Saturday, October 31, 2009

Support and Resistance Trading... Starting a Journal...

I have received significant interest from several people regarding the post I wrote on Oct 17 about a dynamic support and resistance trading system I use to trade the forex market manually. This trading system is based on support and resistance levels. It is completely discretionary and is therefore almost impossible to be made "systematic" or perfect for "anyone" to trade as other much more rigid trading system, as the turtle trading system, which have very specific and inflexible sets of rules.

However, I do recognize that other people, as well as me, may benefit from a deeper description and evaluation of the system as this will bring up the system's faults and strengths and will most likely improve my performance with it in the future. I have therefore decided to start a "trading journal" in which I will describe trades taken using this system. I will publish a demo account statement using mt4stats in which I will include the updated performance of my manual trading.

In order to avoid saturation of the blog for people who are not interested in manual trading I have decided to keep the journal as a text file on an ftp. This file can be downloaded at ftp://fxreviews.exavault.com (username : journal, password : trading )and it will be updated with notes on the trades I have taken, the reason why I've taken them and analysis on the outcomes of trades that went the wrong way. With this, people will be able to see the logic I use when trading and why it may be wrong or right. You will also be able to see the way in which I handle money management and how I carefully select my TP, SL and lot size to adequately manage my risk.

I use this trading system in a long term fashion so you may see that I usually open 1-5 positions every month. I also rarely have more than one position open at a time and sometimes it may take even two weeks for a single position to close depending on the actual targets I may set.

For all of you to know, I trade this system using renko charts which provide much cleaner charts with a strong reduction of market noice (as far as support and resistance goes). I wrote a post a few days ago with a video on how to accurately display renko charts on your metatrader 4 platforms. These charts can also be displayed on trade station or ninja trader for those of you who use these trading platforms.

If you are interested in this system please bookmark this page and check the demo statement/trading journal at least once each week, this way you may be able to follow my analysis and better understand my trading decisions. If you would like to learn more about automated trading systems and how you can profit from them with real profit and risk targets 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, October 30, 2009

Can Anyone Trade the Forex Market ? We'll see !

Through the whole time I have traded the forex market and particularly more during this year I have been puzzled by the ever lasting question... Can anyone trade the forex market profitably ? Well, the answer seems to be no, but the opinion seems to be yes. Evidence suggests that the majority of retail traders lose their money. However for some reason people tend to believe that everyone can trade a forex account with a profit. Can this be done ? Can anyone trade the forex market profitably ?

Of course, I am not the first person to ask this question and this has already been answered by Richard Dennis, in the 70s when he traded his turtle traders to get massive amounts of money from the market. However, the turtle experiment has some very particular characteristics that make it hard to apply to the current situation in the foreign exchange market. For example, Richard Dennis gave his traders two million dollars to invest, they traded a rigid system with fixed rules and they traded futures and stocks, not forex.

So Richard Dennis did in fact show that "anyone" could make money in trading, that is, anyone who can follow a rigid set of instructions and execute them without judgment to obtain a given result. He in fact demonstrated the basic premise that allows automated trading systems to make money, the execution of a rigid given set of rules that take advantage of a market inefficiency will generate profit in the long run. However, my point goes a little bit deeper.

I want to know if anyone can make money in the market, understanding the market. Can anyone design a trading system to take advantage of inefficiencies in the foreign exchange market ? Can people with no trading in economics or finances make money trading ? Here is where my little experiment will start.

In order to know if people are able to make money trading with absolutely no knowledge whatsoever I have decided to start a small project that will have as an aim to achieve the sustained profitability of two trading accounts managed by two people who don't have the slightest idea about forex trading. In order to do this I have selected two friends, one of my best friends, who is an electronic engineer and a friend from my little sister who is currently studying for a major in biology. These two people are ideal for this study as they have had no contact with the financial markets and they lack any understanding of how macroeconomics or currency trading works.

