Tuesday, December 30, 2008

The Thing That Everybody Should Know About Forex EAs - They Don't Work!

I think its fair to say that Forex EAs are the hottest thing going on in the forex market. If you haven't heard about them, they are sometimes called Expert Advisors. It's essentially an automated trading system that trades without you.

It trades off of lagging indicators such as moving averages, RSI, MACD, and all other common indicators. The developer of the Forex EA uses these kind of indicators to form a mechanical system off of certain parameters to trade, while you are out eating dinner, going to the movies, or sleeping.

It does sound amazing doesn't it? But there is one slight problem. The VAST majority of them just simply do not work.

If you don't believe my skepticism, then I suggest you browse through some of the more popular forex forums, and see for yourself. There are thousands of threads dedicated to this subject. In those threads, you'll find lots of hard working people trying to create that holy grail forex EA, and after months and months of working on it, the thread just eventually dies out because they realize it's not going to work.

It's sad, but unfortunately, extremely common.

There is one inherent problem with a forex EA. You can't expect it be able to trade for you.

I actually had to figure this out the hard way, when I was first starting out in trading. I was just like everybody else. We all want that shortcut, and with forex EAs, it seemed like the golden shortcut, especially considering, I didn't even have to trade. It would do all the work for me.

But eventually, it dawned on me. How can a Forex EA understand something like the complexities of breaking news? Remember that the forex market is affected a lot more by news than any other market, because of its global scale. So, if the majority of traders don't know how to handle something like an unexpected interest rate hike, how can I expect a piece of computer software to do it for me?

John Templeton has been a successful forex trader after learning how to trade price action. Once he understood that all he needed to trade forex was on a plain chart with no indicators, his profits soared.

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