Saturday, February 28, 2009

Linear Equity Growth, Which one is Good, and Which one is NOT

Automated trading systems have several ways in which they increment the trader's equity (if that is the case). The way an equity curve looks like can give you a great deal of information about a system's profitability, in particular, it can give you a lot of information about the system's risk to reward ratio, the possibility of account wipe out and the general way in which the system trades and uses your money. The objective of this post is to show you different equity curves, in particular equity curves which grow linearly, so that you can see what you should and what you should not look for in a forex expert advisor.

In general, a linear equity curve is an equity curve which when regressed using statistical analysis returns a high correlation coefficient against the equation that represents a straight line. This does NOT necessarily mean that the equity curve is a straight line, it means that equity tends to grow in a geometrical fashion.

Linear Equity Curves - What NOT to look for

The most common equity curves you should find, and the ones that are most commonly attractive to forex traders new to the world of forex expert advisor and automated trading is the straight line linear equity curve. These equity curves consist of a straight line with no pitfalls or loses. This curves are very characteristic of systems with huge risk to reward ratios, progressive money management systems (such as martingales) and systems that never close losing open positions. The Robominer ea equity curve shown below is a very good example of this, see how it fits perfectly over the red line I drew.
Seeing no loses, is a BAD thing, loses are a vital part of a forex system and they always exist. When you see and equity curve with apparently no loses, it does not mean that the system does not lose, it just means that for some reason you are not seeing that. The next picture shows you a little bit how this works. The picture you see on your left is what is typically shown to the investor, an expert advisor that for some reason does not show any loses. With further testing, the ea shows loses, which generally overcome the winners by a lot. Sometimes a single loss in some systems with high risk to reward ratios can wipe out ten or more winners. So What you should be thinking when you see this equity curves is that you are NOT looking at the whole picture, you are being shown what they want you to see.

Linear Equity Curves - What to look for

So now that we know which types of equity curves are inherently either much likely unprofitable or deliberately hiding something about the automated trading system we now need to see the equity curves which are the mark of profitable expert advisor. What do we want to see ? First, we need to see a long period of testing, (nine years works best) and an expert advisor which is not prone to large back testing errors. We want an ea that is NOT a scalper.

Our idea is to see the whole picture, we want to see the expert's profits, loses and others and then see how equity grows in time amongst the very different market conditions that have happened in the past. A very good example of this is the last version of God's Gift I have been talking about which is adjusted to market volatility. As you can see, the equity curve can generally fit the description of a straight line (statistically) which means that equity growth is linear. However, as you can see, the expert does have loses, but loses are much smaller than profitable trades. What this shows us is that the ea is tackling a vital characteristic of the market which lets it profit amongst all the different market conditions during the past 9 years (back testing was done from Jan 2000 to Jan 2009 at 90% modeling quality). The expert does have loses, but profits are greater.
As you can see, the expert's testing has sections that would "look" like straight lines by themselves and have no loses, but if the expert is globally profitable then it is much more important to see the entire picture to get a real image of how much you can expect to get as profit against how much you are risking as expected draw down.

If you would like to learn more about the God's Gift expert advisor and other profitable free and commercial expert advisor 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, February 27, 2009

Backtesting God's Gift, Consistent Profits Over Several Pairs

A few days ago I introduced my new version of the God's Gift expert advisor through a blog post (my newsletter subscribers received a detailed email explaining that release in detail as well as the 8and8 expert advisor). Now I want to talk a little bit about the optimization jobs I have been doing with this expert and how the God's Gift expert advisor proves to be profitable amongst several different forex pairs.

In order to know if the ea was profitable or not, I started by back testing it in the GBP/USD pair using the settings I had known to be profitable form last year's forward testing (12 months). According to the values of stop loss and trailing stop used, I realized that they would be the equivalent of about 30% of the ATR for the stop loss and 15% of the ATR for the trailing stop, however, I realized that the trailing stop was much more profitable if it was changed from 15% to 70% of the ATR, also decreasing the risk to reward ratio of the expert advisor. The back test graph I got was the one shown below.
Now that I knew that the expert could trade the GBP/USD profitably, I wanted to know if this time I could get it to work with other forex pairs. My previous efforts to do this had failed dramatically as I could not find any other pair that was profitable since 2004 or before with God's Gift 7c besides the GBP/USD.

The first pair I started to test was the EUR/USD. The same settings failed to work straight from 2004 to 2009, but I did see that the settings used for worked perfectly when the pair was in high correlation with the GBP/USD. The solution was to optimize the stochastic parameters of the ea in order to find a better fit for the EUR/USD. In my mind, the stochastic parameters, which determine when to enter a trade, are what defines the "psychology" of the pair. After a lot of effort, I got the backtesting curve you see below (this one is from 2000 to 2009).
Again, I decided to retest the expert advisor with another pair, the USD/JPY, trying to still refit the stochastic values against the pair's trading style. As if the expert advisor could magically adjust to every market condition, I found a set of parameters that worked the USD/JPY perfectly from 2000 to 2009. The image is shown below.
As you can see, the new expert advisor does really good in backtest (and we know this correlates very good with forward and live testing according to last year's results) and does not have any of the "black holes", so common in today's commercial expert advisors. This expert has good linear equity growth, with loses, fixed stop loss values and trailing stop values you can see and set. The expert has a very good risk to reward ratio as all the backtests show that the average win is almost double the maximum loss.

If you would like to learn more about this new version of the God's Gift expert advisor I coded and the results we had with this and other expert advisors last year (as well as this one) 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 !

Thursday, February 26, 2009

Pipforia, Pipfloat Trend Following Indicator Review

To say the truth, I have somehow always liked the Pipforia trading company, specially because my friend Ck, a fellow ea reviewer, has been trading with them for a while and it seems that their trading tactics have worked miracles for his live trading. This of course, encourages me to check pipforia's webpage every now and then. This is how I found out about their new Pipfloat Trend Following Indicator. Since the indicator is under a monthly subscription of 29,95 USD, I decided to give it a shot and try and see how it works.

I have used the indicator for a few days now and I have to say that it is far from being as impressive as they want it to look like. Of course, as I thought, the trade samples placed on the website are a little bit more the exception than the rule and the indicator, as many other indicators in the forex market, does not work by itself.

The indicator does give signals, it does not repaint and it does let you ride the trend from time to time. What I am saying is that whether you are profitable or not depends highly on your own trading skills rather than on the signals of this indicator. Sure, if you are an avid trader who knows how to pinpoint support and resistance, knows how to swing trade, etc, you will most likely know when to enter, exit and ignore pipfloat's signals (or any other indicator's signals).

Overall, I personally would have made the same trades I did following pipfloat if I hadn't been trading with it. Just merely because the trades are signalled by price patterns, support and resistance levels, etc. So long story short, if you want an indicator that you only have to follow and it will give you profit, then this is not for you (neither is any other indicator since non of them can be traded blindly and be expected to give profit). If you are an already competent swing trader then this (pipfloat) could be useful for you but is most likely an unecessary purchase as most of it's entries can be seen with other tools/indicators.