My plan for them is actually a 4 month plan which will have a carefully developed agenda to "guarantee" their success in forex trading as much as I can. I will try to teach techniques based solely on price action so that they get a grip of the fundamental forces behind market movements. This is the outline of how they will trade :
  • Month 1 : I will teach them the basics of the market (what a pip is, what a pair is, etc, all the basics). They will start a daily journal in which they will write their opinions about the EUR/USD each day. These opinions will be fairly simple and will only answer the question "do you think the pair will close tomorrow higher or lower than today, why ?"
  • Month 2 : I will start to trade with them on a paper account. I will sit with them one hour each day and we will discuss the market and enter a trade randomly each day, they will decide the targets of the trade and apply money management techniques we learned in month one. We will also do extensive simulations in which we will execute the same technique.
  • Month 3 : We will start to trade on a 200 USD real account. I will coach them during the trades but they will ultimately decide whether or not to enter trades, how much to trade and when to exit the trades.
  • Month 4 : They will start live trading by themselves and we will see if they can apply all the knowledge they adquired during the first 3 months.
They will have to keep trading journals of all the trades and they will also have to reflect upon them and analyze what went wrong in each trade and what could have been done to better exit/manage the trade. My objective is to have them dedicate between one and two hours each day to currency trading and I believe that after these four months I may be able to get some interesting results.

Of course, chances are that after four months of riguruous trading they will still wipe their accounts but I want to do the experiment to learn as much as I can about beginner trader psycology and what the real mistakes new traders make are. More importanly, this will let me analyze exaclty what can be done to help new traders and what particular trading techniques work better for people who are just starting forex trading. Obviously this will also tell me how easy or hard it is for "anyone" to learn to trade the foreign exchange market. As they progress and I find out more about the trading learning process I will write more posts, new posts on this subject will be under the tag "ECT Proyect", ECT being short for "Everyone Can Trade".

When we arrive at the later stages of the proyect I will post their accounts via ftp so that you can all have an updated view on their account progress and the mistakes/successes they are getting. Of course, if you have liked this article and you would like to learn more about automated trading and how you can become profitable trading with expert advisors that have realistic profit and risk targets 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, October 29, 2009

Forex Expert Advisors: Forex Trend Scalper an Unbiased Review

A few days ago, a customer suggested I reviewed the forex trend scalper expert advisor. Since I had never come across this trading system I decided to dedicate today's post to its analysis. As always, I will analyze the claims made on the web page against the evidence provided by the authors and this way I will be able to say if, in my opinion, this expert advisor system is worth buying and testing or if it is not. The forex trend scalper system only claims to make money everyday in a consistent fashion, lets see if this is proved by the evidence.

When you arrive at the forex trend scalper's website you are greeted with what I would call an average EA website. However, the author of the trading system did a good job at limiting the amount of outrageous claims and instead provided a short list of rather simple ones. The only one which says anything about trading states that this system can "make money" everyday for the trade. No claims at all are done about the amounts of profits that can be generated, the risk:reward ratio, the maximum draw down, etc. This will lead people to over estimate the profitability and underestimate the risks of trading this system as risk is not brought up anywhere within the sales page.

Even though there are no claims of "profit targets" we do see across the web site several places where people say that forex trend scalper is generating them 5 and 6 figure incomes. If this was the case, as the author says its the case for himself, then why wouldn't he show us his live statements showing he has made a living from the forex trend scalper ? Well, probably, as in most cases, this claims are just made up and hold no place in the real world.

As for the actual long term profitability of this trading system, all the evidence that is provided is a few months of live testing. There are no backtesting statements and therefore no way to compare with live testing and gauge longer term profitability. From the live statements I can tell that the EA is our regular EUR/GBP scalper. This type of experts seem to have thrived after the sales success of the FAP turbo expert advisor.

Since we lack any way to verify the long term profitability of the expert, a three month live test is too short and the scalping of the EUR/GBP is very dependent on broker spreads and broker feeds I consider this expert advisor NOT worth buying. If you would like to know what I think about commercial experts, why most of them fail and how you too can trade free long term profitable 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 !

