alone. In fact, they require constant observing, upkeep, adjustment, testing, etc. in order to make sure that they are able to tackle the changing conditions of the market.
One of the most important things that you need to do in order to make sure that your expert advisor is able to handle any new and unexpected trend or direction in the market is to always keep it updated.
EA updates are extremely important, in that not only do they provide the expert advisor with the updates in its algorithm for the trading process, they also have important enhancements in risk management and overall threat control.
So in this article, we are going to dive deep into this matter and see how you can keep your expert advisor up-to-date for market change.
Understanding Market Changes
To truly understand the importance of updating your expert advisor, you need to first understand how the market goes through changes and why the forex market is particularly prone to such sudden and quick changes.
The foreign exchange market deals with foreign currencies and each of these currencies is a representative of an economy. So fundamental and big picture factors play a crucial role in how market changes turn out. Although there are many of these factors involved, the following can be regarded as the most important of these:
Economic Indicators:
Economic indicators that are directly related to the health and strength of any given economy. For instance, an ideal figure for the growth of a domestic product can easily drive up the value of that economy’s currency and vice versa.
Geopolitical Events:
Important events that unfold across the global tapestry can impact economies greatly and thus currencies in the forex market. These include elections, wars, conflicts, etc.
Market Sentiment:
Market sentiment is another important indicator that relates to the psychology of the users or consumers in any market. The sentiment of traders is affected by many different factors.
Regulatory Changes:
This is another important factor that is related to the changing laws and regulations by government entities. The most important one is the value for interest rate in any economy which determines the overall loaning in the entire banking system. So it is very closely tied to the value of the currency in that economy.
As you can see, there are many factors outside of the market itself that can have an influence on how the prices turn out to be. This is why we see so many ups and downs, even to a slight and small degree in the forex market – ups and downs for which your EA should always be prepared.
Why You Need to Keep Your Expert Advisor Updated
It is very rare to find an expert advisor that is incredibly limited in its scope of trading. That would defeat the whole purpose of having expert advisors and using automated trading methods. Usually, expert advisors are developed such that they are able to handle variations in the market. Although the degree to which they can handle these changes also depends on the specific expert advisors.
As such, some expert advisors might be more optimal for this purpose and other might require more attention from the user. But overall keeping your expert advisor updated and fine-tuned ought to be done for the two following main reasons:
- Being Adapted to Market Changes
First and foremost, the reason updating expert advisors is very important is so that their algorithm is updated to be compatible with the most recent changes and trends that have formed in the market.
- Yielding the Most Optimal Results
Another reason is to simply keep your expert advisor fresh for the most optimal results. If you just run your EA and leave it be, chances are quite high that it will have a descending pattern in profitability. This is why you need to optimize and update it from time to time for maximum profitability.
Steps to Update Your Expert Advisor for Market Changes
So far we have discussed the reasons behind changes that occur in financial markets, especially the forex market and we have also discussed the importance of keeping your expert advisor updated. Now it is time to take action and go through the steps to actually update your EA.
Keep in mind that the process of keeping your expert advisor up-to-date involves both the updates from the developing company and keeping the configuration of the EA updated by the user. As such the following steps include the two.
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Review and Analyze Market Changes
The very first step is to analyze the market. What new trends have formed? What is the sentiment of traders in the market? Has there recently been an important fundamental event, including elections, wars, etc. that have impacted the market and the sentiment of traders? By analyzing these factors and keeping yourself up-to-date about them, you can make a better decision as to when your expert advisor needs updating.
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Modify Key Parameters and Indicators
Once you have ascertained that it is indeed time to readjust and optimize your expert advisor again, you can go through this process which involves many aspects, the most important of which are as follows:
- Adjust Entry and Exit Conditions: the most important thing is to adjust your entry and exit conditions. This is totally dependent on the changes that have formed in the market, which will tell you whether you need to be more conservative or looser with regard to entry points as well as exit points.
- Refine Risk Management: you also need to make adjustments in the risk management approach of the expert advisor. For this purpose, you need to modify parameters such as stop loss or take profit orders in order to make your expert advisor fit the new conditions in the market.
- Update Indicators: this is also a really important step, because the indicators that your expert advisor uses basically define the outcome with regard to price analysis, which is in turn used to execute trades. As an example, if the primary mode of technical analysis was based on moving averages, it might be a good idea to also add an indicator that can capture the volatility in the market such as average true range, this is especially good for when the market conditions have turned to more volatile.
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Test and Optimize the Newly Updated EA
Following the above-mentioned steps, now you need to make sure that the newly up-to-dated expert advisor is able to perform as you anticipated it would post optimization. In order to make sure of this, you can adhere to these two procedures:
- Backtest on Historical Data: first and foremost, you need to execute a backtest at various intervals using an expert advisor. It is advised that you do so when you have first begun using this automated approach and also you need to perform a backtest whenever you optimize your expert advisor. As you might know, a backtest is when you use historical trading data and gauge the performance of your expert advisor against that data to see how it would have performed.
- Forward Testing in Demo Mode: the next step after backtesting is known as forward testing. As the name suggests, it is sort of the opposite to backtesting, and instead of using historical market data you would use live data in a demo account. So this is essentially demo trading with your expert advisor.
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Never Neglect Developer Updates
Last but definitely not least, you should never neglect to develop updates of your expert advisor. So aside from the need to constantly observe the performance of the EA and update its configuration through optimization whenever necessary, you also need to always be on the lookout for developer updates. These updates are extremely important in making sure that the expert advisor does not have any bugs that would create issues in the trading process.
Conclusion
Keeping your expert advisor up-to-date is crucially important because financial markets such as the forex market are changing all the time and you need to be able to adapt to these changes. Automated trading solutions need to be updated constantly so that they are adapted to such changes. This approach to updating is twofold; first you need to bring your expert advisor up-to-date through optimization and updating its configuration; and secondly, you need to make sure that you always install developer updates.
