Sunday, September 28, 2008

Forex automated trading : Why you need a VPS !

Many people start to enter the world of metatrader forex automated trading and think that it can all be done from their home computer. That is very wrong ! One of the main reasons why automated systems fail for new traders is that they try to use them on their home computers. The reasons why this does not work are very simple. An expert advisor needs to run in an absolutely ideal environment. That is, a computer that has redundant power, internet connection, no viruses etc. When you run your expert advisors inside your home computer, you are exposed to black outs, internet disconnections and viruses brought from your day to day activities. An expert advisor is not meant to be run while a browser and an mp3 player application are running, an expert is decided to run by itself with enough memory and cpu power available in order for it to do it's trading appropriately.

So what is the solution to these problems ? A VPS ! A virtual private server, is a computer that is held inside a data center and is run every day under ideal conditions with uptimes very close to 100%. You should also be aware that virtual private servers are not very expensive, as a matter of fact, they are several providers which offer them below 20 USD like . You also get other providers which are completely specialized in forex metatrader clients like . You must realize that there is a great difference between running your expert advisor on your home computer which is unreliable by definition and a data center which is say, reliable, by definition. If you are wondering what expert advisor to use with your new VPS please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Friday, September 26, 2008

Bogie-NN-v8 Expert Advisor by William Boatright, a Review

Today I decided to write a review about an ea that has been around for a while and has attracted the attention of many forex traders. The expert advisor I am talking about is the Bogie-NN-8v advisor developed by William Boatright. This ea is said to be neural network based and has managed to get profits in excess of 50% on some months.

Well, first of all, let me tell you, in my opinion, what Bogie is and what Bogie is not. Bogie is an automated trading system based on an indicator developed using a neural network approach, Bogie is not a neural network. What does this mean ? A neural network is supposed to optimize itself continously, that means, with each new tick, the expert should reevaluate and reoptimize itself to better adapt to current market conditions. A neural network, in analogy to your brain, should be able to "learn" from past experiences and therefore increase it's possibilities of trading the market profitably.

Bogie does not do this, the expert advisor does not continuously optimize itself but is based on an indicator developed months ago which is now, most probably, obsolete due to changes in the way market conditions have changed. To compensate for this, Bogie has to be optimized, that is, some parameters have to be changed in order to adapt the ea to current market conditions. The problem, as you may infer, is that the ea is always being adapted to some period of time before the present which may or may not represent current market conditions.

In essence, trading Bogie is like flipping a coin, if your parameters are aligned with current market conditions you will make money, if you don't you will lose (very volatile, you can expect +/-50%). This type of approach for an expert advisor is unreliable as it is true that expert advisors can remain profitable without constant optimization, which is, anyway, like guessing current market conditions. When do you reoptimize ? How do you know it works ? You can't know.

Furthermore, the use of the NN indicator is completely pointless since it can be replaced by any other market indicator. You can always optimize a variation in any indicator and correlate it with price as you would with the Bogie indicator.

In my opinion, although William's intentions with this ea are good and I believe him to be an honest person with the retail trader in mind, the expert advisor simply does not work, it's approach is flawed by design since the ea is not really a neural network and the optimizations needed are not guaranteed to improve the experts performance. If you want to see how Bogie has performed on forward testing and learn more about reliable and profitable commercial and free expert advisors please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Wednesday, September 24, 2008

Scalping Expert Advisors, why most are not working anymore !

In general, scalping is a trading technique which tries to exit trades with very small profits, risking several times the amount won in order to augment the trader's probability of success. Scalping is a trading technique discouraged by many brokers because these small fluctuations in market prices (3-4 pips), can be predicted by someone with a direct bank feed and used with an advantage against the broker. This can be done due to the delay that brokers have when processing data streams (which can be 2-5 seconds).

However, in the world of automated trading, an expert advisor is usually called "scalping" even if it's take profit is more than 3 times the spread (which would not be considered scalping by most brokers). Examples of such expert advisors are Shark and Viseu which have small profit targets (8-10 pips) with stop loss orders in excess of 30 pips. As with every trading strategy, there are some advantages and disadvantages to using such experts. For example, these experts have the advantage of having a high probability of success per trade as they take money rapidly from the market. The greatest disadvantage they have is that their risk to reward ratio is too unfavorable, they need to get at least 4 profitable trades for every loss in order to get to the upside again.

So, why have we seen a broad decline in profitability this past few months ? Why have expert advisors like Shark and Viseu reduced their profitability so drastically ? Well, many of these experts are based on moving averages, which by their very nature, are very lagging indicators. They work very well when market conditions stay constant for a while and then change in a very slow fashion, so slow that moving averages can adapt smoothly to the changes made. What we see in today's markets is completely different, we see rapidly changing market conditions which don't give lagging indicators like moving average the opportunity to react. Therefore, this expert advisors are always thinking about yesterday's market and they trade as if market conditions were like they were a while ago. When these experts based on moving averages finally adapt to what it's happening, it quickly changes !

So what you get is a scalping ea massacre, they sell when they had to buy, they buy when they had to sell and with a risk to reward ratio so high, it is not a surprise that they fail to deliver what they had delivered from 1999 to 2006 when market conditions were very different and lagging indicators like moving averages worked a lot better. Sounds familiar ? Past performance does not guarantee future results ! IF you would like to learn about results obtained both for shark and Viseu and many other expert advisors please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Saturday, September 13, 2008

The PID SP4, SP5 expert advisor, a review : Why I never bought this ea

A small while ago there was a lot of hype about this new expert advisor called P.I.D SP4. People were getting mass returns on this expert advisor and so many more people began to converge on this ea and start to trade their capital using the expert.