If you would like to learn more about automated trading system and how to profit from them in the forex market (as well as commercial and free expert advisors I have reviewed) 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, February 25, 2009

Piptronic Unbiased Review, Forex Expert Advisor

Well, someone asked me to take a look at another very commercial expert advisor called Piptronic. I have to say I am getting a little bit tired of this type of ea seller. Piptronic's website is a reminiscent of all the other hyped expert advisor sellers with the pictures of happy traders and the common remarks of "How does $1,000.00 in 24 hours sound?". Well, if you ask me, a thousand dollar in 24 hours is very makeable depending on the size of your investment. If you invest ten million dollars in a T-bond you can do much better than that !

Now, I always try to give these people a chance regardless of what I think about their cheesy advertisement. First, I looked at their trade testing evidence. Their back testing sure looks regular to me, they are what you would expect from a very commercial expert advisor. The lot sizes are adjusted to risk about 5% of the account's balance and the backtested is conviniently narrowed to 2008. For those who aren't aware, 2008 was a very good year for trend following systems due to the large increase in volatility caused by the economic crisis (this is why you see the long straight line at the end). Why wouldn't they backtest to 2004, or even to 1999 ? Data is available to test accurately up until at least 2005, so why wouldn't they include it ? My best guess is because their system failed dramatically in much less volatile markets (2005-2006) hence they decided that it was not so good to show it !

Another thing that happens once you start looking closely a their backtesting results is that their risk to reward ratio is just too high. They risk about 10 times more than they profit, in other words, they need to win 10 out of every 11 trades just to break even. This type of ea is very common in the world of commercial expert advisors sold for such low amounts (and even for higher amounts!) they are experts that can perform extremely well in small periods of time, then they wipe the accounts they started with.

Another thing that crossed my mind is that their forward testing statements only go up to Novemeber, why ? Why don't they include testing up to today if that would help them increase their credibility ? Moreover, Why isn't there a live account with investor access available for the prospect buyers ? I don't know the answers to these questions but they make me suspicious enough about the expert advisor. In my opinion, this expert advisor is not worth buying as there is not enough proof of it's profitability and it's risk to reward ratio is far too bad. Their testing information also seems conveniently limited, something which makes me feel uneasy about the software.

There are several free alternatives to these commercial expert advisors that are far more robust and can indeed make you consistently profitable, to learn more about other free and commercial expert advisors I have considered worth buying, tested and reviewed 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 !

Tuesday, February 24, 2009

The 8and8 EA, A Hopefully Profitable Expert Advisor

During this past few days, I had been implementing the 8and8 daily trading system into a forex expert advisor. When I finished coding the system and started back testing it's daily trading results, I realized that the system is unprofitable as an automated trading system due to the excessively large amount of mixed signals generated from the cross of two indicators. As it usually happens with crossing systems, whipsawing becomes a very hard problem to solve. On this month's daily chart, which is shown below, I tried to pinpoint the places that caused heavy loses due to intense crossing of the EMA and the RSI indicators.
The system does much better manually because trades are taken in a very discretionary manner. For example, you would not take a trade against the main trend when there is an important support/resistance level ithat has to be reached in sight. These things are not visible to automated trading systems (that easily), so it becomes very problematic and the experts fail when they have fixed SL and TP orders.

My first attempt was to try to fix the stoploss and take profit problems by making them ATR adjustable (hey ! it's my flavour of the month and it really works !). Sadly, the whipsawing problem absolutely killed the idea as too many bad entires happened due to the intense crossing of the two indicators (still it was much better than the original).

I then started to think about the expert advisors I know that are at least likely profitable, God's Gift, Simple Daily System, etc. I realized that their logic often involves some sort of volatility/range condition filter so that positions can only be entered when strong trends happen.

After struggling for several days with the idea and doing a ton of optimization with several range and volatility filtering ideas, I came up with the expert advisor I am presenting you now. The result ? A very clean equity curve in backtesting from 1999 to 2008 (EUR/USD). The expert advisor does a great job at filtering range conditions and just trading when the conditions are "right". Although the rules changed a little from the original 8and8 system, you could say that the main idea "daily trend following" is alive inside this modified trading system. The main modification is a simple filter based on the ADX indicator which makes the ea not to trade in raning market conditions. Lot sizing adjusted to volatility was also added.

Below you can see the backtesting image of the expert (from 1999 to 2008, modeling quality is n/a because of several mismatch errors in my 1999 and 2000 data but becomes 90% once you test from 2001 (2001 to 2009 is exactly the same anyway)).
Now, you may be asking yourselves if I intend to sell or give away this ea for free. Of course, it is available to anyone who buys my automated trading ebook or subscribes to my newsletter but feel free to buy me a cup of coffee and email me if this ea is all you want (a link is available at the bottom left for this). The ea is profitable according to backtesting although it's maximum draw down and yearly profits are almost alike, so you could expect a 50% yearly profit with a 40% maximum draw down. It will be forward tested from next week.

Other, expert advisors like God's Gift (specially my ATR modified version if you read the last post !) and the Simple Daily System are free expert advisors that do make profits and will most likely continue to do so in the future, if you would like to learn more about them and their settings 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 !

Monday, February 23, 2009

God's Gift, the Best Forex Expert Advisor Now Better !

During the past week, I had been implementing and testing a new version of God's Gift which has market orders adjusted to volatility as well as position sizing adjusted to volatility. I did this because I became aware that God's Gift profitability changed dramatically owing to changing market volatility and this was a consequence of it's rigid take profit, stop loss and trailing stop features.

After starting to use the ATR (average true range) indicator as a way to change the strategy according to volatility (this idea was inspired in some part by the turtle trading strategy) I realized that when doing this, the system became much more risky in higher volatility conditions because lot sizing did not change. So the SL, TL and TP would change to higher values when there was higher volatility but constant lot sizes would cause the system to risk more money (since an equal amount of lots was traded regardless of volatility).

Because of this, I decided to implement the same lot sizing strategy that is discussed in the Turtle book strategy in order to change position sizing according to volatility. The results ? The incredible looking back testing chart you see below (we already know that this expert advisor is highly consistent, because one year of forward testing was almost equal to the same year in backtesting. Backtest is from 2004 to 2009 using 90% modeling quality) . Of course, profits are small because lot sizing parameters are small but you can test with higher lot sizing parameters and get the same curve expanded. This way, you can finetune your risk against the profits you want to make, to say 100% a year against a 30% maximum draw down for example. You can see the green lines indicating the dynamic position sizing as volatility fluctuates.
A live account will be started next week (investor access will obviously be available to newsletter subscribers) to test this new and improved version of God's Gift, which is just the same version coded by Matt Edmonds with several modification made by me for volatility managment using the ATR indicator. If you would like to learn more about the results I have got with God's Gift and other free and commercial 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 !

