Are Intraday Expert Advisors Profitable?
A special type of EA’s are the ones that open and close trades within a day. In this post I will discuss some points that are worth your attention before investing in such an algorithm.
Scalping and Slippage
When something has a hitrate of 95% and a 1:0.1 Risk:Reward, theoretically it’s profitable.
However, the problem here is that you’re using CFD’s/Forex in MT4/5, so slippage is unavoidable. To avoid slippage, you would need futures and an advanced programming language to only execute orders at the desired price.
A backtest for Scalping Systems almost always will look superb but in real life will start to lose your money. The high probability points in the market where a quick scalp is possible often also is a point where you will get even more slippage, for example on daily or previous highs/lows.
To avoid a non-profitable scalping EA the only thing you can do is to test it with a live account with low lot sizes. Even a demo account will not reflect real slippage. But in my experience 99% of these scalping bots are not worth your attention, even if there are so many of them out there in the mq4 market place and on other websites.
My personal experience
I’ve programmed dozens of intraday algorithms in mql4 and my experience is that it’s not easy to find something that works.
Moreover, it’s rather easy to deceive yourself from hindsight bias and overfitting (more in my previous article).
What seems to work, in my opinion, are algorithms that trade simple breakouts or support/resistance and have multiple exit conditions. An Expert Advisor can only read price action. And you have to know that this simple fact is very limiting. You don’t have volume (real volume is not available in MT4), you can’t analyze options, futures price, orderbook, real spread or other data. Just the broker’s price.
Consequently, you also have to think about how often quality setups like a clear breakout or reversal occur during the day on a 1-15 minute chart.
Let’s say you’re looking for something that trades multiple times a day, because you think the more the better. Well, wrong. An intraday opportunity with a good risk/reward doesn’t occur every day. At least not with the available information in metatrader.
Therefore, you have to be as patient as if you’re investing long term in a stock. Don’t think you can just reap profits in 3 months and get rich quick.
Because of all the limitations of intraday Expert Advisors one should not expect too much of them. But if you let them play out over a long time, they can show reasonable results.
A realistic profit factor for intraday EA’s over a very long-time span is about 1.2 or less. That means any risk% per trade over 0.5-1% will most likely give you a 70% drawdown.
Considering this in the backtest, where only one possibility of 1000’s of possibilities of price behavior is shown, will give you a realistic percentage expectation from such an algorithm over a large series of trades.
It’s certainly less than you expect, and you most probably will seriously think if this is better than another form of investment. You will have a passive, often market neutral trading strategy and can let it run automatically on a private server (VPS), so why not give it a try if you’re looking for such an investment?
Hope this article helps you when you decide whether an intraday expert advisor is for you or not.