Wednesday, October 28, 2009

Renko Charts, Trading Fixed Ranges

I wrote a post a few months ago about the use of tick charts in the forex market and how these can be implemented on the metatrader 4 platform. I have noticed that the video post has had a lot of success and it has allowed many people to finally get tick charts in their mt4 platforms. Today, I am going to talk to you about another type of charts called "renko charts" or "fixed range charts". These charts, are another alternative to time based charts (like tick charts). They don't show us a fixed amount of time (like time charts) or a fixed amount of volume (like tick charts) but a fixed pip range. A renko block chart shows us a fixed range movement for each bar that is displayed on the chart (each bar is an X pip movement). The renko charts are excellent for the location of patterns and support/resistance levels on charts becase this information is displayed in a crystal clear fashion.

However, renko charts are no holy grails. They look visually very appealing but the fact that you have to wait for a fixed range to close before you can confirm a signal makes the renko charts particularly lagging when compared with time based charts. However, renko charts, as I said before, show us a very good picture of the overall market movement and are invaluable tools for a trend follower or support/resistance trader.

How do we draw renko charts on metatrader 4 ? Well, lucky for us, this matter has already been answered by the people at forexfactory however, I am also making a video so that you all can easily get your renko charts (range based charts) on your mt4 platforms. You should remember that backtesting is impossible on renko charts as the backtester does not support the loading of offline charts for testing.
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If after viewing this video you would like to learn more about automated trading systems and how you too can develop and program your own long term profitable 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 !

Tuesday, October 27, 2009

Forex Expert Advisors : Automatic Forex Crusher, an Unbiased Review

Today I found out another expert advisor I had never come across, this automated trading system, the automatic forex crusher, will be the subject of my review today. As always, what I will do is to analyze the claims made on their web site with the evidence provided by the authors. By doing this analysis I will be able to say if the expert advisor is or is not worth buying and testing. My review will be, as in all cases, as unbiased as it can be as I receive no compensation for either positive or negative feedback on the trading system.

The automatic forex crusher's web site begins with the wrong foot. The first thing you encounter when you access the web page is a huge claim in read saying "Renegade Forex Trader Banks 123k in 60 days with New Forex Trading Software". After we see this very outrageous claim we see that actually the EA seller has NO evidence whatsoever to backup this monstrous assumption. What evidence does this EA seller provide ? The trading evidence provided by the author of the automatic forex crusher system is nothing short of precarious, some backtesting with live testing statements of a few days. This evidence is totally useless. Backtesting results by themselves, with no live testing to probe consistency, are just totally meaningless.

It is obvious that the system does not perform as the author says because of several reasons. First of all, backtesting statements have absolutely no date, reason why it is impossible to know their extent but they are most probably limited, second of all, the forward/live trading statements showed are dated from January 2009. Why in the world would someone with a profitable automated trading system stop trading it after a week ? If the system was as profitable as the guy/gal says why isn't there a 10 month live test now showing us the great profits that can be achieve ? The reasons seem obvious.

Of course, after going through the website and looking at the evidence provided by the author to backup the profitability claims of the automatic forex crusher I would have to say that the system is totally NOT worth buying or testing. If you would like to learn more about was is required to get a long term profitable trading system and how you too can design and program your own long term profitable system 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, October 26, 2009

Forex Trading Systems : LeverageFX an Unbiased Review

Since I usually do not review manual trading systems today I decided to change the scheme of things a little bit and review the manual trading systems offered at LeverageFX.com. I was asked to review these trading systems by a website visitor who seemed to be interested in the way their manual trading system works. After taking a look at the website and analyzing the characteristics of the trading method they mention I decided to write this review. We will first look at the general characteristics and claims made by the people at leverageFX and then we will evaluate how "achievable" profitable trading results would be using this system.

More than a trading system, the people at leverageFX seem to be offering a variety of different tools that can help the average trader get more profit from the foreign exchange market. The website also talks about their strategies which seem to fit both advanced and new traders. The system for new traders shows signals as red and green bars and seems to be able to tell the trader precisely when he should enter or exit trades.