Sunday, February 22, 2009

Don't Trade Alone ! - Making Profits in the Forex Market

Almost all the people that start trading forex are aware than more than 90% of all retail traders wipe their first accounts clean. If you have read any web page or book about this market, that statement should not surprise you. Taking a profit in the foreign exchange is like trying to grab a golden coin that sits at the bottom of a pool full of piranhas while a million other people try to do exactly the same thing. It is not easy, not even with the right education. The forex market has wiped clean economists, finance specialists, stock brokers, you name it, they have killed their accounts using forex.

What makes everyone that starts in forex think it is so easy ? Well, human nature for one. You never think that the bad things that happen to other people happen to you, even if chances are highly against you. What makes you better than the other traders ? Another important thing you must think about is that the 90% that lose their accounts are by no means stupid. They are, as or better prepared than you. So again, what makes you so special ?

In fact, nothing. The most important thing in the forex market is knowing how to handle your own psychology and as you know, most traits that make you successful in life, make you wipe accounts in forex. For example, being stubborn and having perseverance, holding on, being ambitious, etc. This personality traits are most certainly going to take you down, sooner or later. That is, until the market baptizes you with your first account loss, then you should have taken a lesson.

But how do those 5% that have managed to make some profits out of the forex market do it ? What in the world made them so different from the rest ? Well, most of them did not trade their first account alone. Of course, if you have someone by your side to tell you "hey, that is stupid", "hey, don't take that position", "hey, stick to the system", then things will look much better for you since you are being walked through your first experience on the market. So for all those forex newbies out there, find someone who has traded for a while and start trading with them, side by side, chances are you will both be profitable.

In my experience, a team of three people is ideal for trading. You get three different analysis plus you get two safes against stupidness. It is much harder for three people to become emotional and act erratically than it is for a single person. When you get more than three, things start to change a little as group emotional factors start to kick in and another type of stupidity arises (like a mob mentality).

So go out there, find a trading buddy and start your profitable forex career. If you would like to learn more about automated trading systems (expert advisors for the metatrader platform) in order to trade without any human intervention 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, February 21, 2009

Profitable Expert Adviors are Unmarketable ?

I have spent a good chunk of this and last week analyzing commercial expert advisor systems extensively, trying to assess their profitability and write reviews that can help retail traders out there who don't want to lose their money in something that does not work at all. A very strange thing I have found while doing my research is that most people look for expert advisors that have characteristics that differ a lot from what I would consider the main features of a profitable trading system.

The regular new forex trader who wants to use an automated system usually looks for a system with a given set of properties. I have deduced, from commercial expert advisor sites (including the ones with the cheesy marketing stuff), that people will preferably buy expert advisors that trade a lot and have high percentages of winning trades. Physiologically people like to know they will "lose" less often.

Now, profitable expert advisor, from what I have been able to analyze, have almost exactly opposite characteristics. They have low winning percentages and they trade rather infrequently. Of course, this is almost unmarketable. Most people will utterly reject a system which has a 10% winning percentage and a trading frequency of 1-2 trades per month. Well, that would mean winning 1 trade a year, most people cannot deal with that, they want the constant gratification of winning all the time, even if that means being unprofitable overall.

Of course, people are not brain dead and will take a profitable system once it is proven to them, but they are much more prone to accept evidence (false or true) about a system with the characteristics they desire, rather than a system with the profile shown below.

What they usually forget is that systems with low winning percentages that trade infrequently are often trend followers which try to catch big pip moves, so they may lose 90% of the trades but the trades that profit are almost 20 times larger than the losers, making the expert overall very profitable. The turtle trading system is a very good example of this, it loses very frequently and requires a lot of discipline to trade but it is profitable in the long run.

If you would like to learn more about what expert advisors, both free and commercial, I have tested and found likely profitable, 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, February 20, 2009

Forex Expert Advisors, Does the Winning Percentage Say Anything ?

I have always been curious about the way in which new commercial expert advisors are portrayed for the new forex retail trader. One of the things I have found common amongst almost all new expert advisor sellers is the fact that they always advertise high winning percentages as if this is the true mark of a profitable expert advisor. This of course, is aimed for unaware folks who are new to the forex market and are more likely to go for something that "wins a lot".

It is a very common mistake to assume that a higher winning percentage equals a higher amount of profits. This of course, has something to do with people's common sense. But it is not only how many times you win what determines if you are profitable or not. You have to take into account two things that certainly determine if the system is profitable or not.

First of all, the amount of profit you make per winning trade and the amount of money you lose per losing trade has a huge influence on the overall profitability of an expert advisor. Earlier this week, I asked twenty different people if a system that won 90% of the time was more profitable than a system that won only 10% of the time. Eighteen out of the twenty said that 90% made more money than 10%, something which can be, and is usually, totally wrong.

For example, most systems that claim to have winning percentages above 90% almost always say the truth. The problem is that each winning trade is small while every losing trade is huge. For example, if you win one dollar every time you win, but you lose 10 every time you lose, then one loss will equal 10 wins and even winning 90% of the time won't be enough for your system to be profitable. You have to take into account both the winning percentage and the profit to loss ratio and calculate the profit factor, which really determines and expert's profitability.

If you would like to learn more about expert advisor's characteristics and different commercial and free expert advisors I have tested and reviewed 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 !

Thursday, February 19, 2009

Pipzu Unbiased Review, Forex Expert Advisor

In my previous post, I reviewed both Robominer and GT-Shadow expert advisors. This review will be focused on another expert advisor I have been asked to review, Pipzu. This expert advisor is advertised as being "The First Expert Advisor To Use State Of The Art Built-in Trend Adapting Technology As Well As A Next Generation Market Timing Algorithm", but becomes very disappointing once you start to look at the "evidence" the authors provide of it's performance.

Pipzu's authors only provide backtesting information as support which is, by any standard, too little to even consider purchasing an expert advisor. Moreover, Pipzu's backtesting reveals a very unfavorable, almost 1 to 5 risk to reward ratio, which means that the ea must win around 5 trades for every loss it takes. Pipzu's take profit is also located barely 20 pips away from it's market entry, something which means that one minute interpolation errors in backtesting re likely to be influential.

Pipzu's "show" trades are also useless since every expert advisor has some profitable trades, which do not give any insights into the profitability of the expert advisor whatsoever. This makes me think that these trades are just there to "impress" forex newbies.

In my opinion, Pipzu fails to provide enough proof of profitability, there is no forward testing evidence, no live testing evidence and no account with investor access to see. This, added to the fact that backtesting evidence suggested that the system has an unfavorable risk to reward ratio and a high probability of being prone to one minute interpolation errors, makes me completely discard this expert advisor as "worth buying". There are people already having a bad experience with it, check it here. I hope this blogs helps you stay away from those bad experiences !

If you would like to learn more about other commercial and free expert advisors I have bought, tested and reviewed with live and demo statements, 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 !

Tuesday, February 17, 2009

Forex Expert Advisors and Market Volatility , God's Gift

On an earlier post I had described the use of the ATR indicator as a means to control the stop loss and take profit values of forex expert advisors. I became very aware of this fact yesterday when I started to back test and optimize the God's Gift expert advisor using it's regular stop loss, take profit and trailing stop features.