I have to say, I warned them ! Expert advisors that offer mass returns on some months are very or more exactly extremely prone to lose all their money and even more. As I have said on an earlier post, in my experience, profitable consistent expert advisors seem to have at least a 30-40% draw down of every 10% consistent profit they get on the account. This is simply the balance demanded by the market and the reason why top fund managers almost never get more than 20% profits a year, they are extremely conservative because they know the inherent risk that comes with high profitability.

I never traded P.I.D myself but saw it trading on many friend's accounts. The results were just like I expected, this correlation based ea found a point of divergence and the whole account got wiped out. Then, a second version, P.I.D SP5 was released, which although promised to be much more stable than the ea before it, wiped the entire author's demo account less than a month after it's release. I don't think the author realized how dangerous and prone to catastrophe his strategy is by design and I don't think he purposefully deceived people into buying something he knew would fail. I think this was just a consequence of a lack of understanding of what the market demands for what the market gives. A consequence of trying to find a holy grail. If you would like to read more about profitable expert advisor, how to find them, etc, please buy my automated trading ebook or subscribe to my weekly newsletter were I analyze current experts I am testing each week (you also get investor access to live and demo accounts).

Tuesday, September 9, 2008

Why 95% of forex traders fail and you are one of them !

I have given the subject of "why people lose so much money in forex" a lot of thought and so I decided to write this small article to show you all my conclusions.

We all know it. Ninety five percent of all forex retail traders lose their first trading account. But we all know that doesn't apply to us, right ? We are smarter, we are more intelligent, we have sharper minds... What could possibly go wrong ? Everything !

Have you ever considered what the average forex trader is like ? Yes, he/she is just like you ! Average forex traders are not stupid people, most of them have some level of higher education and many of them have the will and drive to learn about the market and earn an income by trading the foreign exchange. The why do most of them (with a high probability of you being included here) lose money ?

The answer is a mixture of things. I have found that new traders are mainly impatient, draw down intolerant and emotional. This of course, are some really big red signs in the forex market. But these "qualities" as you may have guessed, are very natural to humans and indeed, very difficult to suppress. Even when using automated systems, these defects prevail, reason why the most sold and used systems are really the ones that are not profitable, people really cannot bear the consequences of using the profitable ones !

Let me explain. One of the main aspects of being profitable in the forex market is being not. What ?!? Yes, I have found that regular profitable traders and profitable systems are subject to a draw down (being open or net) proportional to their average monthly profit percentage, with this being about 30% draw down for each 10% consistent profit. Of course, some people manage 30% a month with a 5% draw down, this people are amongst the top 0.05% traders and their cash is extremely difficult to tap (if you have a treasure in an island the treasure will remain the same no matter how many people have the map).

So, people are very keen on things with small draw downs and dump strategies or systems when their draw downs go beyond a certain point (usually too small) for systems to show any recovery. Don't get me wrong, not all systems with draw downs are profitable and this is what causes traders to change them. They feel uncomfortable with draw downs and would do anything to change that ! (so their natural behavior is to change the trading system)

My advice... Simple ! Find something that has worked for some time for someone and follow it even if your gut tells you sometimes not to. Remember, most people follow their gut about systems but you don't want to be like those other 95 people that lose their money ! If you are not very keen on manually trading please consider buying my automated trading ebook which is a guide to currently available automated trading systems or subscribe to my weekly newsletter in which I analyze experts each week.... If you liked my website or the article but don't want to buy anything, please buy me a cup of coffee following the link at the left bottom side of the webpage :) Thanks.

Sunday, September 7, 2008

Free Profitable Expert Advisor, God's Gift 7c

For those of you who have not read previous posts about God's Gift, it is a free expert advisor coded by Matt Edmonds which I have been testing from January 2008. I stopped publishing results on this website since the ea is a very infrequent trader and it took it several months to accumulate a good amount of trades. Now I will show you my results for this free, profitable, expert advisor.
As you can see on the graph, the ea has performed very well for the past 9 months as it has been predicted by it's backtesting. The expert has very good market entries. With about only one entry per week, this ea enters the market only on high probability trades. I have to say, I thought this ea would blow up the account by June but it has indeed surprised me by banking profits as expected. Up until now, the ea has a profit of about 50% with a maximum draw down not exceeding 10%. The ea uses a fixed stop loss and it seems to have a low risk trading style. This is the type of ea you would like to use for consistent, long term profits.

Even though the amount of time is significant (9 months) and enough to say this ea is extremely likely profitable (has survived drastic changes in market conditions), I have to tell you that, as with any automated trading system, you should trade it with care and at your own risk. If you wish to get the settings and the expert advisor from me you can either buy my automated trading ebook (which contains information about many commercial experts) , subscribe to my weekly newsletter (which comes with investor passwords for live and demo accounts) or simply buy me a cup of coffee using the link on left bottom side of my webpage and I'll be glad to send you this information to your email ! (this is to support the vps in which the ea is run and keep me awake :) ) Thanks in advance for your purchases and donations !

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