At first glance, this looks like many other manual trading systems offered online and does not seem to provide any additional focus that would benefit an experienced trader (in the new or advanced section). In my opinion, the trading aids offered by the company are not likely to benefit someone who is not already profitable in trading and will most probably give very little benefit to someone who already is. The problem of this system, I believe, is that it has an excesive focus on the finding of entry points and it underestimates the whole concept of money management.

The system never mentions how money management should be adapted against the market or how traders should exit the market in relation to the amount of money they have traded. Needless to say, you are as much as likely going to profit from the market with this than from other already available tools out there. In particular, there are thousands of different indicators being offered publicly for the metatrader 4 platform and many of them give you the same functions you find with the LeverageFX system.

My advice for people interesting in manual trading would be to learn it through experience, trade a simple trading system based on support and resistance with an adaptable and sensible money management and you will start to head into profitable territory. If the reason you enter a trade is because a bar changes color in an indicator, then you still have a lot to learn from forex trading (although we all keep learning!).

If you would like to learn more about my automated trading systems and how you too can benefit from trading long term profitable systems with realistic profit and risk targets 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, October 25, 2009

Forex Expert Advisors : 4xgreed an Unbiased Review

Today I saw a comment on a blog that talked about a "great trading system that would come out in December". This new and exciting trading system is called 4xgreed and today will be subjected to my review. Even tough the system has not been released yet, the information provided by the authors is enough for me to analyze and decide whether or not this expert is worth testing or buying. By simply analyzing the trading results shown by the authors I can certainly gauge the likeness of this EA being long term profitable.

First of all, the expert advisors web page is fairly decent with no huge amount of hype or unnecessary marketing. In fact, absolutely no claims are done about the expert's profitability, reason why I imagine the author(s) prefer the clients themselves to decide the profitability in virtue of the live/backtesting the people at 4xgreed show. There is no clear explanation of the nature of the expert's trading but they do say that the expert is able to adjust to market volatility and market conditions via neural networks and genetic algorithms. To me, the mentioning of these factors is just to make people feel the system is "advanced" as there are no proven results in live testing that have shown that a strategy can in fact benefit in the long term from any of these two approaches. In fact, neural networks have been proven to overfit expert advisors to the past, preventing effective adapation to "actual" market conditions.

The most interesting part of this expert comes from the testing section. The people at 4xgreed have done a good job at presenting several brokers, account sizes and backtesting results. This is a sure way to show an expert is both broker consistent and profitable. However, by analyzing the trading statements, several things come to mind.

The first bad characteristic of this EA is the low value of the TP. With a TP in the order of 14 pips (EUR/USD), this expert advisor will sure have problems with one minute fractal interpolation in a very significant manner. Furthermore, the fact that the risk to reward ratio is 65:14 is also not very conforting. This disparity between the stop loss size and the take profit size makes the errors in backtesting favor winning trades more than losing trades because of their much smaller size. This is evidently seen in the ten year backtesting that shows the typical, unrealistic returns when fractal interpolation errors are predominant. An almost 5:1 risk to reward ratio is also not a very favorable characteristic since it means that the expert is relying on the randomness of short term movements to gain profits, rather than reliable trend following or similar types of trades.

Live testing at the moment is rather limited so there is no room for big conclusions regarding them. The only thing we could say is that, as it is inferred from the above discussion, there is disparity between live and backtesting which makes backtesting completely meaningless. I think that systems that cannot be evaluated in the past and therefore cannot be said to be long term profitable with good certainty, are NOT worth buying. Given the nature of the risk to reward and the backtesting results I would be inclined to think that this expert will have similar results as the shark EA. I am however, opened to change my mind after we have two years of live testing data that show that the expert can be profitable, obviously with lower profits than the backtesting shows. Before this, using this expert is as good as gambling as one does not have ANY reliable historical testing that shows if this EA has any "adaptability" at all.

As I have said, for now and at least the first one or two years, I will consider this expert advisor NOT worth buying. If you would like to learn more about my criteria for long term profitability and how you too can trade with long term profitable systems that protect your equity and have controlled risk levels 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, October 24, 2009

And Then There Were Non...