I realized that the expert advisor made profits consistently using fixed stop loss and take profit values but starts to fail to do so at mid-late 2008. In forward testing this was confirmed as the expert made a good amount of profit from the beginning of 2008 up until the tests ended in mid October. After that, a live account was started to test the ea, account which has experienced more draw down than this same expert last year.

As you can see on the GBP/USD weekly charts displaying the ATR indicator, (shown below) volatility has increased expotentially during the past 6 months. This seems to be a consequence of market uncertainty and a general increase in volume across the forex market. Indeed, the market has been almost doubling it's trading volume every year.
Now, expert advisors that use a set of fixed stop loss and take profit are bound to fail because they cannot adjust to these ever changing market conditions. As a matter of fact, market conditions can just be expressed as a measure of volatility since human psychology remains the same, the only thing that changes is volume (of course, on the long run, human psychology should change as we should be able to learn from our previous mistakes, etc).

What I discovered, in the case of God's Gift, is that there is a defined set of parameters that work well from 2004 to 2008 and a completely different set of parameters that works very well from mid 2008 to present. The main difference is that SL and TP values have to be widened enormously to take into account changing market volatility. This led me to program an ATR based stop and take profit on the God's Gift expert advisor, this of course, allowed me to find a set of conditions that worked perfectly from 2004 to present.

If you would like to learn more about the exact results obtained with God's Gift both in demo and life accounts as well as getting the new God's Gift with ATR adjustable SL and TP 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 !

Monday, February 16, 2009

The Simple Daily System (Likely Profitable) Forex Free Expert Advisor

Three months ago, I wrote a post about the Simple Daily System expert advisor. This free system was doing very good at that time proving to be a profitable and reliable trading system. Now, after four months of forward testing, there are several things I would like to share with you about this free automated trading system.

The SDS ea went smoothly through the rangy period at the end of 2008 and gracefully entered 2009 with profits above 50%. After four months of forward testing, the expert currently stands at a very profitable more than 70% capital increase with a low maximum draw down. (Below the forward testing equity graph of this expert from November 2008 to February 2009)
The simple daily system is a clear example of a high quality expert advisor that can be traded for free. It is excellent at following and capturing profits from daily trends (captured more than 1000 pips on an uptrend at the end of 2008). and staying on the sidelines on ranging markets. Needless to say, the simple daily system now qualifies as a likely profitable expert advisor for me and will be considered profitable after it succeeds at 6 months of live trading with profitable results. A live account will be tested from the first week of March.

If you would like to learn more about the Simple Daily System's results and settings 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 !

Sunday, February 15, 2009

Better Expert Advisors : Volatility Adjusted Take Profit and Stop Loss Values

During the last few years I have seen dozens of different automated and manual trading systems. When I analyzed what made some profitable and some unprofitable I realized that most of the differences happened depending on where each expert advisor would exit the market. When I saw this I realized that the take profit and stop loss values many expert advisors try to impose to achieve a fixed trading style are perhaps the most limiting factors within their programming.

When back testing and forward testing some expert advisors, I realized that many of them were profitable up until 2006 and then plummeted all their gains in 2007 and 2008, most of these where particularly EUR/USD trading systems. Then, out of curiosity I opened an EUR/USD monthly chart with the ATR indicator. To my surprise, there was a steady increase in volatility from the end of 2006 until the end of 2008.

Most of these expert advisors could be optimized to achieve better results in 2008 but then they failed to do well in 2006 too. So the answer was very simple, the parameters they used to exit the market were unflexible and were getting crushed by changing market conditions. The fix is pretty simple.

When these experts are changed to calculate their stop loss and take profit values based on the ATR (average true range) indicator, there is a drastical change in their profitability. The ATR indicator changes according to the pair's volatility so making an expert advisor adjust the magnitude of it's trading orders based on a percentage of the ATR value can have good effects on it's profitability. Suddenly, you start to realize that the system could have been profitable along all those changing market conditions if it's exit orders had been adjusted to fit the pair's volatility !

If you would like to learn more about free ATR adjusted expert advisors and other free and commercial expert advisors I have reviewed 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, February 14, 2009

Xtreme (EUR/GBP, EUR,CHF) by Fx-GTC an Unbiased Expert Advisor Review

People who have read my recent posts about Fx-Gtc (forex global trading company) and their Evolution EUR/JPY system, may know now that I do not like this expert advisor developing company and that I felt mistreated (not to say stolen from) as they changed their refund policies and refused to even answer my emails sent regarding the refund I had the right to (as it is explained in an earlier post).

Nonetheless, I decided to put some effort into analyzing this company's series of expert advisors marketed under the Xtreme brand as they are of interest to many traders out there. These expert advisors are targeted towards the EUR/GBP and EUR/CHF forex pairs. They are mainly of a scalping nature, so to speak, with a very risk to reward ratio of about 10:1. That said, you must win 10 positions in order to cover a single loss (which does not necessarily imply unprofitableness as this system can be profitable if it's winning percentage is high enough).

The main problem with these systems is that the pairs they trade and the type of systems in use make the influence of changing from a demo to a live account terribly bad. For example, an ea like this one is very dependent on things like slippage, spread and order filling. When trading a pair like the EUR/GBP, going from a spread of 3 to a spread of 5 can diminish the profitability of an ea by 80%. Moreover, if the ea's orders are not filled or if there is spread widening, the ea will go from being profitable to wiping an account. In my honest opinion, all this type of systems that have high risk to reward ratios and trade pairs like the EUR/GBP in small movements are much likely to be unprofitable and very likely to perform very differently depending on the broker.

In order for me to even consider buying software like this, I would need at least a one year old LIVE account. Demo accounts (like the ones on their website probably are) won't work well with these experts as results are likely to be much better in demo versus live due to all the above mentioned circumstances. For these reasons, I would not buy any of the Xtreme expert advisors by Fx-Gtc (forex global trading company). Even though the company by itself has the worst customer service I have ever experienced, I still have given my opinion on the sole expert advisor systems, customer service aside.

Now, there are better options for expert advisor trading systems, both free and commercial, out there, if you would like to learn more about this options as well as more about fx-gtc trading systems such as Evolution EUR/JPY, 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, February 13, 2009

Metatrader 4 Expert Advisor Programming

Well, many of you may know about me being an avid forex software reviewer but few of you know that I actually do program expert advisors using the mql4 language. In my actual career, as a chemist, I had to develop some serious programming skills in c++ and Fortran to develop highly efficient computational chemistry algorithms for quantum mechanical calculations. Since mql4 is so similar to c it is pretty straightforward to go from my regular programming habits to programming expert advisors for Metatrader 4 and the forex market.

I have never thought about selling my skills or selling expert advisors I program as I mostly use metatrader 4 programming as a way to learn more about the forex market and the ways to be profitable in it.

