Types of Charts and Their Use in Expert Advisors
An EA, also known as an Expert Advisor, is a program that converts a trader´s trading strategy into a computer program based on the programming language of your trading platform. Thanks to this, the computer (or the trading platform) is capable of carrying out trades according to the trader’s strategy.
To put it simply, it is a set of conditions to which the so-called forex robot reacts based on how it´s been instructed in the program.
EAs can be divided into:
- Fully automated trading systems
This type of system is capable of opening trades and setting and making changes to Stop-Loss and Profit-Target orders when necessary and entering or exiting open positions – without the trader having to interfere in any way. The trader´s main job is making sure the EA and its technical aspects are working well and evaluating the results, which can later be used to further optimize the EA.
- Semi-automated trading systems
Semi-automated trading systems aren´t allowed to enter and exit trades without the trader´s approval. They can either enter a trade or exit it, but not both. It is up to the trader to decide how much power he´ll entrust in the EA (i.e. if he´ll allow the system to enter positions, exit the market etc.).
Which charts to use with EAs?
Which charts and time frames are most suitable for trading with EAs?
That´s a question many forex traders have wondered about. When trading manually, the right chart and time frame can have a massive influence on the profitability of a trader´s strategy. EAs are no different.
We can´t say whether short or long time frames are better for automated trading systems because it always depends on the implemented strategy.
To choose the right time frame or chart, it is best to run a backtest on your EA. Backtesting is an automated testing of a system based on its historical data, thanks to which traders can get the information necessary to help them make a decision. The MetaTrader4 trading platform offers this feature.
To perform a relevant backtest, you need to ask yourself and answer several fundamental questions:
Is your computer´s hardware good enough to run a relatively fast backtest?
Among else, the speed of backtests is influenced by the time frame, the number of traders, and the extent of it. If you´re backtesting a set time period on an H4 chart, the backtest will run a lot quicker than it would with 1-minute charts.
If you´re testing a 5-year time period with an H4 chart or higher, today´s average computer should be able to do the job within a few dozen minutes.
If you want to test the same history on an M1 or M5 graph, you´ll need to have quite a powerful computer. The MetaTrader4 platform has its limits as well and it usually isn´t capable of using all of your computer´s potential, but it should be more than enough to professionally test EAs using concrete dates.
It is also worth mentioning that backtesting temporarily takes up space on your hard disk, and so you need to have enough free space on it. If you don´t, the program can crash in the middle of running a backtest and you will have to start all over again.
How far back should you backtest?
To know that your EA is durable and suitable, you have to test it far back despite the fact that past results don´t guarantee future ones.
When you test your EA back a few days or months, you can get very positive results, but they will likely not be reliable.
That´s why you need to choose an optimal period for your backtest that will provide reliable results and truly reflect your EA´s performance.
That period will vary depending on your trading strategy. That´s why the optimal backtest period isn´t usually given in time units (e.g. 5 years). It should be run on a large enough portion of your trades. Ideally, each EA should be run on at least a 100 or more past trades.
Is your chosen chart type the most suitable?
After answering the first two questions (Do you have good hardware and a long enough time period?), you need to choose the right type of chart. You can do that by choosing optimization and having different types of charts tested with different time frames. Then you can choose the chart with the potential highest success rate for the same time period that you find helps the EA perform the best.
A well-programmed EA that works a 100% according to a trader´s strategy can be a powerful trading aid.
The good thing about EAs is that if you choose the optimal time period and run a professional backtest, you can make the hypothetical results from the backtest turn into reality fairly shortly and you can compare the results from different backtests and keep perfecting your trading strategy.
To backtest your strategies, you can use our trading platform MetaTrader4 by Purple Trading, a forex broker fully regulated within the European Union. We´d also like to remind you that we´d love to provide our VIP clients with free custom EA development specifically for your trading strategy .
You can find out more about Purple Trading or open a free demo account without risk on our website: https://www.purple-trading.com
Get in touch with us any time through the contact information provided below, our friendly support team will gladly help you and answer your questions.
About the Author:
Team Purple Trading
Purple Trading is a true and 100% fair ECN / STP forex broker providing direct access to the real market. High speed orders execution, no trade-offs, no limits for any type of trading, the most advanced trading technologies. Explore more about Purple Trading at www.purple-trading.com .
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