MetaQuotes Language 4 or MQL4 is a programming language that comes with Metatrader 4 (MT4). It is use to write and test Forex Trading Strategy that can run on computer to trade automatically. Most of the Expert Advisor (NASDAQ:EA) are using this and many have successfully code into profitable program for their trading needs. I will look at some of the factors when selecting EA from live trading results.
Return on Investment (NYSE:ROI)
This is an old term used in many investment projects and it is used to determine how profitable the program is. Comparing to Stocks and unit trust performance which is between 10 to 20% annually, Forex trading gives higher ROI of 100 to 200% annually. This is due to the leverage of the currency and the 24 hours trading features which makes it easy to trade and small capital of 1:200 leverage required to trade and hold. This in the case of stocks, can be option warrant or contract for difference, but the holding power is still much less attractive then Forex.
Some Forex broker accound provide 1:500 leverage, which means you only need $200 to hold on to a 100k full contract or $20 for mini lot 10K or $2 for micro lot trading (0.1 of mini lot or 0.01 of standard lot). You can execute 5 trades while still have the margin to carry on and earn potential $2000 profit with a 200 pips gain (1% to 2% currency value) compare to $50 for a 5% gain in stock and share assuming 10K capital used for both trading setup.
Duration of Live trading
In most case ROI is measured against monthly or annually. A good strategy Forex trading program will give 10% ROI monthly. Which equal to more then 100% anuually returns. But this is the average ROI, there may be months that is -10% and months that is +40%. Therefore, trading is almost looking at long term consistent profits, not short term gains. For live trading, at least 12 months of trading would gives a good ROI indicator of the program.
This is important to any Forex trading program as it is a measure of its true abilities to trade and gain profit. Profit factor is measured by taking total profit winnings divide by total losses. Any number that is more then 1 will means that the program actually earn more then it lose. A good profit factor of 2 or 3 is desirable as it have to handle stop loss and bid-spread pip losses. This are 2 main problem for many Forex trading program and one of the most effective ways to counter it is to increase the profit factor. Anything less then 1.2 is consider no good.
Max Draw Down
Draw Down is common in Forex trading when the trades has not hit any stop loss. But comparing to Maximum Draw Down, it is the largest losses the account made include realized profit (loss) and unrealized profit (loss). Realized profit refer to trade that loss pips and are executed by the broker (Buy and then sell or Sell and then Buy). Unrealised profit is trade that is still holding on yet to let go. This is significant as it will affect your margin call calculation when you are running multiple trading programs. As a general rule is to have less then 15% or 20% draw down. You still have room to run another 2 more program to maximum your ROI while maintain your account margin.