Friday, December 28, 2007

Pointbreak, Week 1, I like what I see !

This is the first review I will be writing for the Pointbreak expert advisor built for the metatrader 4 platform. As you know, I started to test this expert advisor a week ago as a personal request from the maker.

I am always skeptical with new expert advisors (anyone who has been into them for a while would!) but Pointbreak has been like a glimpse of light at the end of the tunnel.

Many expert advisor makers are always talking a lot about their expert's amazing profits, low draw downs, etc. They in fact talk the talk, but 99% of them do not walk the walk. As I have told you many times, they are based on unreal assumptions.

Pointbreak has surprised me, challenging some of my core beliefs. Pointbreak does not use a fixed stoploss, it is thus subject to massive drawdown. This, unlike other experts, is hedged with the fact that this expert uses amazing money management, being very conservative while it trades. This also shines against the fact that it is one of the most aggressive experts I have ever seen, it stays on the market all the time.

I have watched it's trading method along this week and I have found it to be rather splendid. It does a pyramid like scheme where it opens positions in several directions, following the trend. This does not mean that Pointbreak would "die" in a ranging market. Pointbreak will then use an alternative method to reduce draw down. Since the EUR/USD trends most of the time, balance is greatly shifted towards the trader.

Pointbreak could, in fact, turn into my personal favourite, definitely a keeper. We will see how it does next month. The statement can be seen here. Here is screen shot of the expert in action. You can always find the ea here.

Free Expert Advisor Portfolios, Weeks 4 and 3

Okay, it has now been a month for my first free expert advisor portfolio and three weeks for the second expert advisor portfolio.

In case you do not remember or haven't read my previous posts, the first portfolio is mainly centered around the GBP/USD pair while the second portfolio is distributed over a variety of currencies. The first portfolio contains some interesting short and long term experts such as phoenix and binario as well as the second one which has, for example, an ADXcross expert and an MAcross expert. (Please see previous posts for more information)

What can I say now ? This week has been completely devastating for both expert portfolios. Both of them have had massive draw downs, in the order of 40-50%. Hence, I will forward test them for another week, If I do not see substantial recovery I will eliminate them from my vps as they are well over my acceptable risk:reward ratio. This shows that the results shown on for the expert advisors are NOT accurate. All of this experts clearly show massive draw down in forward testing.

As always, you can get the statements here for the first and here for the second.

Tuesday, December 25, 2007

Forex Trading : Why a Trading System is NOT enough

When people star trading the foreign exchange market one of the first things they are told is that if they intend to be profitable they have to find a trading system. By a system, people usually mean a simple or complex set of predefined rules which determine market entry points, exit points, lot sizes and such.

Well, this is one of the first things that turns 90% of forex traders into losers. Most traders hear this and immediately start their search for the so called "system". They start to learn about indicators, they start to dream about holy grails, they are confused. They start to build systems from scratch, they start to try other people's systems but they are never told that a simple system just won't do it.

The main reason why a professional forex trader is much better at trading than any expert advisor (feel free to debate this if you know an ea that can make 100% profit each month consistently) is because humans have a magical thing called discretion. Sure, it is a double bladed weapon, reason why most forex traders loose most of their money, they lack a proper sense of discretion.

Let us say we have Joe, who is a forex trader who has just started live trading after 4 months of paper trading and we have Magic. Magic is an expert advisor who is fitted to a strategy Joe has developed for the past six months. Magic trades exactly as the strategy is intended, never decides not to take a trade based on fear, greed, fundamentals or other factors. The ea just executes the strategy.

Joe on the other hand does not understand very well why the market moves, why that candlestick has a large shadow, why prices fluctuate the way they do. Joe is what some people would call a purely technical trader. Joe knows his strategy works for him as he used it for four months in paper trading, getting him a modest 30% profit.

Joe now starts trading in a live account. Magic does the same thing. Joe starts well but quickly looses his nerves when his open draw down starts to become larger with a bad trade. Stick to the system, he thinks. But then he remembers the two weeks of hard work it took to get those five hundred dollars he is now loosing, Joe exits the trade prematurely, before he looses a month's work.

The market then shifts completely after moving just another 10 pips against Joe's exit position, then it completely retraces back and gives Magic a 50 pip profit. Magic didn't know anything about fundamentals, it just did what it was programmed to do. After a while, Joe and Magic enter another positions. The move turns out to be a market whipsaw and both Joe and Magic hit their stoploss.

As you can see from our friends Joe and Magic. Joe, being a human with a very advanced brain, was behaving merely as a bad expert advisor. I mean, at least Magic was able to execute all of it's trades regardless of anything else, according to the strategy. Obviously Magic took a lot of unnecessary loses as it doesn't now any better (for example Magic didn't know the interest rates were about to change).

It is a shame that many traders behave this way. Like poorly programmed expert advisors. The reason why humans can outperform expert advisors greatly is because we can achieve proper discretion. A human can learn the psychological and fundamental reasons that drive prices, interpret price patterns, know when it is wise NOT to follow a strategy based on some other conditions that predict something else. But a human must learn this discretion from observation, trial and error.

This is why purely technical traders would at best perform exactly as an ea that employed their strategy, while other traders that use all the information available can perform better than any ea by reading the information available.

The key to trading is understanding the when, why and how of the market. Why does the price move ? When does it move ? and how does it move ? To understand this, one needs to involve things different than technical indicators and of course, one must learn to use human discretion in a positive manner. Discretion must work with you, not against you as it does for 90% of forex retail traders.

Sunday, December 23, 2007

New Forex Expert Advisor for Review, PointBreak5

Last week I was very kindly approached by the PointBreak expert advisor creator who asked me if I could forward test his product on my virtual private server and write a review about it.

As I am always looking for a new profitable expert advisor I gladly agreed to test his PointBreak5 expert advisor. I am doing this with no monetary compensation at all, neither directly or from affiliate sales. This assures that my results will be totally unbiased.

At first glance, PointBreak seems to fulfill the requirements I would assign to a profitable expert advisor. It's goals also seem to be pretty doable with a long term profit target in sight. I have started to forward test this ea as of today, using the most conservative setting as outlined in the expert advisor's demo documentation. I am using an Alpari 25,000 demo account with 1:100 leverage.

This expert advisor will be commented based on it's weekly results, as my free expert advisor portfolios. Let us wait then, the surprises this ea may have for us.

