An expert advisor is an automated trading system that makes its trading decisions based on the implemented trading strategy. By strategy type, we can differentiate different types of expert advisors.
From the user perspective it is important to know what type of strategy the expert is using because we can have an idea when we can expect the trading activity, how much account funding resources we will need and how long the positions would be opened.
We can differentiate the following types of expert advisors: martingale EA, hedging EA, grid EA, scalping EA, arbitrage EA, news EA, trend EA, level trading EA, neutral networks EA and multi-currency EA. Here is a brief explanation of their main characteristics.
Martingale EA is based on the martingale strategy that is imported to the trading world from gambling. It is doubling the risk after every losing trade, so every winning trade is covering all previous losses. This strategy works perfectly when you have unlimited resources. So, martingale robots are suitable for the accounts with the larger resources (equity should be greater than $100k). Generally, they commit a large number of trades and have a high winning percentage but high (sometimes dangerously) drawdowns and they can blow your account.
Hedging EA can open both and buy and sell positions at the same time. Term hedging refers to protect the losses so these robots will open an opposite trade if the initial trade did not go in the desired way. It is very important to know if the expert is using this method because some brokers do not allow it. So, if your broker is no that list this type of expert will not work correctly.
Grid EA is based on a mechanical trading strategy that takes advantage of market volatility. It opens many positions at equally distanced price levels. So, the chart looks like a grid. It is suitable for accounts with higher resources. In many cases, these types of robots use a hedging mechanism.
Scalping EA is making a large number of trades. Each lasts for a relatively small time and generates a relatively small profit. These types of robots trade on smaller time-frames (1 to 15 minutes) and generate better results with trading instruments that have smaller spreads. In most cases, they tend to make trades when there is higher volatility in the market.
Arbitrage EA is a special type EA that take advantage of the differences in the prices between two brokers. It is characterized by very high trading volume and it is closing the positions at very small profits. Many brokers consider this trading as a cheat and do not accept it. Generally, the brokers that accept scalping would also accept this style.
News EA is opening positions before or after economic news releases. Everyday world-leading economies release the news data at the scheduled time which can be found at the economic calendar. The market always makes forecasts about these releases. The difference between the forecast and the actual release causes strong short term movement in the market. Thus, news EA is trading these movements.
Trend EA is based on a trend following strategy that can be also suitable for manual trading. It usually opens only one position for each instrument. Depending on the strategy the positions can be held for long or for a short time. It is suitable for all account sizes and all trading instruments.
Level Trading EA opens positions at certain price levels. It can be used for any trading instrument and usually yields better results when market conditions are ranging. It can be used for any account size and the duration of the trade can vary.
Neutral Networks EA is based on artificial intelligence and try to simulate human reasoning. It can learn and adapt to market conditions. The number of open positions and the duration of the trades can vary.
Multi-currency EA makes its trading decisions based on market conditions of multiple trading instruments. It chooses the instrument that is the most suitable for trading at the given moment. It can be used for any account size. The duration of open positions can vary. These experts can also use another trading strategy like trend trading, level trading or scalping.