However, I have noticed that many people out there who do not know how to program may have some interesting ideas to create automated trading systems which they have not developed due to the lack of a programmer, money, etc. This is why I am offering this post as a way for people to post their ideas (so that I can program those that I consider most likely).

Please beware that there are certain prerequisites about any system :

- Must have been forward tested manually for at least 2 months, it does not matter if it wasn't tested 24/7, I just want to know that there are some results.
- Must not be based on Martingale, Hedges or Grids (these do not work, I promise)
- Must not be a scalping system. I am not interested in programming this type of systems as I know that they don't work universally and that most of them cannot be backtested accurately and are very sensitive to broker data, spread changes, slippage, etc.
- Systems with risk to reward ratios over 2:1. This type of systems have a much harder time being profitable than systems with better risk to reward ratios.

If your system meets the above criteria then you should also provide :

- Clear entry rules
- Clear exit rules (particularly important)
- Other important rules for the system
- Profit on your manual trading period and draw downs experienced

It is important that you explain your system in a crystal clear way so that it can be programmed accurately. If you would like to learn about more expert advisors, both commercial and free I have reviewed 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 !

Thursday, February 12, 2009

FX-GTC Expert Advisor Company an Unbiased Review

I have to say, I had a good image of FX-GTC last November when I decided to purchase their Evolution EUR/JPY trading system. This expert advisor making company seemed very serious, showed back, forward and live testing statements on their website and seemed to have some solid, good products. Now the story is a little bit differente and the reason why I decided to write this post, is to tell you all how my views on forex global trading company or fx-gtc have changed.

First of all, there is the Evolution EUR/JPY system. I purchased the system and everything went well with that. Unfortunately, the company never responded several emails sent by myself asking questions about the system and the trading accounts they had given me access to. If there is one thing I hate about companies is when they do not answer emails, at least some companies take their time but eventually answer them. This company has taken more than 3 months to answer an email, that is just great.

After, there is the system itself. After more than 3 months of forward testing, the EUR/JPY system has been proven to be unprofitable. Yes, the ea which apparently had more than a year of live testing, didn't work anymore. Ok, I've seen this happen, no problem, the markets can change and experts can cease to work. This is the reason why they no longer offer this system which was supposed to be "long term" profitable.

When I purchased this, it stated that if an ea was not profitable for 3 months I had the right to a refund. I requested one both by email and plimus and guess what ? I am being totally ignored. So unproffesional from a company to do this. They say they refuse refunds for purchases after January (well, in my opinion it seems that their systems were unprofitable since October and they were getting too much "refund policy abuse") but my purchase was done in early November, so I have the right for a refund. Well, they do not answer so I guess I'll never know.

Well, I have purchase unprofitable expert advisors before, I am not complaining about that since market conditions can change and they are not wizards and neither am I. But there is something I expect from an expert advisor company such as fx-gtc and that is proffesional customer service. This is something I didn't get and a paramount reason why I will not do anymore business with the forex global trading company (fx-gtc). Furthermore I still have some things to say about their Xtreme scalping trading systems, so stay tuned for further comments of systems by fx-gtc.

I finally got a refund from my purchase by claiming it through Plimus. Fx-GTC never replied any of my emails and claimed that the dispute had been settle via email (when I did my plimus claim) . It seems that plimus understood my claims were legitimate and decided to grant me a refund ! If Fx-gtc agreed or disagreed, I will never know.

If you would like to learn more about the results I had with the evolution system purchased from fx-gct and other results I had with free and commercial expert advisors systems 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, February 11, 2009

Forex Automated Trading EA Championship, Worth the Trouble ?

Each year most of us are very in tune with the latest metatrader 4 automated trading championship. Traders on these contests get hundreds of thousands of dollars out of small initial accounts against demo servers which are modified to show real trading conditions. These includes slippage, spread widening and all the other funny stuff that brokers like to pull on us, the poor retail traders.

Year after year, I have reflected upon the results of the expert advisors and year after year I am more convinced that this contests are badly designed. I think their results are not what most of the people looking for a profitable ea are actually looking for.

First, most of these expert advisors are geared towards making high risk investments in order to win the prize in the short period of time that the contest uses. This fact makes most of these expert advisors far too risky to use for the common retail trader. If I was entering a trading championship I would definitely program one of those expert advisors that can bring up an account size ten times and then margin call the account in a very small time. Sure, there is the probability that the account will margin call in the contest, but since the time frame is so small, the odds are not that against me. For example, a scalper with a 10 pip TP and a 500 pip stop loss is certain to lose everything in the long run, but in the short term it can increase an account's equity significantly.

This is when the second and most important factor comes into play. I believe most of these expert advisors to be spurs of good luck in the middle of the trading history. Just as I explained above, the contest just happened in a period when the ea was profitable, but that period of time is too small to judge the experts real long term profitability.

We have seen this with the winners of previous championships, for example, the Bogie expert advisor which had second place a year back then failed dramatically as market conditions abruptly changed. This expert advisors are not designed to be stable, consistent profit makers, they are designed to be contest winner, so take your time when thinking about purchasing some ea that won in an automated trading championship.

Stay on the sidelines and wait until the ea has a significant amount of live testing before you "jump in" just by thinking, "it won the contest". If you would like to learn more about profitable free and commercial forex 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 !

Tuesday, February 10, 2009

Coin Tossing in the Forex Market, Random Trading for Learning

Well, I know many of you would think that I am completely crazy, talking about coin tossing inside the forex market. Most of you should know that gambling in the forex market is completely wrong, hence the saying, "if you are going to gamble in the forex market, go to Vegas, at least the drinks are free". But I am not talking about gambling here, in fact, it is the complete opposite.

What I am going to explain here is a very good teaching strategy for people new to the forex market or people who want to improve their forex trading skills significantly. What you do is put a group of forex traders together and flip a coin to enter either buying or selling a given currency pair. Well, isn't that gambling ? Actually, it is not. Gambling only happens in forex when one enters a position randomly and expects that position to be profitable.

This system works by letting a trader into a position using a random trade direction and then letting the trader decide how the position should be managed. Should it be closed with a loss ? how much is the stop loss ? how much is the take profit ?

Using this small exercise, traders in a group start to figure out the hardest thing to do in the forex market, which is getting out of your positions. This system in fact shows that someone can be profitable, even when entering the market at random, if their exit criteria is good. If you know the chances of a given position going into profit and know exactly what your profit target and loss areas are, you should be a profitable trader overall, even if your entries do not obey any particular logic.

Of course, the objective of this exercise is just to get traders to know exactly how to exit the market and is most effective when done in a group of people (each trader taking a different toss and then discussing their opinions). If you liked this article and would like to learn more about automated trading 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 !

Monday, February 9, 2009

The 8and8 Forex Trading System by Michael Dunbar

Today I am going to write about one of the trading systems I have liked the most and I think is the most suited for new forex traders. Even though I am not very keen on forex indicators, this trading system does give some indicator help with an important price action derived part which will most likely be beneficial for newbie traders. Another plus is the fact that the system is volatility adjusted and is used on the daily charts (most manual profitable trading system I know are used on the daily charts).

