Checking charts with EAs

Checking charts with EAs

Using price charts can provide valuable insights when you’re in the process of developing or refining your Expert Advisor (EA).

As well as the somewhat obvious initial stage of making sure your EA does what is intended, it is as, if not more important, not to become complacent checking back in at various stages of the EA development process and simply rely on “the numbers”. If you so this you run the risk of missing out on information that can not only make development more efficient and less ad-hoc, but also provide opportunities for better outcomes.

This is a guide to get you started and we will delve deeper into the types of analysis you can do in a future unit.

What to Look For

  1. Entry Points: Use charts to visually inspect where your EA would enter trades. Make sure entries align with your intended strategy and market conditions.
    • Suggested Actions: On MT platforms the entry points (and exit points) should be marked on the chart that is automatically created. Add in any vertical or horizontal lines as well as period separators and indicators that form part of your EA criteria for action.
  1. Exit Points: Verify if the EA is exiting trades logically—be it a stop-loss, take-profit, or other strategy-based exits.
    • Suggested Actions: Repeat as for entry Point actions
  1. Drawdown Periods: Identify periods where your EA seems to be losing money. This may be seen on the equity curve of any back/forward test of live trading.
    • Suggested Actions: Observe what is happening to the instrument, relevant asset classes and the market as a whole during these periods and see if any patterns emerge.
  1. Indicator performance: If your EA uses technical indicators, ensure that its actions are in line with what the indicators are signalling. Watch for any that appear NOT to have relevance or potential impact negatively on outcomes. These can be tested and potential removed/refined in your EA.
    • Suggested Actions: Overlay the indicators used in your EA directly onto the chart. Clear charts of any indicators you are not using for clarity, Thicken lines e.g., of key moving averages, Bollinger bands etc, again for clarity.
  1. Behaviour during different times: Check how your EA performs before, during, and after major economic announcements or political change, times of conflict etc for longer term EAs. Specific time of the day may be critical for those trading intraday e.g. day or session open and close.
    • Suggested Action: Mark the time of these on the chart. See if there is any evidence of any change, and potential consider whether some “switches” that turn the EA on or off may be relevant to test.
  1. Trade Frequency: Ensure the EA is not overtrading or under trading (i.e. missing signals based on original intention of its core function) or closing as soon as it opens.
    • Suggested Actions: observe any time of non-trading. Look for the relationships between entry and exit timing,

When to Check

  1. Initial Backtesting: After your first round of backtesting, check the charts to confirm the EA is behaving as intended.
  2. After Modifications: Every time you change a setting or tweak the EA’s code, revisit the charts to see the impact.
  3. Periodic Review: Even if the EA is live and trading, periodic chart reviews can help you catch any unexpected behaviour.

How to Check

  1. Multiple Timeframes: Examine the EA’s behaviour across different timeframes to check its adaptability.
  2. Zoom In/Out: Don’t just look at the big picture; zoom in to examine individual trades to ensure the EA is consistently following its rules.
  3. Record your findings: Using a snip function and pasting into a document where you can use annotations to mark noteworthy events, behaviours, or areas that need further investigation is always useful.

By routinely checking your EA’s performance on price charts and knowing what to look for, you can achieve a more nuanced understanding of its behaviour. This, in turn, can guide you in making calculated adjustments and refinements, improving the EA’s reliability and profitability.

As previously stated at the beginning, this is just your start point. As you become more familiar and proficient, then we can start to look more closely at different ways to identify potential areas to explore further within your EA.

This is a guide to get you started and we will delve deeper into the types of analysis you can do in a future unit.

What to Look For

  1. Entry Points: Use charts to visually inspect where your EA would enter trades. Make sure entries align with your intended strategy and market conditions.
    • Suggested Actions: On MT platforms the entry points (and exit points) should be marked on the chart that is automatically created. Add in any vertical or horizontal lines as well as period separators and indicators that form part of your EA criteria for action.
  1. Exit Points: Verify if the EA is exiting trades logically—be it a stop-loss, take-profit, or other strategy-based exits.
    • Suggested Actions: Repeat as for entry Point actions
  1. Drawdown Periods: Identify periods where your EA seems to be losing money. This may be seen on the equity curve of any back/forward test of live trading.
    • Suggested Actions: Observe what is happening to the instrument, relevant asset classes and the market as a whole during these periods and see if any patterns emerge.
  1. Indicator performance: If your EA uses technical indicators, ensure that its actions are in line with what the indicators are signalling. Watch for any that appear NOT to have relevance or potential impact negatively on outcomes. These can be tested and potential removed/refined in your EA.
    • Suggested Actions: Overlay the indicators used in your EA directly onto the chart. Clear charts of any indicators you are not using for clarity, Thicken lines e.g., of key moving averages, Bollinger bands etc, again for clarity.
  1. Behaviour during different times: Check how your EA performs before, during, and after major economic announcements or political change, times of conflict etc for longer term EAs. Specific time of the day may be critical for those trading intraday e.g. day or session open and close.
    • Suggested Action: Mark the time of these on the chart. See if there is any evidence of any change, and potential consider whether some “switches” that turn the EA on or off may be relevant to test.
  1. Trade Frequency: Ensure the EA is not overtrading or under trading (i.e. missing signals based on original intention of its core function) or closing as soon as it opens.
    • Suggested Actions: observe any time of non-trading. Look for the relationships between entry and exit timing,

When to Check

  1. Initial Backtesting: After your first round of backtesting, check the charts to confirm the EA is behaving as intended.
  2. After Modifications: Every time you change a setting or tweak the EA’s code, revisit the charts to see the impact.
  3. Periodic Review: Even if the EA is live and trading, periodic chart reviews can help you catch any unexpected behaviour.

