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As tempting as this idea may be, there are already many great disappointments in the experience reports of individual buyers of these systems. But how can you tell whether you are dealing with a good or a bad Expert Advisor? You will find the answer in this article.
In this article, you will learn what hints and warning signals there are to determine the quality of an Expert Advisor. I will discuss both the possible positive and the negative characteristics.
Expert Advisor – profits guaranteed?
Basically, you should put a few thoughts out of your mind right from the start. If ever a trading strategy is developed which really shows overwhelming profitability, the developer would never be interested in sharing this trading system with the rest of the world. What would he or she have to gain? No, one should say goodbye to this thought. But are all offers on the market dubious for this reason?
Trading systems can be profitable
Even if, in my opinion, there will never be a system logic which can be a permanent money printing machine, there can be good trading systems. In fact, the price is a decisive factor. If trading systems are offered for a few Euros, in the end you just pay the programmer’s effort. Even the programmer does not seem to really believe in his system. Otherwise he would not be willing to sell it for an apple and an egg.
But of course the marketing experts among the developers know that too. So the reverse conclusion of a high price does not mean that you have a good system in front of you. But how do you know whether a system has a chance or not?
Similar to learning how to trade with offers, it is the same with offers to acquire an Expert Advisor. There is never “the truth” about these issues. I too can only write from experience and logic. The following theses are correct in my eyes, but there can always be exceptions.
Basic data of bad Expert Advisor
Bad Expert Advisors usually differ from the possibly good systems already in the appearance of the capital curve. Basically, my warning lights are already shrill when I see a smooth upward capital curve that does not even seem to “breathe”.
To make it clear what I mean, I use the image of a back test by my colleague Thorsten Kock. In this context I can also recommend the colleague’s contribution to the “Expert Advisor business”.
Such a capital curve may flatter the soul, as it promises profits without major phases of weakness, but this type of capital curve is and remains a warning signal that this system could be over-optimized. Furthermore, the following attributes are also warning signals:
- Many small trades with only a few points profit
- A high hit rate is bought by a poor risk/reward ratio
- A high intraday drawdown, which is not visible on a daily basis
- Backtest over a period of time in which the market did not change
- The system works in only one market
You should take these warning signs seriously. For example, a trading system that has been tested only 2 years back, in which the stock market may have only risen, simply cannot be judged on robustness. Such a system should always be critically examined. Even high resets on intraday basis are strong warning signals.
Especially when the capital curve looks perfect on a daily basis, these speak for a possible martingale strategy. You can also apply this advice 1 : 1 to social trading. There, too, you can quickly recognize the risky variants by high intraday resetting, while the capital curve shows many small stable profits. But let us come to the positive signals.
Recognize good Expert Advisors
Good trading systems are indeed characterized by their imperfect appearance. Of course it is in our nature to strive for perfection and efficiency above all else. However, when purchasing an automated trading system, one should not give in to this urge. On the contrary: Good Expert Advisors can often be recognized by the following characteristics:
- The backtest is profitable and covers various and also difficult market phases
- The Expert Advisor can at best be applied profitably in different markets
- The capital curve of the trading system is not perfect
- The hit rate should rather not be significantly higher than 60
- The price should not be too cheap
All these points are not in themselves a reason to consider or withdraw from a purchase. But these points in their entirety are an indication of the trading system’s prospects of success.
Expert Advisor – Purchase only after examination
Basically, an automated trading strategy behaves in exactly the same way as in the rest of life. Every business decision should be questioned carefully. Of course, reviews from other users can already give an indication of the quality of a trading system, but even here, not all reviews are “real”.
Only those who have already developed automated trading systems know that with the use of only 3 indicators, you can always create a highly profitable system. But if you then trade this in reality, the big disappointment comes. Therefore, you should pay attention to the robustness of the system and you now have the right instruments at hand. This is the only way to make automated trading work.