Friday, December 21, 2007

Free Expert Advisor Portfolio 2, Week 2, Still Profitable

It has been a bumpy week for the second expert advisor portfolio I am testing. The experts have suffered some losses and some wins, leaving their track record close to the initial starting capital.

As you can see on the statement here, the expert advisor portfolio has made it close to 10200, which is a modest 2% profit. This also in conjunction with a maximum draw down close to 12% which is a decent amount for a portfolio of this sort.

The most active expert advisor has been Ichimoku5, with fxovereasy being the most inactive and the UniversalMAcross and ADXCross advisors hedging Ichimoku5 for a good percentage of the time. I have also noticed that whenever the market is very rangy the expert advisors hedge each other a lot while they don't in trending markets (in which they both run profitable positions).

It should be interesting to see how both portfolios evolve with time. Up until now, both of them are profitable.

Thursday, December 20, 2007

Why Technical Indicators Do NOT Work

For some of the people reading this post, the title must be a shock. Technical indicators do not work ? But almost all trading systems are based on indicators ? right ? Well... Yes and no. Many trading systems are based on indicators and yes, some of these systems may well be giving profit, but, is it truly because of the indicators ?

What does an indicator tell you ? Technical indicators are just graphical aids which are simply generated through pretty simple (or rather complicate) arithmetic operations on the information you already know. Yes, simply the information that is already there, in front of you, in every candlestick.

I mean, I could make an indicator that took the closing price, added it to the opening price, divided it by 200, added 20 and then (to make it more complicated !) divide by 10% of the previous bar. This indicator, which I will call Magic, would give us a fancy line, we could change some numbers, it would give as another line. We could observe what Magic does, and we could start generating signals. Like, when Magic crosses blabla then we buy or sell or whatever.

But what I am telling you now is that there is only ONE thing that matters inside a chart. THE PRICE. Nothing else, nothing more. The price, the way it moves, the way it reaches highs and lows, that is all there is to now about the market. Indicators, they obviously lag, because they only reflect the price. And hey, price cannot predict itself. That makes sense, right ?

So next time you plot your fancy MACD or your 20 different moving averages. Think about the chart, the patterns appearing inside it, how prices open and close, where ? why ?. Think about the logic behind the market. No fancy indicator will tell you anything the price does not.

If you want to earn money in forex and understand the market. Then, do that. Understand the market through the only information it gives you : prices !

Forex Day Trading : Why you should not do it

When I started trading forex, one of the first things I was introduced to was day trading. As you know, day trading is the art of opening up positions that last for less than a day and end up with a profit. The reason I write this article is to talk to you about some of the myths, misconceptions and truths surrounding day trading and finally, why day trading is not a positive way to start for a forex newbie.

First I would like to address some of the myths that revolve around day trading.

Day trading is not profitable because intraday market movements are random and chaotic - This is an absolute myth. It evolved because intraday movements seem random and chaotic, which does not mean they are. The thing is that movements that occur within smaller timeframes seem more volatile (hence chaotic) than movements that occur in larger timeframes which seem to adapt better to fundamental analysis. But, you can always see in smaller timeframes (60 min vs 1 day) what you see in bigger ones, you see trends, retracements, etc.

It is impossible for your wins to overcome your losses in day trading - This is absolutely false, it is very possible to win most of the time in day trading. Obviously this depends on your actual strategy and the way you face the market and control yourself.

Now I will tell you some of the truths behind day trading

Day trading is the strategy that benefits brokers the most - This is true and it is one of the reasons why it is one of the most taught strategies (brokers sponsor most classes, right ?). The main reason is that people that trade intraday open and close many trades, which benefits brokers by the spread. The other reason is that day traders often use a tight stoploss criteria which makes them vulnerable to stoploss hunting by the brokers.

Day trading involves a higher risk of loss - This is actually true as the market tends to oscillate more in smaller time frames. This means that it is easier for the market to reach your stoploss also means that you need to risk more lots or increase your leverage to get the profit you would get in higher time frames.

Day trading is harder - It is actually much harder. It is not very hard to see trends, retracements and price patterns on the daily chart but this seems much more obscure on the lower time frames. The reason why many traders tend to day trade is purely emotional. Trading in larger time frames involves a much larger probability trade but with a possibly larger open draw down risk due to temporary market movements.

As you can see from the arguments I just exposed, it is quiet obvious that although day trading may be a profitable strategy for very experienced traders it is NOT a good starting point for the forex newbie. This does not mean that you ignore smaller time frames remember that all charts show you the same data in a different arrangement. Smaller time frames are still absolutely necessary to find entry and exit points for trades that would involve a larger time frame.

For example, if you see that there is a downtrend in GBP/USD in the daily chart you do not enter based on this chart. You go to the one hour or four hours chart and wait for a retracement there to enter the trade.

In fact, almost every experienced trader will agree with me in that middle term trading is the best way to make money for the forex newbie. It is much easier and the probabilities are higher. The only problem is that newbies have a huge problem with market oscillations as they don't fully understand them. They hate having a wider stoploss and waiting four days or two weeks for a trade to finish.

If you are interested in middle term trading you should practice in a demo account to get used and see what normal market oscillations are.

Please comment if you feel this post missed something (or if you liked it !) !

Wednesday, December 19, 2007

Free Expert Advisor Portfolio 1, Week 3, BACK ON TRACK !

Our free expert advisor portfolio had had a massive draw down throughout the past week. The account had plummeted almost 41%, leaving us with little hope of recovery.

However, this week was amazing for the expert advisor portfolio number one. The portfolio recovered all of its losses and began picking up profits again. The portfolio hit the 12,000 mark which is a 20% profit margin.

This shows you how relative the performance of an ea can be and how deep your draw downs can get. What I like about the portfolio is that you are protected from large open draw downs by each expert advisor's preset stoploss. This at least protects us in some way from margin calls and such.

The trades have been done mainly by the Binario and Artificial Intelligence expert advisors, with artificial intelligence contributing a large percent of the winning trades and Binario hedging it occasionally which has proven to reduce exposure.

As always you can check the account statement here.

I hope I we can get a profitable month from this portfolio !