So what is this system about ? The system (developed by Michael Dunbar and found here) uses the ATR indicator cross with an 8 period expotential moving average as a trigger for buying (if the ATR crosses over the moving average) and selling (if the ATR crosses under the moving average). Trades are entered at the opening price of the candle after trades are signalled. (below an image of the trading system in action)
The system uses a 70% of the ATR as a stop loss (for example, if ATR is 0.0100 then SL would be 70 pips) and the take profit targets are flexible, as the most effective time to exit is decided by the user. This is both the systems most useful quality and it's worst deffect. Avid traders will easily find suitable exit points while new traders will struggle to find a good place to exit. What I do to come around this is to place a take profit order at the next support or resistance level in the direction of the trade. I have seen that most of the time price goes up or down to it's historic support and resistance levels. This gives a more rigid scheme which can benefit less experienced traders.

The 8and8 trading system proves to be a solid daily trading strategy that provides the trader with easy to use tools. The fact that it is a daily system also makes trading easier as the trader does not need to be in front of the computer all the time. If you prefer automated trading systems and would like to learn more about free and commercial 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 !

Sunday, February 8, 2009

FAP Turbo Forex Expert Advisor Unbiased Review

During the past few months, the new commercial ea FAP Tubo has risen from the ashes of a former forex expert advisor. I have to say, I am amazed at how well these guys marketing tecniques work. I could not find a single unbiased review on the internet for this expert advisor. Every site I entered had the same "template" review with an affiliate link at the end. Come on ! I try to think that people that want to get into forex trading are not stupid at all.

Of course, their website is like every other super commercial forex product website. It is filled up with "evidence", testimonials, arrows, circles, etc. The things they show you actually seem believable and they have a great tongue for talking about "live testing" and "back testing" and how you should look for live testing and so on.

Well, reality check my friends. I will now try to tell you what the real deal with this expert advisor is and the things that should have made you ran away from their website in the first place. I will assume that everything they show is real evidence and I am going to ellaborate from there.

First things first, it is not difficult to make money in the forex market, even on a live account, in time periods as short as the ones shown by the fap turbo website. For the sake of clarity, any scalping expert advisor with a wide stop loss or a martingale system that trades frequently can and does show amazing profits in time periods as short as the ones shown in their live accounts. The catch ? Keeping those profits is an entirely different story, these type of systems are doomed to eventually wipe out there accounts. This is a statistical fact, not something I am making up right now.

Second thing, why would the fap turbo team not give investor access to their live and demo accounts ? My best guess is that they would not like you looking at the exact way in which this ea actually trades. How does it trade ? Well, it has two systems, a scalping system and a "long term" system for the EUR/USD.

Now it is time for a big laugh, the scalping system uses a 500 pip stop loss. This means that your win to lose ratio is awfuly bad. Losing a few trades is enough for wiping several dozens of winners. Of course, it could in fact win 95% of the time, which does not mean it is profitable at all if on the 5% of trades it loses, it wipes the account. This of course, cannot be seen in backtesting which often favors scalpers because of one minute interpolation errors. Their other system is quiet similar to the one I discussed when I revied forex autopilot, so feel free to look at that post.

Well, I cannot say that the fap turbo people are dishonest or that they are aware of their system's possible flaws. What I am saying is that I would never ever buy this piece of software as it is clear for me (in my humble opinion) from the beginning that it is doomed to lose because of it's trading methods. I think that their website shows a very clever selective display of information which clearly shows people what they want to see, how they want to see it. If they were ever serious about the profitability of their product, they would provide investor account information and not try to sell it before a year of live testing.

On another note, there are cases in a few forums were people are finding out the real way in which this ea trades and the truth about it's risk to reward ratios, please google this forums and look at other people's experiences before deciding to buy a product of a marketing website. Now, if you would like to learn about more free and commercial expert advisors I have tested and reviewed 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, February 7, 2009

Forex News Trading Free Expert Advisor

One of the most interesting things about the forex market is that changes in fundamental data change the global "outlook perception" of a currency for traders and hence mark dramatic changes in price during very small time windows. Trading these spikes caused by fundamentals being changed is called "news trading" because the trader chooses to enter and exit the market at the time when important economic news are released and the market experiences bast levels of volatility.

Trading the news often demands cat like reflexes and the ability to enter orders at the speed of light (or near it !) in order to keep a profit, stop a loss, etc. News trading is also dangerous in the sense that prices can gap for even 100 or 200 pips, making your loss far greater than what you thought it would be. Long story short, news trading is difficult if not because of the volatility and big chances of getting whipsaws, because of the inherent difficulties of trading and making clear decisions in such bad market times.

News trading expert advisors basically work by placing two market buy and sell stop orders at some pip distance from the price, one minute or more before the news release. What the ea wants to predict is a quick change in price which is caught quickly with the aid of the opening orders. This of course, does not work all the time because prices can "bounce" and leave you with no actual clear direction during a news release. Specially when news are confusion, you almost always find candles with gigantic shadows but not too much overall movement. Luckily, most of the time the news do move the markets in one specific direction and often for 100 pips or more. For example, the NFP (non farm payrolls) release moves the EUR/USD by more than 100 pips in average.

So how do we trade this news releases ? (You should first start trying this ea on a demo account, until you are comfortable with the way it works) You can use the ea provided here in order to trade the news in forex. The ea (developed by branac at enables you to place 2 orders 1 minute before the set time for the news release arrives (check your time zone and your broker time in order to adjust this time setting correctly). Now set the SL and TP values to the values you want to use as both Stop Loss and Take Profit (use a small stop loss and large take profit for better results, for example SL=30, TP=80) and variable (2) as the amount of pips away from the current price you want to place the orders. Use a wide enough value (30-50) in order to ensure that whipsaws are minimized as much as possible !

I hope this news trading ea proves profitable to all the forex traders out there looking for a solution to trade news releases in mt4. If you want to learn more about more commercial and free expert advisors I have reviewed 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, February 6, 2009

Why Nobody Reviews Free Expert Advisors

When automated trading began it's furor a few years ago, everybody was ecstatic at the possibility of automating their trading strategies and becoming successful in automated trading. However, we began to learn that turning profitable manual strategies into robots is not as easy as it sounds and that introducing a computational variable into the matter revealed problems we didn't use to have.

Now the matter became a little bit more complicated when people realized that automated trading strategies could be packaged and sold as "get rich" schemes for people who wanted to be profitable traders but lacked the skills to do so manually. Anyway, some people out there decided to give out their trading strategies for free and this is when the world of free expert advisors began.

Since the beginning it was completely clear that most free expert advisors lacked quality and even coherence. One after one, programmers started to create martingale beasts, hedge experts, grid systems, etc. It was clear that free trading systems, for the most part, where just the dreams of programmer/traders who most of the time were not profitable manual traders, manifested in a piece of code. Now don't think that commercial expert advisors where any better ! Nobody had had significant experience with automated trading in mt4 and many commercial expert advisor sellers were just free expert advisor makers who decided their ideas could be marketed. Then there were also people who robbed free expert advisor ideas that seemed good and made websites and auctions on ebay to sell them.

