Today, I will be discussing scam #5, Expert Advisors. Now, please don’t get me wrong: I am not suggesting that all EAs are scams. There are many legitimate EAs but also many ways to trick people or lie about the results. Many sellers make their EAs look good when, in reality, they can ruin your trading in days or hours.
Expert Advisors to avoid
Even if an EA shows good results and the seller explains that his method is “magic,” when you see any of the following signs, avoid it at all costs:
- Avoid EAs that increase position size
The first screenshot shows an EA strategy that increases position size – this is done to survive the test. The second screenshot is of a backtest that I performed on the same strategy using 99% modeling quality, so I am sure that the results are accurate.
Since the equity goes up, the backtest may look good to many beginners and even professional traders who are just starting to use automated trading and EAs. You don’t see any big drawdowns, except for one of 31%. But because I used the best modeling quality in my backtest, we notice that the relative drawdown is 93% – this means that most accounts would be wiped out or drop into margin. The relative drawdown shows that this strategy would not survive in live trading.
Another thing that bothers me is the following: This test was applied to the 2003-2015 period. If I multiply 12 years by 52 weeks, that’s 624 weeks of trading. When I divide that by 111 (the total number of trades over 12 years), I see that one trade takes place every 5-6 weeks on average. I also notice that trades start at 0.44 lots and continue with 8 lots. After a small win, lot size increases to 43, and then to really big ones – 200, 900, even 1,000. Not only is this a huge red flag, but also no brokers allow 1,000 lot sizes.
Imagine how big your trading account would have to be to execute such positions. In this EA, we see many 1,000-lot trades. That’s €100,000,000 Euros! The equity curve may look good in the backtest but, overall, the strategy is nonsense.
Never trust a strategy that doubles lot sizes. When big lots are used, this is done to survive the test and make it look good.
Please continue reading or watch MT4 Expert Advisors Scams Video #6
- Avoid EAs that hold trades for long periods
Some traders may say, “I’m trading long-term,” but long-term means weeks or months – to me, it does not mean years. In the screenshot below, the first trade was open for 1,287 days. Who would hold a trade open for 3 ½ years other than a bot that wants to show no loss? And that’s not all – you can see other trades of 900, 800, 600, 500, 400, 300 days – insanely long periods. If you used this bot, you would be stuck in these positions for years and probably end up in loss anyway.
In the above screenshot of another strategy, the account goes into profit but losing positions are held for 277 days – that doesn’t seem right. Also, the track record is not verified, so that’s suspicious as well.
- Avoid scalping strategies
According to market analysis, scalping strategies and bots are the products purchased most often. Sadly, most do not work but produce incredibly good-looking results, usually with the help of a broker, delayed demo price feeds, or other tricks.
All scalping strategies are very sensitive to spread changes and do not work on most brokers. Even if a scalping strategy works on one broker, it will probably not work on another. Even if you tried using it on the same broker, you might find that it’s losing money.
In any case, the whole thing is insane. For example, the duration of the trade we see here is 0 seconds with a gain of 500-200-400 Pips. Now, I realize that this is trading gold, but these numbers are ridiculous. The average hold-time is 0 to 3 seconds. It doesn’t feel right. I doubt the strategy works outside of the demo account.
I know that many of you want to scalp the Forex market and earn money quickly. Believe me, even though Forex scalping using bots sounds easy, in most cases, it is not. You may win for a few days or weeks, but my guess is that you will be increasing lot sizes to get more money and, one day, the bot will stop working or blow up your account. You will likely lose your capital and your earnings.
- Avoid EAs with a huge stop-loss or none at all
Imagine using a trading strategy that has no stop-loss; eventually, what will happen is illustrated in the following example:
In the above screenshot, we see a good equity curve that ran from 2013 to 2014. Everything seemed perfect until it suddenly collapsed. On September 4, all trades were closed and lost, and the account burned to the ground. There was no stop-loss. The providers may say that they were using hidden stops but, even if they were, I prefer to have a hard stop as well, even if it were bigger than the hidden stop-loss by 3X or 4X. I would rather lose 50% of my account than 100%.
If the EA does not offer hard stop protections such as monitoring, closing trades, or disabling auto trading, you can protect your account with Equity Sentry EA.
Protect your account with Equity Sentry EA
Equity Sentry EA will protect your MetaTrader4 account by monitoring your equity/balance and open trades. It will activate a security trigger when equity reaches or drops to a certain level. It will activate a trigger when open trades (floating loss/profit) reach a certain level, or closed trades plus open trades reach a certain level. It will also calculate your cumulative profit based on your trade history.
To protect your capital, Equity Sentry EA will close all trades and orders, acting like a “hard stop.” It will disable all auto trading and EAs running on the account to prevent them from trading (Close & Stop). Also, it is possible to have Equity Sentry close MetaTrader4 terminal completely and send you notifications by mobile or email (instant alerts).
The above screenshot shows how Equity Sentry protects your account from a manual or automated strategy that brings your account into huge drawdowns, if you have open positions and loss of $100, $1,000, $5,000 or 10%, 20%, 30%. Some people can live with a 10% drawdown but won’t tolerate 30%; they would prefer to withdraw everything, close the account, or stop trading until they decide what to do next. If you saw your account going into a drawdown of 35% or 40% in minutes or seconds, you might lose your mind. Or you might wake up in the morning to discover that you’ve lost all your money.
Equity Sentry allows you to set an equity or balance level. Let’s say you have $10,000 account and decide that you want to close all trades, disable auto trading, or close the MetaTrader4 platform completely if the account drops to $7,000. If you wake up in the morning to your auto trading having been disabled, you know that you were protected. Even if the price continues to drop, you will be protected because all the trades were closed in time. In this example you will have lost $3,000, but isn’t that better than losing $10,000?
Equity Sentry EA enables you to set trading goals for the day or week, for example, a gain of 1% or a certain amount of Pips or deposit currency like dollars or euros. When your open trades reach the goal, Equity Sentry will close the trades and disable further auto-trading until it is reset by human intervention. This prevents overtrading, which is how most people lose money on Forex.
Equity Sentry EA can do a lot of things, such as closing all open trades, disabling Autotrading on the account, close all other chart to stop all other EAs on the account, and so on. It helps hundreds of traders around the world.
Before closing, I will give a summary of which Expert Advisor strategies to avoid:
- Avoid Martingale trading styles that increase lot sizes, doubling or tripling them – this is done to recover from loss. If you see that lot sizes are increasing until profit is reached, stay away.
- Avoid Grid trading styles. These strategies place multiple pending orders like “buy” stops in one direction and “sell” stops in another. They have “buy” and “sell” trades running at the same time. This puts your account at great risk – enormous exposure. I would say it’s one step away from disaster.
- Avoid strategies that use a huge stop-loss or no stop-loss at all, unless you protect your account with Equity Sentry EA. By placing a huge stop-loss, you can lose the account in a few trades or hours.
- Avoid EAs that hold trades for a very long time.
- Avoid scalping strategies or make sure you are protected – put a hard stop on your balance and know when it’s time to stop.
There are many ways to use legitimate EAs effectively but make sure you vet them carefully. I encourage you to protect your accounts with Equity Sentry EA. You will be able to sleep or go for lunch without worrying about losing your shirt. Visit this link to get Equity Sentry EA.
Thank you for joining me on this series about Forex scams. I wish you many successful trading years.Editor's Note: The original video on this page was produced by Rimantas Petrauskas. The text version was prepared by the FPA. The text follows the primary concepts in the video, but has a number of differences in wording.