Saturday, December 15, 2007

Trading Forex with Fibonacci Lines, Retracement and Profit levels

I have always been a fan of simple trading strategies that just work. This, I believe, is the case of trading using the Fibonacci series (which I have used for manual trading for about 2 months). As you may know, the fibonacci sequence is a progression of numbers where each number is the sum of it and the one before, hence 1,2,3,5,8,13, etc. The division between a number of the fibonacci sequence and the number just before approaches the golden ratio as we approach infinity. This sequence and, by consequence, the golden ratio, are found widely throughout nature and... Of course, in the forex and stock market.

Trading the forex market with fibonacci numbers is very simple, although it does require certain amount of "perception" to visualize the trends, breakouts, retracements, etc. I found this very good video on youtube that will explain trading with fibonacci levels in a much simpler way. The mechanism is as straight forward in the video as in metatrader 4.

Interbankfx, the IBFX-PRS Trading Tool, a Review

Since the beginning of this blog I have somewhat given priority to automated trading systems (such as expert advisors) over of manual trading systems. Today I will review for you one of the best trading tools I have found to aid my manual trading. This tools is the IBFX-PRS or IBFX-GPS which stands for interbankfx Graphical Pattern Scanner or Pattern Recognition Scanner.
The IBFX-PRS program does just what you would expect. It tries to recognize common pattern formations along the different currency pairs and different timelines. It find patterns such as head and shoulders, wedges, triangles, etc. Then in tells you a bunch of very useful information about these patterns. As you can see on the next image, the IBFX-PRS shows you the timeframe, trend, type, length and currency pair of every pattern that has formed completely or is awaiting breakout. The system also tells you how much it "trusts" each pattern formation by a series of indicators such as quality, Initial trend, uniformity and clarity.
The quality indicator, denotes how much the pattern aproximates de ideal pattern formation while the Initial trend indicator denotes de clearness of the former trend and the clarity and uniformity indicators improve as noise diminishes inside the pattern. All this tools are very important when considering which patterns to take and which ones not to take into account.

You can also view graphs showing you each pattern with the support and resistance lines so that you may plan your trading strategy accordingly. This is also great to give you confidence on certain support or resistance levels you may already be taking into account.
Personally I use the patterns that have not completed formation and evaluate their possibility of success by looking at the quality indicators given by the program. Then I set my stoploss and trailing stops according to the breakout levels I expect given the pattern caught by the program. I never use the patterns from lower timeframes, (I usually only take into account higher, 60min up until daily timeframes) as patterns emerging from these timeframes may in fact contain a lot of noise which hinders my ability to profit.
I have been using this tool for about two weeks and it is absolutely wonderful. I made almost 300 pips last week based on this system as well as my fundamental analysis of the four main currency pairs. It is superb to finally have a program which can take away all the work necessary to identify all this very profitable price patterns (this does not mean that you don't have to do anything, not all the patterns are profitable, it takes discretion and experience to know this). I absolutely recommend this tools which is available to all interbankfx customers (demo or live) with the demo version having some limitations.

Friday, December 14, 2007

How to setup/install an expert advisor in MT4

Many people who are new to automated forex trading are puzzled by installation issues regarding the expert advisors for the metatrader platform. This easy to follow graphical guide will show you the simple steps necessary to setup an expert advisor for the metatrader 4 platform.
1. Download your expert advisor file and indicators (if the ea needs any custom ones). These are either ex4 or mq4 format files, depending on if they are a source or a binary (precompiled file). There is no difference between these two classes as far as installation and usage goes.
2. Copy your expert advisor files and indicator files to the corresponding directories. As it is shown in the following picture. Keep in mind that this directories are located under your metatrader installation path and that metatrader should not be running at this point.
3. You should now open up metatrader. Open up a chart with the timefrime and currency pair in which you want to run the advisor. Now simply drag and drop the expert advisor from the navigator window as shown in the next picture.
4. Now you need to check the live trading dialogue and change any settings you would like to modify on the expert advisor, as it shown. Also remember to click on the expert advisor button on the upper section of the program to allow trading.

5. Now you should check that the expert is running. A happy face should show up in the top right corner of the chart you chose. If you see an x or a happy face it means you neglected to perform the last step (or didn't perform it correctly).
Happy trading !

Free Expert Advisor Portfolio 2, week 1, so far, so good...

The second expert advisor portfolio has had a good and bad week. As I commented on the other expert advisor's week report, the FOMC interest rate decision made a dramatic hit, owing to the discrepancy between market expectations and the rate decision.

However the expert advisor portfolio did catch the other news events related to consumer sentiment, which did correspond to general market expectations. Up until now, the most active expert advisor on this portfolio has been the Ichimoku5 which has opened and closed trades daily while the ADXcross expert has done no trades and the universal moving average expert advisor has done one, almost not profitable trade.

As you can see here, the portfolio is barely profitable until now, after a large draw down owing to the events I just explained. I hope this portfolio improves as I do think the experts have potential. Well, we will see next week.

Wednesday, December 12, 2007

Free Expert Advisor Portfolio 1 , Week 2, OUCH !

After two weeks of trading things have turned a little sour. All expert advisors showed a classic behavior yesterday when the news release (interest rates) contradicted general market expectations.

As you know, based on the efficient market hypothesis, prices reflect what the majority of the market believes before a news release. Therefore, prices aligned for the effect a 50 point cut in interest rates (US) would have had, that is, an adverse effect on the US dollar. The expert advisors did the same thing, they all positioned themselves against the dollar expecting what everyone else did.

Then, everything turned black. As the news release announced a dovish 25 point cut, the dollar rallied against other pairs, such as the GBP which is the main pair acting in our first expert advisor portfolio. This resulted in massive losses, almost a 20% drawdown. Now everything is better though, the expert advisors have since recovered most of the losses and are almost up to the original 10,000. As always, you can check the statement here. I hope there is a better week ahead of us !

Tuesday, December 11, 2007

Forex Expert Advisor - FAQ

There are many people new to the forex market and many more new to the world of automated trading. For this reason, I have put together this general frequently asked questions section. To help anyone who needs to gain a deeper understanding of this subject.

What is a forex expert advisor ?

An expert advisor is basically a program written in the metaquotes language that trades automatically using the metatrader platform.

What is an expert advisor's objective ?

The objective of an ea (expert advisor) is to take trading decisions away from the human trader. Alternatively expert advisors can be used to just do money management, loss control or other similar jobs which can be automatized in forex trading.

