Wednesday, April 8, 2009

Expert Advisor Seller Responsability the H.S.R Criteria

For the past two years, I have been awed by the way in which forex expert advisor sellers take advantage of the ignorance of new forex traders. I have seen people selling expert advisors which are definitely a sure way to wipe out an account (and in many instances have done so), I have seen the hype, then the reality of the expert advisors.

In general, I believe that expert advisor sellers can be divided in two. The first group makes deficient expert advisors and sells them without the knowledge that they may be causing significant loses to people and the second group, which is almost criminal, that sells expert advisors to people with the knowledge that their product may cause account wipeouts. I know that the forex market is exceedingly risky and no expert advisor seller ever will be able to completely guarantee the success of his or her produts. But because of the amount of capital that is at stake here, I think that there should be a minimal standard for any ea that wants to be sold out to the public.

What I am proposing is a criteria for ea selling called the H.S.R, Honesty, Safety and Reliability. The criteria is a strict set of rules that needs to be followed in order for an expert advisor to have the best possible conditions for retail traders to experience. This in no way means that the ea will be profitable forever but it does mean that the ea creator thinks it will, to the best of his knowledge and that testing shows that the ea has been profitable in the past amongst several market conditions and that it has a good probability of being profitable in the future. The rules I propose for my criteria are :

1. The ea should be backtested with tick data (which is 99% modeling quality) at least from 2004, although longer backtesting should be preferred.

2. The ea should be live tested on a live account whose investor password is always available to the public and unchanged for a period of at least a year.

3. The above two items should be done with at least 3 different brokers in order to demonstrate that the expert advisor is broker independent.

4. The ea seller should explicitly indicate the maximum levels of draw down the account has experienced in the above tests as well as the average monthly return that could be expected.

If ea sellers around the world decided to follow my criteria, about 99% of the experts out there would be gone forever and forex retail traders could rest assured that the ea seller did all that was in his power to show that the ea is in fact profitable and that it can generate equity for it's customers in the future. In the end, there is no obligation from any ea seller to follow any set of rules while trying to sell an ea. In reality a few good marketers can sell a totally unsound expert to the new retail traders or the people who dream about quick richness but it really is not about that. It is about being honest, not about ripping people off. With my criteria you would know that your ea seller is honest, safe and realiable. I challenge all commercial ea sellers out there to fulfill my criteria and become examples in the world of automated forex trading.

If you would like to learn more about free and commercial automated trading systems 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 !

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