Algorithmic Trading in MT5: EAs, Testing and Copy Trading

Algorithmic trading is using a computer program that follows written rules to analyse prices and place, manage or close trades, such as an Expert Advisor (EA) running in MetaTrader 5. A program applies its rules exactly, every time and at any hour, so its results come down to how good the rules are and how well you tested them.

This module is about how algorithms are built, tested and run. You learn what Expert Advisors are and how to evaluate one before it trades, how to backtest in the MT5 Strategy Tester and avoid overfitting, how to install and check custom indicators, when a virtual private server (VPS) earns its place, and how to choose a copy trading provider with a practical checklist. For a general definition of automated trading, see the KCM Trade article what is automated trading.

You should know the MT5 tools from Module 9, MT5 Power User and have written your own trading rules first, because an algorithm is only a set of rules a computer can follow.

How does algorithmic trading work?

Algorithmic trading works by turning trading rules into code: the program reads each new price, checks its entry and exit conditions, and sends, changes or closes orders when they are met. In MetaTrader 5 these programs are Expert Advisors, written in the MQL5 language and run on a chart.

A worked example: the rule is to buy EURUSD on the hourly chart when the 20-period moving average crosses above the 50-period, with a 30-pip stop, a 60-pip target and 1% risk. On a $5,000 account, 1% is $50, and $50 over 30 pips is $1.67 a pip, so the program rounds down to 0.16 lot ($1.60 a pip, a $48 risk). It repeats that sum on every signal, without skipping one.

What do you need to start algorithmic trading?

To start algorithmic trading you need written rules, a platform that runs code such as MetaTrader 5, historical data to test on, and a way to keep the program running, such as a VPS. You do not have to write code yourself: many traders start by testing an existing Expert Advisor.

• Rules: entry, exit, size and when not to trade, written so a computer can follow them. The writing trading rules lesson shows how.
• Platform: MetaTrader 5 includes MetaEditor for writing MQL5 code and the Strategy Tester for testing it. Custom indicators install the same way.
• Uptime: an Expert Advisor runs only while its terminal is open, so a forex VPS keeps it running when your computer is off.

How do you test an algorithmic trading strategy?

Test an algorithmic trading strategy in the MetaTrader 5 Strategy Tester: backtest it on years of history, check it on a later period it was not tuned on, then run it on a demo account before it trades live. Overfitting, tuning settings until the past looks perfect, is the main trap.

The tester's forward option holds back part of the period for that check. The MT5 Strategy Tester lesson walks through the settings, and the Expert Advisors lesson lists what to look for in a report before an EA trades your money.

What do traders ask about algorithmic trading?

Traders ask four things first about algorithmic trading: what algo trading is in simple terms, whether they need to code, whether it is profitable and how it differs from copy trading. The answers below each stand alone, with links to the lessons that cover them.

What is algo trading in simple terms?

Algo trading is short for algorithmic trading: a computer program follows fixed rules to open, manage and close trades. It does exactly what the rules say, at any hour, so the quality of the rules decides the results.

Do you need to know how to code for algorithmic trading?

No. You can run and test an existing Expert Advisor without writing code. Learning some MQL5 helps you change the rules yourself, and MetaEditor, built into MetaTrader 5, is where that code is written.

Is algorithmic trading profitable?

It can be, when the rules have a real edge that holds up in testing on data they were not tuned on. A program does not create an edge; it executes one consistently, so test results and drawdown matter more than any single month.

How is copy trading different from algorithmic trading?

In algorithmic trading your account follows a program's rules. In copy trading it follows another trader's positions, so the checks focus on that provider's record, drawdown and risk per trade.