What are an expert's advantages and disadvantages over manual trading ?

An expert advisor has the advantage of being emotionless. Expert advisors feel no fear or greed and operate purely based on mathematical logic. They also have the advantage of letting a person trade without the stress of being constantly on top of the market. A person does not have to worry about monitoring indicators and charts many times a day. An expert advisor can also monitor a wide range of indicators given it's computational basis. Something which would be extremely hard for a person.

An expert advisor has many disadvantages though. The main disadvantage is that an expert advisor has a limited logic. It only has a certain amount of rules incorporated into it, making it vulnerable to market changes, while humans can adapt relatively easily. They are also limited by the amount of data they can access. An ea has no knowledge of fundamentals or news. This makes his vision of the market somehow limited as it cannot anticipate moves based on economical factors.

Is trading with a forex expert advisor profitable ?

This one is probably the biggest frequently asked question. Well, to be completely honest, the technology is rather new. They are not any commercial expert advisors (to the best of my knowledge) that have a track record which is long enough to support long term profit making. An even though we may be lacking direct evidence I am inclined to suggest that expert advisor trading can be profitable, probably to a lesser extent than a professional forex trader. I strongly believe though, that the perfect setup for expert advisors is in combination with other experts in a well made portfolio (like the ones being tested on this website).

What characteristics should I look for in a successful ea ?

Successful expert advisors are a very hard thing to find. This is mainly because the market is plagued with people that sell expert advisors that simply do not work. For me, inferring from my experience, a profitable ea has at least the following characteristics.

- It has great money management which obviously includes a stoploss
- It has given positive results at least in 2 months of forward testing
- Does not produce more than 5-10% monthly profit
- It has positive reviews from unbiased people (this means non affiliate, non friends with creator,etc)

These are characteristics which I consider necessary but not sufficient. An expert advisor must have the above to be successful but a loosing ea can have them and still be a bad ea. This at least, discards the experts that lack them.

I am new to the forex market. Is this a way for me to trade ?

Please be very very careful. Although expert advisor trading is promoted as a way for the forex newbie to make money, I strongly recommend caution. Expert advisor trading is a very competitive market with many people out there waiting to get the forex newbie's money with the promess of financial success. Sure, a newbie can be successful with the right expert and the right market conditions but again, you need the knowledge and understanding of the forex market to be successful. To understand which experts to buy and to understand when they are unprofitable and should not be trading. I advice you read a lot of reviews and investigate experts you want to buy very deeply.

Are free expert advisors a waste of time ?

Many people think that if an ea is not commercial it is doomed simply by virtue of the market getting efficient to the experts modus operandi. This is a plausible very hard to test hypothesis because it would require a profitable expert advisor which becomes unprofitable by simple virtue of it being used. This is very unlikely. Most likely, free experts become unprofitable because of rigidity. Their logic is to stiff to adapt to ever changing market conditions. My solution would be to use many, and their rigid logics would become plastic with combination. This is the idea behind combining them in a portfolio.

This I think, covers many of the general questions people have about expert advisor trading. This will be completed in the near future with another section which will treat logistic questions (such as broker, installation, etc).

Monday, December 10, 2007

The New Doubleplay v.4.0 Expert Advisor

I have just received my copy of the new version of the Doubleplay forex expert advisor.

The first thing I noticed when I got it was the inclusion of a new feature which allows to hide your stoploss and take profit levels from your broker. Your broker is fooled by the stoploss and take profit levels sent by the order but the real ones are executed by the expert advisor's logic (you set this levels to your taste as balance percentage!). This gives you the chance to eliminate the hunting opportunity for your broker !

The next thing I noticed was the wider stoploss. This, as weird as it may sound, comes without an increased risk as the ea adjusts lot sizes based on your balance to risk just the exact same amount of equity. The wider stoploss also allows you to get higher returns by allowing more movement in the market (the adjust in lot sizes means we do not increase drawdown!).

Another great new feature is the automatic managment of trades during Fridays and weekends. Previously, it required some intervention to close trades on Fridays and shutdown the ea (then turning it back on at the beginning of the next week). Now the ea controls this in an automatic fashion. A truly set and forget approach.

Although I have yet to confirm that this expert advisor is indeed profitable with the new settings, I am very exited with the added features and hope that it will be just as or even much more profitable than it's earlier version.

If you want, take a look at my review for the previous version of Doubleplay here.

New Expert Advisor Portfolio and Statements

I have decided to start another expert advisor portfolio test using the following four expert advisors (which seem like good choices).

ADXCROSSAutotrade - This expert advisor is simply an ADX indicator based ea. This means that it is supposed to be able to predict reversals and corrections. (EUR/USD 15min)

Ichimoku5 - This expert was developed by the Japanese and is mainly focused on trend following (JPY/USD 1 Day)

Moneymaker v2 - This ea is different from the one in my reviews (which I purchased from ebay) this one is based on the GBP/USD pair and has a stoploss (also different logic). It seems that this ea follows trends but it also seems capable of managing a little bit of range.

UniversalMAcrossEA - This ea is based on simple moving average crossings, although it has some good money management features. (USD/CHF 1 hour)

I just started it today on a 10,000 demo account. Let's hope that it will perfom in a profitable manner. As usual, I will be posting the Statements in a week. I have also updated the results from my first expert advisor portfolio. As I predicted, the portfolio gave back a lot of it's profit but it is getting ground back though ! Check the statement here . I have also uploaded all the experts to my ftp server here in case you want to download them. Last but not least, a small peak of the action happening (artificial intelligence ea, on the first portfolio)

Suggest Your Best Expert Advisor

I have been thinking about designing at least three free expert advisor portfolios. The objective is to buttress my idea that several free expert advisors can remain profitable in a wide range of market conditions. Although I know several free expert advisors, my knowledge is rather limited.

Therefore I appeal to my readers. If you happen to know any free forex expert advisors which you think are profitable, please do suggest them so that I can include them inside one of my portfolios. The experts must follow these guidelines :

- Must be completely free (source code available)
- Must have a stop loss
- Must be a trending, ranging or breakout expert advisor
- Must have a magic number (so that it can trade with other experts)

Please suggest any experts that meet this criteria and you feel could provide a very good addition to my free expert advisor portfolios. Just leave a comment !