As you may know from my previous posts about the way in which expert advisors are reviewed by most independent testers and forums, I strongly disagree with the way in which the evaluation of trading systems takes places. The reasons for this range from the sometimes mindless testing to the "test and drop" tactics used by many of these expert advisor reviewers. From now on I will refer to "expert advisor reviewers" as both people who have websites that review experts and people in forums who review free or commercial systems.

Today I want to write about a phenomena I think is happening and will happen in the future with most independent testers in the world of foreign exchange automated trading. This phenomena, which is related to today's post's title is related to the fact that most expert advisor reviewers follow a "learning" curve which eventually leads to a total lack of expert advisors to evaluate and a complete lack of interest in the testing of long term profitable expert advisors.

For me, expert advisor reviewing happens to most independent testers in "stages" or "steps" . The first step, which is when people start to test many expert advisor systems is what I call the "charmed" phase. Along this step, an EA reviewer becomes very excited about testing systems and decides that his objective will be to find a profitable expert advisor, note that no strict criteria for a "profitable" expert advisor exists for them and most of the time, these reviewers base their evaluation on their personal criteria which, more often than not, is not geared towards what is considered by me (and experienced traders) as "long term profitability", in fact, most of the time this criteria is even fairly opposite to that.

After testing a whole bunch of experts, the reviewer goes through the next phase which is what I will call from now on the "elimination" step. In this step, the expert advisor reviewer "eliminates" trading systems that do not fulfill his criteria for "profitability", most of the time long term profitable experts are eliminated in this phase as they almost all the time fail to generate short term profits of such magnitude as those generated by unprofitable systems like grid trading system, Martingales and scalpers (note that eventually these profits will all be given back by unprofitable trading strategies). The key factor here is that the elimination phase usually happens within less than a year. That is, experts don't have any opportunity to show their potential, even more, most reviewers don't seem to have a criteria in the aforementioned charmed phase in which they can decide which experts are and which ones are not worth evaluating.

After the elimination phase, most of the time only experts with very unsound trading methodologies, which were the experts able to generate high short term returns, are left. These experts generate profits for even one or two years (best case) after which they wipe accounts. Here is when most expert advisor reviewers enter what I would call "desperation". In desperation, the EA testers find themselves with no expert advisors and with the possibility of doing one of two things. They can return to the "charmed" phase and get new experts and repeat the whole process or they can go another way and start analyzing what really made each expert they evaluated trade like they did. After this, the EA reviewer can build a real criteria for long term profitability and start analyzing systems before committing time and resources to experts they know are not long term profitable.

Several expert advisor reviewers are near their desperation phase right now and I am very interested in what they will do to move forward. It will be very interesting to see other people's criteria for long term profitability as well as their own programming and trading systems evolving out of this.

Sadly, in the end most reviewers just throw the towel with the firm belief that it is impossible to find a trading system that is long term profitable. However, I have learned, through the whole process above, that such profitability is achievable and that reliable testing and evaluation has to be done in a deep and critical level. If the evaluation of experts and the building and trading of long term profitable systems interests you 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, October 23, 2009

Backtesting with 90% quality and Getting it Right... A Video Tutorial

I wrote a post a few months ago about backtesting in the metatrader platform and how it had to be done to get the backtesting and the modeling quality correct. After several people had problems with that tutorial because of some aspects I neglected, I decided to write a new post that will correctly address the problem of backtesting and allow all of you out there to test your expert advisors with 90% modeling quality.

The first problem people had was related to the fact that my instructions demanded that no accounts were opened. This did not allow the platform to have the accurate currency symbols it needs to download the data. Furthermore, if you open and then close an account and then try to download data the program gives you an error about no data being available for download. After a while of tweaking to find a reproducible way to achieve 90% modeling quality backtesting I have been able to done so and made this small video tutorial, after all, one image says more than a thousand words (imagine a video !). Please leave comments saying if it works for you or if it does not. If your data gets corrupted after this for whatever reason (you get mismatch errors in backtesting) just repeat the history deletion step.
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If you would like to learn more about the limitations of backtesting, why a conjunction of live and backtesting is necessary to evaluate profitability and how you too can profit from long term profitable 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 !

