Over the past couple weeks, I’ve been going over how manual traders can use expert advisors to simplify and improve their trading. Expert Advisors are not just for automating your trading strategy. Expert Advisors can be used before the trade, when placing the trade and/or after the trade.
Today, I want to talk about my favorite topic…
Using Expert Advisors For Automated Trade Management
I’m sure this has happened to you…
Before the trade is placed many traders are completely rational beings. They have a trading system they use and understand the conditions necessary for entering the trade. (They also should understand the importance of money management and have a professional formula for determining the risk of each trade). However, once the trade is placed and real money is on the line… they become completely irrational.
Every trading system should have a reason to get into the trade, and a reason to get out of the trade. Trade management is very important to your success, and is probably more important than the entry criteria. But it is very hard to stick to the trade management rules when in a live trade risking real money.
Here are a couple things that happen…
- The trade starts to go against you so you decide to close the trade early so your stop won’t get hit.
- The trade starts to go in your favor so you decide to close the trade early so you don’t lose the profits you’ve already gained.
Regardless of the outcome… this is the wrong way to trade.
In both cases, you are not sticking to your rational trading plan. You are being irrational and making decisions based on emotions. And yes, sometimes you are rewarded for your bad behavior and you make the profitable choice. But in my opinion, you are still wrong because you broke your trading plan.
This problem can be fixed by automating your exit strategy with an EA programmed to manage the trade after it is placed. Once the trade is placed manually, the EA takes over and manages the trade perfectly according to the rules every time.
Ideas For Using A Trade Management EA
I want to give an example so you know what I’m talking about. Here are my favorite things to do with an trade management EA:
Trail Your Stop Loss: There are 3 ways I trail my stop…
- To reduce risk: If the trade starts going in my favor, there is a point where I want to reduce the risk by tightening the stop. For example, moving the stop from 100 pips to 50 pips. This reduces the risk I have on the trade if price goes against me.
- To eliminate risk: At some point in the trade I want to eliminate risk all together. This happens by moving the stop to Breakeven or a little higher. This now takes the stress out of the trade since I no longer can lose any money.
- To lock in profits: There are levels in the trade where I would not want to see all my profits eaten up if the market reverses. At these levels, I like to lock in some profits my having the stop moved up. Worse case at this point is I make some money in the trade.
Take Partial Profits: At some point in the trade you might want to put some money in your pocket. You can do this by taking off a portion of your position. Then you let the rest of the position run to a higher take profit level. Here is a photo showing a trade where partial profits were taken…
Benefits Of Using Expert Advisors For Trade Management
I want to go over why I think automating your trade management is so important. I personally use a trade management EA and credit a lot of my success to being able to automate my exit strategy. Hey, I’m only human… and the emotions of trading can get to me too.
Using Trade Management EA’s Frees Up Your Time (Less Stress): Trading is time consuming. First, you have to sit and wait for the right trade setup, which can be boring. Second, you have to manage the trade, which can be stressful. If you use a set-and-forget type trading system so you can step away from the computer once the trade is placed, you might be missing the opportunity to protect the trade by moving the stop or taking partial profits.
A better option is to program a trade management EA to trade your exit strategy. Then walk away from the computer knowing the expert advisor will take the correct action even though you are not there.
Using Trade Management EA’s Keeps You From Missing Opportunities (More Accurate): Even if you want to manage the trade on your own by moving the stop loss or taking partial profits, if you step away from the computer you might miss the opportunity. You go to the kitchen to get an apple… and when you come back price hit the level to move your stop, but now price reversed. (Missed opportunity).
Worse yet… having to take the actions yourselves might mean you change your mind. Price hits a level where you need to take action… but you decide to wait in the hopes of making more money. You are now not trading your system accurately.
Using Trade Management EA’s Keeps You On Your Trading Plan (Potentially More Profitable): You have a trade plan for a reason. When you are rational you figure out the best trade rules. So, the best thing to do is set up a trade management EA to trade according to those rules.
The beauty of using a EA to manage the trade after it is placed is you trade according to your rules EVERY time. There is no decisions being made on emotions so you are a “better” trader because you stick to the rules. This can also mean you are more profitable over time.
I think managing a trade under live market conditions when real money is on the line is the hardest part of trading. This is why it is best to automated your exit strategy and let an expert advisor do it for you. If you’ve taken one thing away from this series, I hope you see the importance of using expert advisors as manual traders can have on your results.
Next time I want to go over the 5 characteristics of a good trading strategy. See you then.