Sunday, December 9, 2007

The Perfect Expert Advisor

Many of us have spent the past months or years looking for some decent profitable expert advisors. We just ask for a perfect expert advisor. An expert with a small drawdown, a modest profit and most important a constant output. We want an ea that is consistent with today's as well as tomorrow's market conditions.

The perfect ea, as many of you know, is a multi billion per second calculation machine with the processing power of millions of modern computers, it can take fundamentals, news, everything into account when making a trading decision. The perfect ea is, in fact, a simple human brain :). This neural network type ea can learn from the market and in fact adapt almost miracously to ever changing market condition. The question is, can we mimic that in metatrader 4 ?

I think the answer is simple. One ea alone, cannot do it. Even if we assume that the role of fundamentals and news is taken intro price action efficiently based on the efficient market hypothesis it is still not possible for a single ea to work every possible market condition a human brain could, in fact, interact with. Ergo, I think that the only way in which you could profit from expert advisor trading would be from building a portfolio.

The key to portfolio theory is simple. Do not put all your eggs in one basket. By having a variety of investment tools you minimize risk, because the likehood of all experts not doing their job at exactly the same time is relatively small, given the fact that they cover a wide variety of market conditions.

This, I think, is one of the aspects that people that look for expert advisors are missing. The key for an ea to be part of a portfolio is not for it to do perfectly well all the time. In fact, it only has to do extremely well in a narrow set of market conditions. Then we use different experts to cover the other areas and hopefully, we end up with a combination that is profitable all the time, as the likehood of all instrument being unprofitable is minimal.

I hope this will be illustrated by the free expert advisor portfolios I have started to test in my vps. This will show that non of this experts are profitable by themselves but in combination, remain profitable almost all the time. Wish me luck in this endeavour !

Saturday, December 8, 2007

Forex Expert Advisor RED FLAGS

Given the extraordinary number of forex expert advisors available online, it is very easy for someone to buy something that does not work.

Let's face it. We all want to believe the things that the creators of most expert advisors tell us. We are usually attracted by the simple idea of an ea, therefore vulnerable to the trap. We are dazzled by their back and forward tests, by their profits, their small drawdowns, simply, by the promess of success.

The objective of this small article is to tell you a few things that should instantaneously raise a RED FLAG inside your brains when buying an expert advisor.

1. The Holy Grail. This one is the biggest red flag. If the webpage or author states that the ea has 100% winning trades with absolutely no losses. Come on, I can show you scalpers that perform with no losses for 4 months in a row, then give everything back (the whole account) to the market in just one or two trades. Don't be fooled by any backtests or forward tests. If it is a holy grail... You ain't buying it !

2. The Instant Millionaire.Profits are too high. You see backtesting and forward testing that shows that the ea has a 20% monthly profit. Well, it is there in FORWARD TESTING. That does not mean a thing unless you have at least a year or two of testing. An ea can perform amazingly well giving the right market conditions (this may change in the next few months). 20% profit or more with less than a year of forward testing... Safer to wait a year ! You ain't buying it !

3. The Trainwreck. No Stoploss. An ea seems to have wonderful records but has no stoploss. But hey, it has this witty mechanism to exit the market or this 99.9% profitable trade record. It does not matter. It is only a matter of time before the market kills that witty mechanism or gives you that 0.1% of loosing trades towards your margin call. Trust me it will happen, sooner or later, it will. Sorry, but your better off in a train with brakes. You ain't buying it !

4. The Alien. You find this amazing expert advisor, everything seems absolutely correct. Tests, stoploss, all the things that God knows an expert advisor must have. But hey, where are the humans ? Nobody has ever heard of this ea. In reality, there are bad people out there and you cannot risk your money to someone that is faking results. If there are absolutely no independentun biased reviews of the ea. Sorry, you prefer a human opinion ! You ain't buying it !

Yes, I know, this three little red flags will be raised for more than half of all the expert advisors available on the market (90% would be my best guess!). But hey, the will, almost for sure, keep you safe from the dishonest people out there trying to snatch your money for that money eating machine they call an expert advisor. Remember, if it is too good to be true...

Friday, December 7, 2007

Free Expert Advisor Portfolio, week 1, WOW

As I explained in my last post, I have started to test an expert advisor portfolio based on freely available expert advisors. The results have been astounding this far. Yes, of course, only a few days have passed since the beginning of the forward test but I had never seen results this impressive. It is although very likely that most profits will be given back to the market in the next few days but well. I hope it just maintains itself at a profitable level altogether.

How well is well ? The expert advisors turned 10,000 into almost 12,000 in just a few days. If you are curious check it yourself (login as fxreviews). Also remember that it is far too early to draw any conclusions ! Results may seem tempting but this may be the result of sporadic market conditions. At least 2 months are needed to even think about the possibility of live trading.

The expert advisors seem to be performing very good as they seem to complement each other in different market aspects but this remains to be seen.

I really hope the portfolio keeps up with this profit level ! I would love to trade a freely available expert advisor portfolio.

Wednesday, December 5, 2007

New Expert Advisor Portfolio

Today I realized that maybe it is not absolutely necessary to spend a lot of money to get some decent expert advisors. Based on my experience with myfxovereasy (which I reviewed earlier last week) I can say that there must be some promising free expert advisors out there.

I have always been aware of the free ea collection available at but I just saw the recently updated tests on the ea's earlier this week. With these expert advisors optimized and the "perfect" conditions for their operation given I found no reason not to test them myself in a demo account and see what happens.

So I started a test of a complete free expert advisor portfolio. This portfolio has the following experts :

Framework : Which uses commodity channel indexes and strikes me as a medium term expert advisor.

Artificial Intelligence : Which is a neural networkish expert advisor.

Phoenix : Which is a short term sort of scalping expert advisor.

Binario : Wich is a long term expert advisor.

Myfxovereasy : Which is a trend following medium term expert advisor.

With all this expert advisors covering almost all types of market conditions (hopefully!) and reporting more than 10% yearly profit each (some reporting even a 15% monthly profit) I hope to have convincing results that suggest that this is the perfect expert advisor portfolio. Profitable and free !

Tuesday, December 4, 2007

Forex Signal Trading vs Forex Expert Advisors

When you want to totally or partially automate your forex trading decisions you can use either a forex expert advisors or a forex signal trading service.

