MetaTrader 4, commonly abbreviated to MT4, is one of the most famous trading platforms in online trading due to its friendly interface, powerful charting system, and superior trading features.
Another important feature of Metatrader 4 is that it has the capability for what is known as algorithmic trading through the use of trading robots, or what is commonly referred to as Expert Advisors (EAs).
This article seeks to explain how these trading bots operate on Metatrader 4, as well as their advantages and disadvantages for any trader planning on using them in trading.
What are trading bots in MT4?
In the context of MT4, trading bots, also known as Expert Advisors or EAs, are small applications that trade on behalf of their owners in the same way that a trained and skilled human trader would. They enable the analysis of market information, can identify trading opportunities, and allow for trading without the need for human input. They appeal to not only new traders but also professional traders as well.
What are the differences between trading bots and EAs in MT4?
Trading bots and Expert Advisors are two terms that are occasionally used interchangeably but it is important to distinguish them because they are not exactly the same.
The two terms trading bot and Expert Advisor (EA) seem to refer to the same concept of a trading automation program but there are distinct differences which arise from their applications and use in trading platforms.
MT4 Trading Bots
General definition:
Trading bots are algorithms or software programmed to engage with the financial markets and make decisions on when to buy or sell securities. They can be used on various trading platforms and for trading various assets, including equities, foreign exchange, digital currencies, and Contracts for Difference (CFDs).
Key Features:
Platform independence:
A trading bot can be employed on not only MetaTrader but also other trading platforms, cryptocurrencies, and stock trading systems.
Programming languages:
Trading bots are mostly authored in different programming languages, such as Python, Java, C++ and so on, depending on the platform and the writer.
Broad applications:
Algos are applied for trading strategies such as HFT, arbitrage, and many others throughout the markets.
Customization:
Algos can be highly customised to adapt to various trading systems and regulatory measures against risks. They can use complex algorithms and models based on machine learning.
MT4 Expert Advisors (EAs)
Specific Definition:
Trading bots used specifically in the MetaTrader applications, including MetaTrader 4 and MetaTrader 5, are called Expert Advisors. They are mostly applied in the Forex market for the purpose of trading automation.
(EAs) Key Features:
MT4 & MT5 platform-specific:
EAs are built into the MetaTrader platforms and are coded using MetaQuotes Language 4 (MQL4) in Metatrader 4 and MetaQuotes Language 5 (MQL5) in MT5.
Ease of use:
They are installed right into the MetaTrader environment and can be easily utilised by the traders who are using the MetaTrader terminal.
Backtesting and optimisation:
MetaTrader has integrated features for back-testing and optimising EAs, which means that traders can test their strategies on historical market data before applying them in the real market.
MT4 Indicators and scripts:
MetaTrader offers various technical indicators and scripts that EAs can use, and traders can also build their own indicators to improve their trading plans.
Thus, differences in usage and capabilities can be summarised as follows:
MT4 Platform and language:
Trading bots can be used with different operating systems and are coded in various programming languages. On the other hand, Expert Advisors are specific to the MetaTrader platform and are coded in MQL4 or MQL5.
Market Scope:
Trading bots may be applied to almost any type of market, ranging from the forex market to stock markets, commodities, and the new popular digital currencies.
Expert Advisors were originally designed for trading in foreign exchange markets, although MT5 EAs apply to stocks and commodities as well.
Complexity and MT4 customisation:
Trading bots have higher flexibility and complexity, which allows for implementing the most difficult algorithms and machine learning.
Expert advisors may be more flexible, but they are generally even simpler to create and launch in the MetaTrader environment, which is aimed at technical analysis and simplified trading strategies.
Integration and ecosystem:
Trading bots may need access to the APIs of the many trading platforms. Expert advisors, on the other hand, can connect flawlessly with MetaTrader, and they enjoy a strong CFD broker base, data, and community around it.
Even though both trading bots and expert advisors are designed to automate the work of a trader and perform a set of specific operations while trading, there are certain differences between those two instruments, as we have mentioned.
The main difference here is that trading bots seem to have more utility across numerous markets and interfaces, whereas Expert Advisors are specifically designed for MetaTrader and are much easier to use in forex and other compatible markets available in MetaTrader.