Things became even worse when someone had the great idea of introducing referrals into forex products. If you search the web, 99% of all expert advisor reviewer web pages are tied to the expert advisors they review by commissions. I have always believed that commissions automatically bias the reviewer towards making the product more interesting in order to sell it (I know it would bias me). This of course, is not a good thing for free expert advisors since there is no insentive whatsoever to review experts who offer no referal bonuses.

So we have several factors that have affected the way in which free expert advisors are perceived. First, there is no incentive for reviewers who want commisions (which are sadly most) and second, good free expert advisors are terribly hard to locate. It demands experience and a certain know how of what can and cannot be profitable in automated trading in order to filter the 99.9% of experts that simply will never work and work with those that have an opportunity to do so.

Since I have no referal interests whatsoever, I decided to continuously search, test and review free expert advisors, with some of them having more than a year of forward testing (God's Gift) I am now almost sure that quality, profitable free expert advisors can be found out there and that they can as well match the quality of commercial experts. Now if you are interested in looking at the testing results of this experts or learning more about the free and commercial experts I have reviewed 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 !

Thursday, February 5, 2009

Trading the Turtle System in Forex using an ea in mt4 - Part Two - The Ea

In the first part of this post I gave a little introduction into the turtle's trading system and some insights into it's money management technique. From now on, I will start to talk about it's entry and exit strategies as well as it's pyramiding characteristics.

If you read the pdf (there is a link to it in the last post) that details the whole turtle trading system, you will notice that the system follows breakout strategies with a pyramiding approach in order to exploit the trend. This strategy ensures that the system gets a very high profit when a large trend is caught and also tries to minimize the risk associated with ranging markets. This is specially profitable in long time frames.

You should have also noticed that the Turtle technique has two different systems, No.1 and No.2. We are going to trade the system using the No.2 trading system with an 2N stoploss and an exit strategy based on the 20 day breakout signal. This of course, with the corresponding pyramidying tecnique with a maximum value of 3 units trading at any given time.
The expert advisor we will be using can be found here (an image of the trading expert is shown above). It accurately represents the way in which the system works, following the exact entry and exit rules described in the manual for the No.2 trading system, make sure you set the LockingProfit option to false as this is an implementation not true to the original turtle system (remember to demo test to see if you feel confortable with this system before using real money). However, the lot size needs to be adjusted weekly following the instructions given during the first part of this article. I have also started testing this system in a demo account using the EUR/USD daily chart. People who have joined the mailing list will also receive statements and weekly comments on this system.

If you would like to learn more about other free and commercial expert advisors I have reviewed 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 !

Trading the Turtle System in Forex using an ea in mt4 - Part 1 - Money managment

During the last 50 years of trading, no trading system has ever brought so much commotion and excitement than the turtle trading system developed by Russell Sands (it is useful if you read this document which explains the system first before venturing into it's analysis for mt4). This legendary trading method turned ordinary people into extraordinarily profitable traders, showing everyone that the average Joe was as capable of being successful in trading as any finance major.

The turtles success, as they were called for following up this system, was primarily based on their ability to follow some simple rules that were geared towards bringing in profits if followed to the letter. The system focuses on catching long term trends and gets its profits from 2 or 3 positions each year. This system works but is very difficult to follow for the regular forex retail trader, mainly because it involves long periods of sustained draw downs in order to achieve periods of positive results. The system continually puts the trader's physiology to the test because sustained draw downs often cause traders to quit before seeing any real results. Russel in fact said, and was probably write in saying that he could have published the system in the newspaper and nobody would have followed it.

The first and one of the most important things about this trading system is adjusting positions sizing. I will now show you how it applies to retail forex traders using mt4. The rules change a little bit because metatrader brokers allow us to fraction lot sizes, something which could not be done by the turtles. Additionally, retail forex traders usually have high levels of leverage, something that should also be taken into account when dealing with this system.

The system uses a unit (defined as N) to calculate position sizing according to market volatility, this should be calculated once a week. So, in order to calculate this in metatrader 4, open up a daily chart with the currency pair you wish to trade (we will use EUR/USD), attach the ATR (average true range) indicator and record the ATR value at the beginning of the week. After this, the equation to obtain your lot size would be N=(0.01*(account size))/((contract size)*(ATR)). The result of this equation should then be rounded to the closest second digit, so, if the result is 0.1215 then it would translate to 0.12 , which can be traded in any mt4 broker that allows lot fractioning.

For example, trading a 1000 USD account with a 100,000 contract size, and an ATR of 0.0155 you would arrive at a unit size of 0.0064 lots. As you can see, this is undercapitalized for most mt4 brokers so we should expect to have at least 5000 USD for 100,000 USD contract sizes and at least 500 USD for 10,000 USD contract sizes. Now, this value of unit size is dramaticaly important as every aspect of money managment is based upon this measurement.

In the case of the 500 USD, 10,000 contract size account, we would trade 0.03 units which would trade at 3 cents per pip , which would allow for a 331 pip movement per unit against you before 2% of capital was lost. This is adequate as it allows enough market movement in open positions. My next article about the turtle system will focus on setting up your mt4 trading platform to trade the turtles as well as what the entry and exit rules are, I will also explain how to use the metatrader expert advisor (automated trading system) to trade the turtle system . Now you can see why this trading system is called the "turtle trading system" you will require a 335 pip gain in order to gain 2% of your account using one unit. Sure, it is a slow, but certain road to wealth.

Now if you are interested in other free automated trading systems which have been traded and reviewd by me 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 !

Stochastics Forex Free Expert Advisor

I have always hated indicators in forex trading, this is not a secret for people that have been reading my blog for a while. For me, indicators are quiet deceiving in that they are just a way of showing you something your already looking at : price action. No matter how elaborate an indicator is, it is just a conjunction of mathematical operations done over information already shown to you in a candlestick chart. Furthermore, indicators, more often than not, cause paralysis by analysis amongst new traders.

Nonetheless, after looking at a bunch of different indicators, I would have to say that the best of them are leading indicators (few of these indicators have good free expert advisors based on them, mainly because of exit strategies). These differ from lagging indicators in that they show their signals before market moves happen rather than after (as a moving average would). Leading indicators balance this by having a problem with false signals. The truth is that most of the time these indicators give signals for things that don't happen.

However, the stochastic oscillator, which is an indicator based in the notion of "overbought" and "oversold" gives some success in forex trading if adequate exit strategies are used to balance out it's tendency to give out false signals. One way in which the indicator is further refined is by taking signals when lines cross down from extremes instead of into them.

One ea that implements this quiet well and also introduces a Williams % R filter is found in the forex-tsd forum (here) . This free expert advisor shows good results throughout last year in backtesting (90% modelling quality) and could prove a valuable tool inside the forex market (it will be part of the newsletter from next week). This free expert advisor also has the quality of being a very selective trader, with trades showing up only once or twice per week (reminds me of God's Gift).