A forex signal trading service is just a company or individual who provides buy/sell signals to you in exchange for a monthly fee or totally free in some cases. Signal services have some advantages and some disadvantages against expert advisors.

The main advantage and disadvantage enjoyed by forex signal services is that they are mainly managed by humans. Humans take the decisions relative to the trade and then give you the go on the buy or sell orders. This has the advantage that a person has the faculty to consider factors and ea cannot, such as fundamental analysis and other psychological factors. This may improve performance over a single expert advisor. The disadvantage however is that a person or team can be potentially biased by their own emotions. Hence, a forex signal trading service will always be a more "emotional" way of taking decisions than an expert advisor.

The other main disadvantage of a forex signal service is that the vast majority of them require your manual intervention. Meaning that it is necessary for you to execute the trades as instructed by your signal service. This step is completely bypassed when using an expert advisor as it's decisions are automatically controlled by the software.

Another disadvantage of a signal service is that they generally require a monthly fee, while most expert advisors are purchased for life. This is justified by the fact that the signal service effectively adapts to new market conditions as they happen while an ea is a more rigid structure which must be adapted by construction to a very wide repertoire of market conditions. Ergo, the signal service is more "plastic" than an ea so it is much more likely for a signal service to remain profitable against an ea in the case of a dramatic market event.

In my personal opinion, a forex signal service is just too complicated for automated forex trading. I tried to use several services (which I may post reviews for in the near future) and ended up completely disappointed by the fact that I needed to stress myself over the fact that I had to execute trades even if they came in at 3 a.m. I enjoy expert advisors a lot more as their focus is a much more "set and forget" strategy.

Best Forex Books to Learn How to Trade

When I first started to look for books on forex trading I was basically overwhelmed by the massive amount of information available online. Tons and tons of books on forex. I had no clue about where to look or what would be a particularly good book for me. So, I started with the basics.

The first book I ever bought regarding the subject was a very very basic book which I recommend to anyone who is new to forex trading. It was "Technical analysis for dummies" and even though the book is extremely basic, it features many of the things a forex newbie MUST now and most of the other books take for granted. This book opens up the door to the understanding of technical trading, giving you the option to apply the acquired knowledge directly or divert to more sophisticated books on the matter. I provide you know with a link in case you are interested in the book

The next books I purchased are the basis of my forex knowledge and provide both a psychological and a practical approach towards the forex market. They make you realize that your worst enemy when trading is yourself. This books are "Mastering the trade" and "Day trading the currency market". The first book is written by John F. Carter in a very easy and engaging way to read. You practically enjoy reading this great book while learning a great deal about the forex market. You get insight along John's personal trading system and decision making system. You also enjoy a grasp of his money management techniques and other loss control strategies which should help you become a profitable forex trader.

And last but not least is Kathy Lien's "Day trading the currency market". I respect Kathy Lien a lot as she is a really experienced forex trader and her particularly good insight in has given me a pretty good number of profitable trades. This book has a lot of information on the forex market, from the history to fundamental and technical trading strategies. The book is much much more boring to read than the last two but provides some necessary information you will be glad to have once you start you live trading carrier.

Thursday, November 29, 2007

Myfxovereasy, free expert advisor. A Review

Many of you may have tried to find a good free expert advisor along your quest for the perfect set. There are a lot of forums and websites that contain free expert advisors which you can download, use and test at your own discretion.

I have been back and forward testing a lot of this eas for the past two months, amongst the ones that I have tested, one has impressed me the most. This expert advisor is myfxovereasy, which I got here.

This expert advisor has a unique quality which impressed me from the first moment I tested it. It withstood almost five years of backtesting on 90% modelling quality. At the end, it showed profit and I could recognize the pattern a good expert advisor leaves on it's charts. The expert advisor does experience some large draw downs, almost 30% being the maximum but I liked the fact that it has a fixed stoploss which prevents a margin call, making this ea avoid this fundamental flaw.

I mean, this ea does not come without risk, it works on a 15 minute time frame (it trades a lot!), although it did well on forward testing too with a one hour time frame. I am inclined to say that for those people out there who won't suffer a heart attack because of profit/loss fluctuations this ea will probably offer an average 7-10% return per month over five years. In back testing it stood the test of significantly different market conditions and on forward testing it is imitating this behavior although I would need five years of forward testing to asses the real power of this ea.

Although I am not convinced enough to endorse the use of this ea as I would with an ea that had showed less draw down I would say that it would be great for the long term investor to have this ea investing a small amount of money (0.1 lots) each trade. This ea, is probably a very good candidate for our long investments. And hey, it is free, isn't it ?

Tuesday, November 27, 2007

Forex Expert Advisors. Do they work ?

The world wide web is now overflowing with different expert advisors. I do a biweekly survey in which I look for new expert advisors on google and ebay, often finding a dozen new expert advisors for each time I do my research.

Many of them do the same thing. They are usually targeted towards forex newbies who clearly don't have a substantial understanding of the way the market works and the way money is made inside forex . The expert advisors always promess to be a "set and forget" way of entering the forex market with massive profit.

When I first learned about expert advisors, I used to think they were a pretty straight thing. I mean, it makes sense. Mr. A is a successful forex trader and he puts his strategy in expert advisor M. I use M, hence, I'm using Mr.A's strategy, making me a successful trader by logic. Well... Not quite.

There are a pair of things that differentiate me using M from Mr.A. First Mr.A has probably been in the forex market for a while, he has something very important. Discretion. He knows when to execute his strategy, when to hold, when to tweak it, he knows and understands the underlying information that influences currencies. He could, in fact, put this into the ea to some extent but there is something he cannot put. He cannot program how he would react in exactly every market condition, how would he react to war, to news, to elections, I mean, he cannot put his brain inside an ea. So M, is an approximation to Mr.A's strategy, not a duplicate.

So do expert advisors work? To what extent? Which claims are true, which ones are not? First things first. When you buy an expert advisor, put some logic into it. An expert advisor that made something like 100% every month would make someone the richest person in the planet in 10 years starting with a hundred dollar investment. If it is too good to be true, it probably is. Every test can be faked, never believe more than 10% average profit per month. Simple. Also, search for reviews online, your best source of information is other people who have used it. No reviews, you don't buy it, simple.