Thursday, October 22, 2009

Forex Expert Advisors : Robominer and GT-Shadow, an Unbiased Review

Many of you may have read my reviews on the Robominer expert advisor. During the last week, there have been some interesting discussions at the robominer forum which have led me to write a third review with all my new perspectives and balanced views about this expert advisor. With this review I plan to analyze the system in depth and give my unbiased opinion about it, its perspectives as a long term profitable trading system, its risks and its trading mechanism. This review will replace all my former reviews on the robominer EA which will be deleted after this post comes out. However, this review keeps the link from my former reviews as a way for people to get here and read this new perspective.

First of all, let me say that the creator of the robominer EA does a good job at explaining the robot's trading mechanism and the way in which this trading system trades the forex market. The robominer EA is a grid trading system which tries to capture profit by opening trades towards the median price of currency pairs from "similar" economies such as the EUR/CHF and the AUD/NZD. The problem with this trading methodology is that it is subject to large levels of open draw down because positions have no stop loss and the trade "assumes" that the market will come back to hit the take profit of the orders. As you imagine, this EA will many times open trades against the trends when price is moving to test out the range "extremes".

The robominer system has been tested extensively during the past 1,2 years by the EA seller and many other independent testers, being the most prominent of these reviewers pipcop which has tested the EA for a little bit less than a year. With no doubts, the trading strategy has worked for this period of time for the EUR/CHF and the AUD/NZD, this can be seen perfectly on the one week charts of these pairs which show how the EA has been able to exploit the regression of the pair's extreme values towards the central point of the long term (5-10 year) range.

Can grid trading be a profitable strategy under certain market conditions ? Yes, without a doubt, grid trading can generate money from these returns towards median price but its reliance on the absolute range makes the trading strategy faulted. Should you not use grid trading systems ? Well, the answer is, it depends. What do you want ? If you want an EA that self adapts to the market and is able to trade with minimal intervention from you, then the answer for you is no, do NOT use a grid trading system because they expose your accounts to excesive open draw downs if they are just traded blindly without any supervision. If you want to get profit out of long term ranges but you know when a grid trading system can accumulate potentially hazardous positions then my answer would be yes, use a grid trading system.

It is a true that any grid system will, eventually put people's accounts in jeopardy, this is not something I am making up or something that will never happen. No matter the range, the currency pair, etc, a grid trading system will always find itself outside of the range with a lot of accumulated open draw down positions. This will happen because in the long term, small economical differences will cause a currency to slowly appreciate over the other. This is a fact and it is reflected in the ten year robominer backtest shown below (statement available here). This was the ONLY ten year backtest (from 1999 to 2009) I could do without an account wipeout before 2004. If you use the current level of risk used by pipcop and other reviewers you will see that it wipes accounts before 2004. This is a backtest done on the LATEST version of robominer II with default settings and a starting 100K balance. Does this mean you should discard grid trading ?
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In my case, I am interested in trading a system in which I can rely on for the very long term, systems that prove to work under varied market conditions and that will never put my account in risk with lots of open positions with a high open draw down. Is this what the robominer offers ? I am sorry but this is not the case. I am not interesting in holding 3 years of open draw down positions, even if they come back to profit. The risk I run into when holding such large loses for such a long time is just very non conservative and, for me, a clear view of an uncapped market exposure.

Is there potential for profit using the robominer EA ? I would certianly say there is, but great care must be used when trading such an EA. For me, grid trading such long term ranges requires some careful analysis. I would, for example, only trade this EA when we are in the extremes of the ranges and breakouts have failed to happen, this will ensure a safe long term ride towards median price with much more moderate risk. Of course, this will happen once every 5 or 6 years so I would only trade the system for 2 out of every 10 years, when market conditions are most favorable to enter positions.

