Last updated on September 4th, 2021 at 06:52 pm
3 ways to tell if an EA is a scam
The general rule is that no one will sell you a profitable EA. If it is good, I will create a managed account and trade your funds and earn a percentage of the profits made for you. I would not want my code to be placed into your hands, even if it is a compiled version (.ex4 file), as good hackers are able to crack such files, as you can see in https://indo-investasi.com/, and many other such Forex Forums.
1. The backtest spread setting isn't 'variable spread' on MT4 backtest report and the EA is a scalper
As you can see, this scalping EA above is highly profitable. The spread is adjusted to be ’10’, meaning the spread is 1pip.
This is the same EA, but backtested on a variable spread setting. Clearly, having your EA backtested on a variable spread, is important to gauge real life performance for scalping EAs.
2. The EA trades on a 1min timeframe and is a scalper
A scalping EA that trades on 1 min timeframe is highly dependent on fast execution speeds and minimal slippage, because of how small the profit targets are.
For example, an EA with a small profit and stop loss target of 10pips each and a slippage of 2pips (such slippage is quite common during high impact news, such as interest rate announcements), actual profits are actually 20% less than backtested results and actual losses are 20% greater than backtested results.
This leads to overall profit being 40% lower than backtested results.
3. The EA is a scalper and trades during high impact news
As highlighted in #2, an EA that trades during high impact news is subject to large amounts of slippage because of how quickly the price changes and by the time your order reaches the broker’s server, the price you want may not be available.
A famous example is the highly marketed million dollar pips EA that worked very well on demo accounts, in backtests but not in live accounts because of the slippage it experienced.
How the EA works: When the price spikes greater than the 3rd standard deviation of the bollinger band on the 1 minute timeframe, the EA would trade in the opposite of the spike betting that price would reverse back into the bollinger band.
Why the EA failed: As you can see, such price spikes are caused by high impact news. Prices move quickly during such high impact news and your order may be subject to high slippage. You might not enter the trade at the prices as shown in the backtest and thus the backtest results cannot be fully relied on.
Solution: You can simulate slippage on Tick Data Suite software to get a more realistic idea of how the EA will perform.