When you do get an expert advisor which is not a scam and seems to deliver to other people what you expect. Do not despair while you learn how an ea works. I mean, at first, you would expect a 5% profit ea to deliver that every month. They clearly do not work like that. That 5% is just the average monthly profit. An ea is a very poorly constant entity, it will probably oscillate dramatically, making 10% one month, 50% the next, then a 20% draw down. I mean, they do this very badly.

So to protect yourself. Withdraw a percentage of your profit. Always and never, never ever put money into a loosing account. Those my friends are the rules of thumb.

Last but not least... Remember. The forex market is NOT a place to get rich quickly. It is a place to grow richness by constant learning and studying of the market. It is not a place for easy money (like if they were any!). Expert advisors are a tool of the trade, they can make you wealthy in the long run not this month or the next.

EUR/JPY MoneyMaker Expert Advisor Review

NOTE : The review written here is for an expert advisor different from the one I talk about in my free expert advisor portfolio. As a coincidence both experts have the same name.

Three months ago, I purchased what seemed to be an interesting ea called "MoneyMaker" (aren't they all!) which traded the EUR/JPY pair in what seemed to be a trending style.

The ea claimed amazing profits, in the order of several times (about 500%) your initial investment. It came with a money back, no questions asked guarantee, so I figured out there would be no harm in giving it a try.

Even from the beginning I started to dislike this expert advisor. It has no stoploss. You heard me. No stoploss at all. The maker claims that the ea "quickly" gets out of loosing trades. Which in real life, turned out to be a bit "not quick enough" for my taste.

I forward and backtested this ea. In backtesting, the ea showed periods of massive winning, taking profit on one of aproximately every 10 trades, with about 3 trades a year making the difference between loosing money and making a profit. But It wasn't as pretty as I make it sound, the ea in fact made loses throughout some years, some being quiet deep. The ea though, managed to not get a margin call in 4 years of backtesting (loses occurred though).

In forward testing, this ea freaked me out. I hate, I mean really really hate, looking at an account with an open order loosing money, no stoploss, no nothing. The ea (in a 500 dollar demo account) lost quiet a lot of money and made about 2 winning trades which were not the BIG winning trades but trades that barely equaled some loses. In reality you face a very big open draw down with this ea. With no certainty of it being profitable at all in the future.

What I liked a lot about this ea, was it's pretty simple money management tool. Although it is very misleading in telling you that that is the amount of money you risk. Because of the lack of a stoploss, the draw down you can experience is not known. And NOT determined solely by the amount of money you spend on buying or selling the EUR/JPY.

The good thing is that the creator is a totally honest business man (in my humble opinion). He refunded me the money, no questions asked, as soon as I told him I wasn't pleased with the ea's trading style. If your into this kind of scary trading style, give it a try in a demo account, see how it feels. If you don't like it, well ask for your money back. In my experience the creator will live up to your expectations.

For me, I do NOT recommend this ea. The trading style is too risky (subject to massive draw down because it lacks a stoploss) to be part of our ea portfolio. This type of ea, suits an aggressive trading style which I am not keen on.

Sunday, November 25, 2007

The Fx-bandit Expert Advisor, Review

I have been using the Fx-bandit expert advisor demo for about three weeks. The experience has been good (partially) and it has also let me realize the really bad things (in my opinion) about this expert advisor.

For the good side, fx-bandit has delivered, up until now, the profit margin it is supposed to give every month. Although one month is a very small period of time to actually test any ea, fx-bandit does some amazing trades and actually held profitable ones through the non-farm payrolls earlier this month (which is something most expert advisors do not do).

For the completely bad aspects, fx-bandit's stops are activated after a certain amount of time defined by a variable in the ea's configuration. So, if you place a trade today, the stoploss would not be effective until the time (in days!) given by this variable. This is a recipe for DISASTER ! It is not a question of if there will ever be a set of market conditions in which you will have a margin call before the stoploss becomes effective. It is a question of WHEN !

One of my core beliefs is that an expert advisor should be shielded from this kind of flaws. An ea should always have a stoploss which is effective from the time we enter the trade. It is only a question of time then, before the fx-bandit ea gives back all of it's profit to the market. As I have told you, not a matter of IF a matter of WHEN.

This is true of all similar expert advisors without a stoploss. It is never a question of "will there be a time when you will have a margin call" it is a question of when. This also explains why this expert advisor seems so profitable. It generates income through this excessively risky strategy, (in my opinion) then most likely gives it back in a single trade.

I do NOT recommend this ea, in my opinion, the trading style is just too risky to be included in our expert advisor portafolio.

Saturday, November 24, 2007

The Doubleplay Forex Expert Advisor

When I began my quest to find an expert advisor that did well in a broad variety of market conditions I was very confused by the overwhelming amount of expert advisors available. After reading and searching for reviews all across the world wide web I found what appeared to be a good and well recommended expert advisor. Hence, I bought the Doubleplay expert advisor.

The Doubleplay expert advisor is what appears to be a very solid and conservative expert advisor. It fits my trading style, having a 50 pip adjustable stop loss and also a risk management module which makes sure that I never risk more than 5% of my account on each trade.

I have been very satisfied with this ea. It has traded as promised and has delivered some profit throughout the three months I have been using it for. I have obtained about 40% profit, which hits a quiet high profit/loss ratio. Support has also been absolutely wonderful, every doubt or support question I have had has been answered promptly by Hal, who is the ea's creator.

As much as I like this expert advisor, bear in mind it is NOT a way to get rich quickly. If you ask me I would say that this expert advisor is a PROFITABLE expert advisor, but I would never expect more than 10% a month in ANY case. This was proved by this ea having almost doubled my account along the beginning of October and giving more than half back just a few weeks later.

I have complete faith in Hal's commitment to the Doubleplay project, with no doubts in my mind that his main goal is to be successful as we are, not to deceive his customers in anyway. Doubleplay also has a money back guarantee if you have two consecutive months of losses using the ea.

This ea is one of the few I do personally RECOMMEND with no ties whatsoever, neither as an affiliate or as a personal friend of the ea's creator. This ea would fit great as a conservative addition to our ea trading package.

This expert advisor can be found here.