Is the robominer, under my definition, a long term profitable system ? Does it have the potential to generate long term profits during the next 10-20 years without an elevated market exposure ? No, this is not the case as it is shown by not only backtesting, but the trading system strategy in general. I would never put the robominer in a trading account and use it for the next 10-20 years, there is the very strong possibility that during that time it will hold excessive draw downs which will seriously compromise my equity. It does not adapt to changing market conditions and the fact that its market exposure is uncapped makes it a bold risk for long term trading.

Could it be used to profit while the ranges last ? Sure, people could trade this EA to profit from returns towards median price from the edges of the EUR/CHF and the AUD/NZD ranges. I would only use grid trading from the extremes as the most dangerous scenario is an overextension of the range with accumulated draw down from positions opened from places near the median price. Using such a trading system only from the edges of these very long term ranges would somehow further diminish the market exposure and diminish the amount of time people would have to hold onto this very long term open draw down positions.

I have to say that the robominer fulfills its promise as a grid trading system, it will generate profits and remain profitable as a range trading tool but as a long term trading tool to be used with no intervention it will puts people's equity at a very high risk. There are profits to be made with grid trading but the exact trading opportunities and trading moments have to be carefully chosen so that future draw downs are minimized. Remember that these systems are particularly dangerous in the sense that positions opened near the median price can cause heavy draw downs which will only become apparent in 2-3 years.

My advice ? If you are going to use a grid trading system you should be carefully aware of its logic and the risk in which it puts your equity. Grid trading systems are not systems to be left unattended and to be traded all the time. If you do so the trading system may cause you your whole equity. However, you can get profit from grid trading if you accurately time the moments in which you will open positions and avoid the generation of heavy draw downs by avoiding the entering of positions near the median price. After all, grid trading is one of the only ways to trade an inherent characteristic of the market, which is the development of ranges. However, grid trading assumes that a ranges is "all there is" and therefore it runs its greatest risk when the market trends away from the edges of the grid.

In conclusion, I would say that the robominer is a system that, according to my definition, is not long term profitable and non conservative. However, it can be used profitably if used accurately. Personally, I would not be able to sleep at night with positions holding a 50% open draw down and therefore I know this does not fit what I am comfortable with as a trader. Having an uncapped market exposure is not what I consider to be a long term viable way of trading the forex market. However, should you buy this system and trade it, you should be aware of all the risks it implies and the possibility that you will incur very heavy draw downs or even wipe outs during the next 5 to 10 years if you just "set it and forget it". To sum it up I have prepared the following small Q and A about the EA.

Can it generate profits ? Yes. How much profit can it generate "safely" remains an open questions. Backtesting shows that the current levels of risk generating 5-10% a month were subject to wipeouts in 2004. So now, based on backtesting I would say that a 70-100% profit every ten years seems reasonable. Backtests done with higher risk from April 2008 are consistent with the live results of both the author and the independent reviewers so there is no reason to believe that the backtest from 2000 that predict wipeouts are not realistic.

Does it have an uncapped market exposure ? Yes. The "capping" of the market exposure, in my opinion, must come from the trader when using grid systems. The trader must know when he/she should turn the system on and when it should be turned off.

Will it generate heavy open draw downs ? Backtesting shows it did. And surely trades opened near the median price will generate a lot of draw down when the currency pair heads towards the extremes of the range. The problem is that there is no guarantee that this trades will return to their take profit levels, this is the dangerous assumption made by grid trading systems.

Is it long term profitable ? As I told you, under my definition, it is not, it would be hard to believe that these pairs will hold their ranges for 20 years and the EA lacks adaptability towards changes in the median price.

Would you ever trade a grid system ? I would never assign more than 10% of my forex investments to grid trading because it does not fit my trading style and I believe that the absence of a closing mechanism is not a reliable path towards long term profitability. However, I would always consider allocating a small percent of my trading funds to an account dedicated to grid trading as long term ranges do remain inherent characteristics of the market. That said, I would not use the robominer EA for this purpose.

Now that you have the information, it is up to you to decide if this type of EA fits your trading style and if you would be comfortable trading a system that is subject to unlimited open draw downs while it profits from long term ranges. In my opinion, why would you use such an EA when there are many other commercial and free solutions that do not put your equity at such a large risk and generate similar o superior profits ?

