Scalping Expert Advisors, why most are not working anymore !

In general, scalping is a trading technique which tries to exit trades with very small profits, risking several times the amount won in order to augment the trader’s probability of success. Scalping is a trading technique discouraged by many brokers because these small fluctuations in market prices (3-4 pips), can be predicted by someone with a direct bank feed and used with an advantage against the broker. This can be done due to the delay that brokers have when processing data streams (which can be 2-5 seconds).

However, in the world of automated trading, an expert advisor is usually called “scalping” even if it’s take profit is more than 3 times the spread (which would not be considered scalping by most brokers). Examples of such expert advisors are Shark and Viseu which have small profit targets (8-10 pips) with stop loss orders in excess of 30 pips. As with every trading strategy, there are some advantages and disadvantages to using such experts. For example, these experts have the advantage of having a high probability of success per trade as they take money rapidly from the market. The greatest disadvantage they have is that their risk to reward ratio is too unfavorable, they need to get at least 4 profitable trades for every loss in order to get to the upside again.

So, why have we seen a broad decline in profitability this past few months ? Why have expert advisors like Shark and Viseu reduced their profitability so drastically ? Well, many of these experts are based on moving averages, which by their very nature, are very lagging indicators. They work very well when market conditions stay constant for a while and then change in a very slow fashion, so slow that moving averages can adapt smoothly to the changes made. What we see in today’s markets is completely different, we see rapidly changing market conditions which don’t give lagging indicators like moving average the opportunity to react. Therefore, this expert advisors are always thinking about yesterday’s market and they trade as if market conditions were like they were a while ago. When these experts based on moving averages finally adapt to what it’s happening, it quickly changes !

So what you get is a scalping ea massacre, they sell when they had to buy, they buy when they had to sell and with a risk to reward ratio so high, it is not a surprise that they fail to deliver what they had delivered from 1999 to 2006 when market conditions were very different and lagging indicators like moving averages worked a lot better. Sounds familiar ? Past performance does not guarantee future results ! IF you would like to learn about results obtained both for shark and Viseu and many other expert advisors please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

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