Thursday, November 22, 2007

The Market and the Expert Advisors

As I mentioned in a previous post, expert advisors, (entities that deal with trades automatically) may never be tested in a satisfactory way for future performance. The reason why, as I said, was because there is no way an expert advisor may be tested to account for all future market conditions. This is mainly because the market is too dynamic, being a reflection of global economical aspects which as we know, change dramatically as time goes by.
As an example, I have prepared a monthly EUR/USD graph, showing the relationship between these currencies for the past years. As you can see there are a lot of market conditions. For example, the market conditions between 1998 and the year 2000 are mainly bearish, while the conditions between 2000 and 2002 are those of a trending market.
Now, here comes the pretty part. If you had forward tested an expert advisor for a year between 2000 and 2001 and that expert advisor did very well in ranging markets then your results would have appeared to be very positive for that time. Your results may have even remained very positive after that (for a small while!).
Then, as market condition begin to change, your ea would have started to show negative results, probably killing your account somewhere along the next 3 years in which the market was amazingly trending.
It is clear to anyone now that an ea has to go through an amazing amount of market conditions. An ea may perform well in forward testing or backtesting. This DOES NOT imply that the ea will perform well in the future, it just means that it did perform well somewhere in the past and it may perform well again in that exact same type of market condition.
So the best way in which you can have positive results is by having several expert advisors that work on several types of market conditions. This assures that you will have small sustainable revenues in the long run. One to five percent a month. Anything else promised by anyone with a single expert advisor in the forex market is a pure lie.
I put it like this. If an expert advisor made 10% a month, you could be starting today with 500 dollars and having 5 million in less than 6 years due to compounding. Come on, market conditions would change far before you could get such a sustained revenue. The expert advisor would die in the process.
If you want long term sustainable profits in forex, aim at one to 3 percent a month with several expert advisors to compete in different market conditions. If you want to get rich with forex quickly, please go to Vegas. At least the drinks are free :)

Tuesday, November 13, 2007

Forex Expert Advisor

As many of you may already know, an expert advisor is an automated trading tool which makes all relevant trading decisions in the forex or any other trading market based on some technically driven trading rules.

In the forex market, expert advisors are usually programmed using the Metaquotes language in the Metatrader program. Metatrader can be obtained free of charge and used to test drive expert advisors in a demo account.

Testing expert advisors in a demo account is denominated "forward testing". The results are dependent on the amount of time the demo account is ran and as such, this approach is long. Taking years to obtain relevant results from the market.

Since expert advisors are a relatively new technology, the existence of this long forward tests is not common. People usually rely either on backtesting of expert advisors (which can be very unreliable depending on the software used and the testing data and condition), which involves testing the expert advisor with limited past market data, or very limited forward testing results usually ranging from one month to a year.

Non of these approaches makes an expert advisor or EA realiable or ensures that you will be making any profit in the future. An EA can have very positive forward testing for four months and then massive draw downs for, say, a year. This is because the EA has to be tested in a very wide range of market conditions. This conditions are thought to be cyclic and may require years or decades to be established. Thus, an expert advisor may need years to complete was is believed to be a "market cycle" and prove profitable. This however, is based on the hypothesis that the market is perfectly cyclic which is not entirely true as the market tends to change dramatically to unprecedented conditions from time to time.

So as you can see, there is not much hope in describing the performance of an expert advisor in such a way that it may serve as a criteria for profit making. This does not mean that there cannot be a profitable expert advisor, it just means that this EA cannot be known easily.

What I know, for certain, is that a profitable EA will mimic the decisions made by the bulk trading community a priori. This EA should in fact, decide what everybody decides. An EA should do what the majority of people are doing. The problem is that people's trades are based on a wide variety of things, including things which the expert advisor does not know. This puts the EA on a disadvantage as it cannot base it's decisions on the news until they are reflected on the price, which puts it after the move, not before it.

Hence my friends, the only sane way to profit from expert advisors is to follow the next simple rules for picking and using them.

- An expert advisor should show positive results in forward testing (as I have stated before this is necessary but not sufficient for an ea to be considered profitable)

- An expert advisor should nor promise more than 20% profit with a 5% risk. (Any promess beyond this causes serious doubt as by the limits of it's nature, an ea cannot maintain such wins without loosing eventually almost or all it's profits)

- An expert advisor should NEVER risk more than 5% of an account per trade. (this is basic risk management, a necessary tool for survival in the forex market)

- An expert advisor should ALWAYS include a stoploss. Preferably a stoploss shorter than 100 pips. Having no stoploss is a recipe for disaster. An EA does not know extreme market conditions and any sudden movement due to rare events could wipe your account.

- An expert advisor should NEVER trade by itself. Having only one expert advisor is unwise, if you are going to use them, use as many as 4 or 5 which meet the above shown criteria. Remember, don't put all your eggs in the same basket. Also try to use different types, for different currencies and market conditions.

- An expert advisor SHOULD require no human intervention. It should be able to trade by itself. If you need to change anything, then why bother calling it automated trading ? The expert advisor should not require any expert assistance.

- Ideally, an expert advisor should be updated regularly by its creator in an attempt to adapt to market conditions and increase profits.

This guidelines (which will be updated from time to time) are the base of my criteria for picking an using expert advisors. Stick to them an you will have a much better chance of succeeding in forex automated trading. Don't follow them and you will have almost no chance.

I will write a new post for each expert advisor I will start testing on this blog.

Monday, November 12, 2007

New Forex Finance Blog

Hello dear readers. Today is the beginning of this new finance blog dedicated to the ever growing forex market. My objective with this blog is to guide you through all the different aspects of the forex world. My page will include reviews of the following topics :

Expert advisor reviews
Broker reviews
Tips on the forex market
Manual trading strategies

I will, however, focus a lot on the review of expert advisors. I have not seen any webpages on the internet that really treat the review of expert advisors deeply and consistently, so I figured out this would turn out to be a really achievable goal. I also want to tell you that I will NOT , under any circumstances, become an affiliate of any of the expert advisors I will review as this may cloud my objective judgement of their performance.

I will post religiously three times each week. This should provide an insight on both the expert advisors I will be testing, brokers and any other comments I would want to make on the forex market. Feel free to comment and I hope you enjoy this blog in our mutual quest for a profitable money making experience in the forex market.

Saturday, September 15, 2007

Payment successful !

Thank you very much for your purchase, you'll receive the ebook or subscription information during the next 24 hours. I hope this purchase marks the start of a profitable journey in the world of fx automated trading for you ! Again, thank you very much.

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