How to Optimize Expert Advisors?

1. What Is the Concept of Optimization?
2. 2 Ways to Optimize Your Trading Robot
3. What Do You Need to Run the Optimization Process?
4. Why Is Optimization Important?
5. What Difficulties May Arise When Optimizing?
6. In Conclusion. What Should I Do? 

Let’s imagine: It is late at night, and you are reading a bunch of articles on Expert Advisors. You read about trading systems making hefty sums. You really like the idea of using EAs and want to jump right in.

Hold your horses!

You can only hop on the bandwagon if you do not know how to optimize the Expert Advisor.  

Make sure to stick till the end, as we will reveal everything you have regarding EA optimization.

What Is the Concept of Optimization?

First, let's talk about optimization.

Also, the core idea of optimization is to provide:

• More wins than losses
• Minimum risks
• Combo of the above factors

Expert Advisors' coded algorithms do not involve any human intervention. It makes robot's functioning as accurate as possible. Hence, they place entry/exit and take-profit/stop-loss orders automatically. 

Through optimization, EAs perform:

• Active or passive risk management
• Auto determination of position size according to allocated funds
• Hedging system creation for diversifying trading positions

2 Ways to Optimize Your Trading Robot

We have explained what optimization is. Now, you are probably thinking: "OK, I know the definition of this phenomenon. But... How can I optimize my EA?"

Well, let's find it out!

Here are several ways to optimize a trading robot:

1. Backtesting

The first step in the optimization process is backtesting. 

When backtesting, you need to consider several factors, such as: 

Drawdown reduction

While backtesting an EA, you have to consider drawdowns. It does not matter if you have a Midas' strategy; you will face losses at some point.

Poor risk management can cause a drawdown. You are risking when you DON’T:

• Apply a Stop Loss in the EA
• Define your risk appetite

So, instead of sobbing over maximum losses, you have to backtest your system. It can reduce drawdowns.

Profit factor

Thanks to PF, you can: 

• Compare your average net and losings during the entire trading process
• Estimate your expected profit concerning the risk

This parameter is super helpful when you backtest your trading system or go live. It allows assessing the entire situation. If your gain is low, adjust your trading strategy.

Apply this approach to identify how your system is doing when the price will go up or down.

Stop Loss

If your balance drops below the stop-loss level, all your positions will be closed.

Set the stop-loss level according to your equity while optimizing the Expert Advisor. This is because the equity stop-loss level provides you with a barrier. If the price crosses this barrier, your positions will be closed.

Testing on different pairs

For backtesting, you need to evaluate different currency pairs. This can help you set realistic trading targets. 

Testing on different forex pairs also gives you a glimpse of which asset is best suited for your strategy. 

Timeframe selection 

The ideal timeframe for backtesting is one year, as it allows you to take note of all market situations. You can identify your EA’s performance during different market conditions by testing over a year. 

2. Forward testing 

So, you have completed backtesting, and you want to implement its results. How are you going to do that?

Surely, you are not thinking about going for the live account.

The idea of forward testing is to evaluate the EA, like how it will perform in real market conditions or your EA logic. Then, it presents you with a clear picture.

The period for forward testing depends on:

• Your strategy 
• Your trading style

For example, if you are a long-term trader, you need to forward the test for a longer period till you get the desired results.

What Do You Need to Run the Optimization Process?

To optimize an EA, there are a few things you need before performing backtesting or forward testing:

1. Set up a demo account. This will allow you to check your backtesting results. Almost every Forex broker provides a demo account, so you can easily access it.
2. Add your EA script and code through MT4® or MT5® trading platforms. Both platforms come with automated features for placing codes.
3. Create a compiled robot for trading. It can also be a prototype. Your code will define how you want to proceed with the market. If your EA is not performing well, or you want to test it for different strategies, you can always tweak your code.

Why Is Optimization Important?

You can define your risk appetite through:

• Optimization
• Pinpointing entry/exit points
• Position-sizing
• Finding out pairs of trading patterns
• Removing emotional trading

Through back- and forward testing, you can get a complete picture of the overall market conditions.

What Difficulties May Arise When Optimizing?

Backtesting is a good way to identify EA’s performance in the past. However, the past is not the future. Past results do not guarantee good future results. Also, backtesting may take a lot of time till you find acceptable configurations.

Besides, the patterns of some currency pairs change due to factors like:

• The economic and geopolitical situation 
• Seasonality
• Other events

So, the optimization process can get iffy.

In Conclusion. What Should I Do? 

Optimizing an EA is not like solving algebraic expressions. You just should follow a step-by-step process. 

Remember that there is not a 100% perfect EA. However, with back- and forward testing, you can make the system more profitable. These two processes will allow you to:

• Evaluate the trading robot’s performance
• Find EA’s strengths and weaknesses
• Fix imperfections by improving (optimizing, configuring) these or that parameters