With thousands of Metatrader EAs out there, it can be tough to cut through the noise and find one suitable for your trading style and risk tolerance. To help you in this search, I've compiled the statistics that many traders find to be very beneficial when analyzing any Metatrader EA.
Keep in mind that many of these backtesting statistics look solely at past performance. It's important to mention here that past performance is not indicative of future results.
With that said, the very first thing many traders look for, and this is rather intuitive, is: How well has this EA performed in the past? Obviously it's important to look for one that has shown profitable results, but stopping there could lead to some detrimental results.
These returns need to be adjusted for risk. If the Metatrader EA has shown some eye opening profits, but took on a ton of risk, these returns may not have been worth your while. To quantify profitability while also considering the risk taken on by the EA, many traders look at a statistic known as the “Profit Factor.”
Profit Factor:
This ratio essentially shows you how much you can expect to gain for each dollar put into the account, over how much you're at risk of losing. The profit factor is calculated as:
A Metatrader EA with a profit factor less than 1 is a historically poor performing EA. The returns that it has produced do not justify the amount of risk taken on. Take a look at the table below for statistics of three hypothetical Metatrader EAs.
As you can see from this table, EA 3 has a profit factor less than one, and can be immediately eliminated from your decision. If you look closely, EA 3 actually was profitable (Total Gain - Total Loss = $890), however this return does not justify the amount of risk (drawdown) taken on.
The risk measurement that many traders tend to focus on are the drawdowns that the Metatrader expert advisor has produced.
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