The decision between the two depends on the trader’s preferred platform, markets, and the complexity of the trading strategies used.
How do trading bots work on MT4?
The MT4 trading bots are programmed in MetaQuotes Language 4 (MQL4), a special language used to create trading algorithms and indicators. Here’s a step-by-step overview of how they work.
Development:
Traders or developers write the code for the EA with proper use of MQL 4.
MT4 Backtesting:
In MT4, there is an efficient tool called the strategy tester, which enables traders to back-test their bots easily.
Deployment:
MT4 enables traders to adjust the EA’s parameters according to the trader’s preferences for risk and specific objectives in trading.
MT4 Execution:
Automated trades are performed depending on the strategy provided. It can operate 24/7 and explore market opportunities at any time of the day.
Advantages of trading bots
MT4 Automation:
Algos relieves traders of the need to constantly monitor the market and can implement a desired plan of action without outside interference.
Consistency:
EAs work based on the specified set of rules and eliminate the impact of emotions on the signals and the subsequent actions taken in accordance with the selected trading approach.
Speed:
Bots are capable of trading as soon as possible under the available market conditions, thus putting them ahead of human traders who may miss the opportunities.
Backtesting and optimisation:
One of the valuable tools available in MT4 is the strategy tester, which allows the trader to test his/her EAs against historical prices and fine-tune his/her strategy for better performance.
24/7 trading:
Algorithms never sleep; thus, they can trade when the human trader is asleep or during a different time in the world or a different market.
MT4 Trading bot disadvantages
While trading bots offer numerous advantages, they also come with certain disadvantages.
Over-Optimisation:
Over-optimisation of the model of an EA may work brilliantly during the backtest but fail to work when deployed live.
Market volatility:
It could lose a lot of money, for instance, if it tries to make its moves during very volatile market times or if it encounters news affecting the prices in a certain way.
MT4 bot technical issues:
An Internet connection is critical for the EAs implementation, as is dependable server and database performance. Performance can be affected in any way due to technical problems.
Lack of human judgment:
The problem with using bots is that they are very rule-oriented and, unlike humans, can’t make necessary adjustments appropriate to the current market.
Costs:
Creating or acquiring a good EA may cost a lot of money, and there may be monthly, yearly, or forever fees attached.
Differences between trading with bots and without
Emotional control:
Manual trading entails a lot of emotional control in the decision-making process. There are feelings that affect traders, such as fear and greed; traders must learn to keep emotions in check.
Algorithms, however, trade mechanically and, in the process, are not inclined to get influenced by emotions as they work with the set rules.
Time commitment:
Manual trading gives special attention to market analysis and monitoring, and this may take time at times. A bot, however, relieves the trader of these processes and thus saves their time by letting them do other work.
Adaptability:
Human traders can make very good use of their abilities to recognise critical behaviours in the different markets that they are engaged in and can easily alter their approaches to suit particular situations that come in the marketplace.
A bot, though functional, can only deal with the situations which are coded into it and sometimes, in unexpected situations, it may not perform as well as expected.
Learning curve:
Manual trading is also characterised by a certain level of difficulty, as traders need to learn about the basics of the market and create their own strategies based on technical analysis.
The use of a bot alleviates the necessity of possessing great knowledge of the market and using more in-depth strategies, as the bot remains in charge of the technical part of buying and selling.
Customisation:
Bots can further be employed with certain strategies and can also work with different strategies at a time. Manual traders mostly work with several strategies, but it becomes difficult for them to work several strategies simultaneously.
Currently, you can use Expert Advisors to automate strategies using the MetaTrader 4 platform. Automated software brings into trading consistency, fast execution and the flexibility to trade throughout the day. Though they can be very useful to a trader, it is important to know that, like every trading tool, there are some risks and limitations attached to them.
Thus, it makes sense to liaise with verified and reputable developers to obtain or create EAs; begin with the least amount of capital; and follow sound money management principles to get the best of both EAs and avoid unnecessary risks.
As with anything in trading, the emphasis must always be on continuous learning and improvement, be it an automated system or a trader such as yourself.