How to Check

  1. Multiple Timeframes: Examine the EA’s behaviour across different timeframes to check its adaptability.
  2. Zoom In/Out: Don’t just look at the big picture; zoom in to examine individual trades to ensure the EA is consistently following its rules.
  3. Record your findings: Using a snip function and pasting into a document where you can use annotations to mark noteworthy events, behaviours, or areas that need further investigation is always useful.

By routinely checking your EA’s performance on price charts and knowing what to look for, you can achieve a more nuanced understanding of its behaviour. This, in turn, can guide you in making calculated adjustments and refinements, improving the EA’s reliability and profitability.

As previously stated at the beginning, this is just your start point. As you become more familiar and proficient, then we can start to look more closely at different ways to identify potential areas to explore further within your EA.

Addressing the 9 Critical Psychological Issues When Creating and Trading EAs.

Addressing the 9 Critical Psychological Issues When Creating and Trading EAs.

Creating and trading Expert Advisors (EAs) as you move into the exciting the world of automated trading can pose various psychological challenges.

This brief article explores some of these issues. Use these as a checklist to help you not only develop awareness of what your challenges may be but also to be able to take meaningful action to improve ongoing performance.

  1. Over-Optimization and Curve Fitting: Traders may struggle with the temptation to over-optimize their EAs to fit historical data perfectly. This can lead to EAs that perform well in back-tests but fail in live trading, causing frustration and doubt. Focus on each stage of the EA creation and trading process is critical, including that of keeping in mind the TWO key rules in your decision-making to guide when it is time to draw the line under an EA development and move to the next stage. These are: i. The purpose of an EA is to reliably profit. Once in this situation, it is simply a question of scaling. ii. The purpose of a backtest is not only to provide evidence that settings may contribute to the above purpose but, most importantly, that of justifying a forward test.
  2. Fear of Loss: Trading EAs can trigger fear and anxiety, especially when real money is involved. Traders may be afraid of losing their capital or experiencing a drawdown that tests their emotional resilience. This may be a barrier to either moving to live trading or when doing so, scaling position sizing upwards (i.e., increasing the size of your trades) when results are suggesting it is appropriate.
  3. Lack of Control: Automated trading systems can feel like a loss of control, as traders rely on their algorithms to execute trades. This can lead to feelings of helplessness and frustration if the EA doesn’t perform as expected. Viewing the trading line on your account may be a challenge as you see individual trades move. The temptation to exit rather than let the EA do its work can be compelling.
  4. Confirmation Bias: Traders may develop a confirmation bias, where they only see the positive aspects of their EA’s performance and ignore warning signs or evidence of flaws. This can be dangerous to account capital well-being over a longer period of time. An objective set of measures that indicate success or otherwise may help instill some objectivity. The root cause of this may be an emotional attachment to an EA that has required significant effort to create and so maintaining that rationale decision-making, especially those tough decisions, may be a challenge.
  5. Overconfidence: Success with a set of or a single EA can lead to overconfidence, ignoring issues that need addressing, including EA substitution or refinement. It may be that the process which you have been following, resulting in early successes, may lead you to believe that you can quicken the process of taking an EA to LIVE trading and scaling without adhering to the patience required to attain a critical mass of trades to make such a decision.
  6. Impatience: Traders might become impatient with their EAs, expecting immediate profits. This impatience can lead to premature modifications or abandonment of potentially profitable strategies. There are no shortcuts; time for maturity of results is equally as important as cutting an EA off when there is sufficient evidence that this needs to be the case. Some comparison against backtest results over a defined period rather than day by day may be useful to have some context as to what happens to an EA over time, so maximum drawdowns, key profit metrics, and consecutive wins/losses may all be useful to keep a record of and as a benchmark for action.
  7. Adaptability: The psychological challenge of an openness to the necessity for an EA to adapt to changing market conditions is critical. EAs may perform well in certain market environments and poorly in others, requiring traders to adjust or replace them. Consistent monitoring is crucial, with not only a set of criteria that indicate when it is time to act but also in doing this recognizing that this approach will ultimately contribute to the success of your EA “book”.
  8. Social Comparison: Traders might compare their EA’s performance to that of others, leading to feelings of inadequacy or envy if their EA doesn’t perform as well as others. Remembering not only that often the successes of others may be exaggerated (after all, there are few out there who are as transparent about their losses as they are about their wins), but that the power of what you may be able to create.
  9. Emotional Resilience: The ability to maintain emotional resilience during periods of drawdowns or underperformance is crucial. Fear, anger, and impatience can negatively impact decision-making.

In summary…

Practical steps that can be taken to address these additional psychological issues, traders can include:

• Developing a strong understanding of their EA’s logic and parameters. • Setting clear performance expectations and avoiding comparisons to others.

• Practicing mindfulness and emotional regulation techniques to stay calm during turbulent times.

• Regularly reviewing and updating their trading strategy on which the EA is based, including sighting charts of trades taken and refinement of risk management strategies are always worthwhile. Consistent monitoring is vital.

• Taking breaks to avoid burnout and maintaining a healthy work-life balance.

Trading EAs do create an interesting set of challenges but, as stated previously, awareness is the first step to be able to take meaningful action and continue the work on yourself. Discretionary or automated trading, this cardinal rule is unquestionable.

Mike Smith

CEO Trader IQ