If you are interested in more free and exiting trading systems such as the God's Gift expert advisor 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, February 4, 2009

The FxReviews Trading Group

Recently it has come to my attention that many people are interested in manual trading systems for either trading or increasing their knowledge about the forex market significantly. On a recent post, I made a proposal to create a forex trading group in which we could research more about manual trading systems and further enrich our experience within the forex market by acting together. My idea with this post is to provide further insight in what the group would be about and what I would expect from people wanting to join.

The main idea is to meet once every trading day at about 9-10 p.m EST time (via skype)(if you can't make it everyday it is not a problem but most days is a must). We would evaluate the market at that time as well as discuss the ways in which we would enter or exit market positions at the current time or at other times during the day. The idea is to evaluate different manual trading systems and avoid common trading mistakes that are inherent to trading by yourself. If you are new to the forex market this will be a great opportunity to avoid wiping your first account as well as getting to know other forex traders better.

If any of you would like to join (free to join but of course, space is limited) the trading group, please send me an email to ekans_ at or leave a message in the chat located at the left side of your screen with your email address (this is not recorded by bots so your email is safe there). The first systems we will test are systems I have been using for some time, such as Fibonacci trading, candlestick pattern trading and Murrey Math trading.

If manual trading is not your thing and you are more interested in gaining profits with automated trading systems 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 !

The Murrey Math Forex Trading System

Amongst all the manual forex trading systems I have studied during the past few years, one of the systems that has proven to be effective is the Murrey Math forex trading system.

Murrey math uses a combination of important price levels in order to guide the trader into taken one or another position. The system takes the previous 64 bars high and low and divides it by eight, showing you these important levels as 8/8, 7/8, 6/8, etc. It turns out to be that these levels accurately represent important support and resistance price lines which, when used accurately, can give the trader an amazing accuracy in the fx market.

I have developed some simple guidelines for using the Murrey trading system (different from the ones you must commonly find) because I have found them to be most effective, of course, you are welcome to change them so that they fit your trading style. Anyway, in order to use this trading system, you should get the Murrey Math VG indicator available for metatrader 4 (this automatically traces the lines we are talking about).

In general terms the 8/8 and 0/8 lines are extreme resistance and support levels, when price reaches either of this terms it is safe to expect some kind of retracement. I trade the other bars as I would trade regular support and resistance levels. So my system rules would be like this (I trade the EUR/USD one hour chart with this system) :
  • When price closes in the 8/8-8/7 or 0/8-1/8 regions I take a trade into the opposite direction with a take profit of 8/5 (from 8/8) or 8/3 (from 0/8) and a stop loss of 50 pips. I move the stoploss to break even after I reach 8/6 or 8/2.
  • When price bounces of a line, tries to reverse but closes above the previous Murrey Math Line (by above I mean at least ten pips above) I treat it as a resistance so I take a position in the direction of the trend, as soon as the bar closes, my take profit being the line it bounce from and my stop loss the next Murrey Math Line.(the oppositve applies for lines that act as support)
  • When price closes more than 20 pips past a murrey math line that previously acted as support or resistance I take a position into the direction of the trend with take profit equalling the Murrey Math line number that acted as support +2/8, with stoploss being the Murrey Math line -1/8.
Of course, I couple this simple rules with a signficant interpretaion of candlestick patterns but most of the time I take the positions just as stated above. Either way, candlestick analysis does provide an important insight into price action and you should consider it an important part of every trading strategy. If you liked this trading system but would like to learn more about automated trading systems and other systems I am testing 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 !(Below, an image of a metatrader screen showing the daily Murrey Math Lines for this week)

Monday, February 2, 2009

Free Expert Advisor, the way to go !

This past few months have been eye openers for me. I have learned a lot about automated trading systems and the way they work (and don't work) in the forex trading world. Throughout the last year I have reviewed many expert advisors, both commercial and free and I have concluded that commercial experts are in no way better than the good quality free expert advisors out there.

Sure, free expert advisors have several disadvantages. They are most of the time not developed by professionals, they have no implicit support, they have no manuals, no one to shout at when the money is lost, etc. But maybe the biggest disadvantage of free expert advisors is that their overall quality is abysmal.

Yes, the worst thing about free expert advisors is that most of them are not worth anything. Most of them are doomed to lose by design and many of them have inherent logical flaws which prevent them from working. Many of them are designed to work in very short time frames, with unreal take profit values, etc.

The good thing is that once in a while, you find some expert advisor that stands out. It happened to me with the God's Gift ea and it happened again with the Simple Daily system expert advisor. I have seen how free expert advisors developed by people who do not sell their products have outstandingly overrun their commercial competition. Trust me, I am not easy to convince and I had always defended commercial expert advisors against free ones but now, I believe that there are just as good, talented people making expert advisors for free that work as they are people selling expert advisors for profit.

If you would like to learn more about these free expert advisors or the other commercial expert advisors I have reviewed 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 !

Trading the Forex market for Profit (as a team)

During the past few months, I have been closely watching the experiences of several people new to the forex market in search for some answers about why they are profitable and why they are not. I am a true believer in that anyone is a potentially profitable forex trader, but I also believe that trading the forex market profitably is outstandingly difficult.

One of the people I have spoken with who started less than 6 months ago trading the forex market told me that he read about 10 books about fx trading before deciding to enter the market with live money. He also paper traded for two months before entering the market and he was actually making money everyday on paper (haven't we seen this before ?).

Now, when he entered the market it was a different story. He put two thousand dollars inside a forex account and started to trade, then he started to make mistakes, started to do things he knew he should not and after a fight with his wife (about money), he ended up losing all his capital in only five hours. This seems to be the summary of most people's starting story inside the forex market (mine included !).

Somehow, this is the way the forex market does it's baptism on his and her followers. But can this be ended ?

Well, I started to look at traders who did not lose their first accounts, I started to look at traders who seemed successful and had somehow, "conquered" the forex market. My conclusion is quiet simple. Losing is a consequence of trading by yourself.

I am now utterly convinced that most people's money could have been saved if they had been trading with someone else. At least, the most stupid, ravaging, emotional mistakes would not have happened if you have had someone on your side saying "NO ! don't be stupid !".

This is why I am starting a manual trading group and I am actually seeking other traders who may want to join me (as I have some more free time now for trading). We would meet once each week trading day, probably sometime along 9 p.m - 10 p.m EST and we will analyze pairs and determine which entries to make, we will trade demo first and then live when our skills and team work are sharp. The meetings will be arranged through skype and hopefully this will make us more knowledgeable and void of our own mistakes. If you are interested please email me at ekans_ at or leave a message in the chatbox located in the left sidebar.

Of course, this is only an experiment and by no means does it change the fact that I am still experimenting and learing from automated trading software, which I think, is the real solution to the forex trading profitability problem. If you have liked this post or any of my work 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 !

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