If you would like to learn more about the systems that I use, how they adapt to the market and how you too can program and trade your own long term profitable trading system as well as freely available profitable 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 !

Greed Trading Towards a Wipeout... A Review about Grid Trading Systems

From the many different trading strategies that have emerged during the past 5 years, few of them have caught so much attention as grid trading. This trading strategy appeared first as a trader's post within an Oanda trading forum, a post in which he suggested the use of a "trading grid" as a way to capture profits from market movements. That is, grid trading established a "grid" around the current price from which trades are opened and profits are taken. While price oscillates within the grid, the trader obtains a very large amount of profit since a lot of money is taken from the successive moves of price over the grid. As it is shown in the next scheme, grid trading opens positions towards the center of the grid and captures profits as returns to the median price happen.

+ etc
+4x pips (open short)
+3x pips (open short)
+2x pips (open short)
+1x pips (open short)
-- Median price level --
-1x pips (open long)
-2x pips (open long)
-3x pips (open long)
-4x pips (open long)
- etc

Any experienced trader will easily recognize the most important flaw of grid trading. In the most pure state of grid trading, no stops are used since price is assumed to return to its median value after a given period of time. The result of this assumption is that there is an uncapped market exposure towards price movement. Grid systems will work great while the market behaves in a consolidation fashion because prices will perfectly follow mean reversion theory but when the markets needs to readjust to changing economical conditions as currency values change, the story is different.

As you can imagine, grid trading will always accumulate loses towards the movement of a trend since it will always assume that there will be a return towards the previous price levels. In fact, grid trading is doing what any seasoned trader would consider ridiculuos, it is limiting profits and letting loses run. On top of that, it is adding positions constantly against the trend, something which is absolutely prohibited by almost all the currency trading books I have read.

Grid trading, as Martingales and all other strategies that generate short term profits has gained a lot of attention from people and it will, as do martingales, draw more attention in the future. All the time new traders will find grid systems, trade them for four months for a 10x profit and then hype their account only to restart the cycle with more people who think they can make grid systems profitable. If you also believe that you can just "withdraw profits" please check my review of forex hacked for an explanation of why this strategy causes even more loses in the long run in both Martingale and grid trading systems.

As I have said, it is nonsense to try to trade a grid system, they are faulted by the nature of their very logic. It has shown to be the case that no grid trading system can be long term profitable. Mainly because of the fact that currencies never hold onto their ranges eternally, all currencies having ranges, be these ranges short or long term, will eventually break these ranges and trend far more than what people would expect. If your market exposure is unlimited, the market will cash on that and wipe your trading account with time. Regardless of the hundreds of modifications of grid trading that have been tried, the facts remain the same, unlimited market exposure equals account wipe outs.

For anyone looking into trading these type of systems I would advice you look for long term profitable systems instead. This systems are often simple trend following systems with adaptative money management that profit from reliable long market moves. If you would like to learn more about what I have learned from automated trading systems and how you too can trade them, program them and profit from them with realistic profit and risk expectations 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, October 21, 2009

Forex Expert Advisors : Forex Infinity Pro, an Unbiased Review

Yesterday we saw the release of the "latest" in expert advisors with the arrival of the forex infinity pro automated trading system. Since this EA has just come out I decided to dedicate today's post to its review with the hope that people will find an unbiased opinion on this trading system (really hard to get an unbiased review when this people offer a 58.20 USD per sale affiliate comission). As always my review will focus on the claims made by the authors and their ability to test them through the evidence they provide. After analyzing this evidence against their claims I will then give my opinion about whether or not this expert advisor is worth buying or testing.

The forex infinity pro website, just like most websites out there targeting to cell expert advisors, is filled with hype and non sense aimed at the attraction of new and inexperienced forex traders who are probably just the average Joe trying to catch a break from his or her current financial situation. The claims made by the forex infinity pro authors are nothing short of imprecise, outrageous and misleading. For example, this people claim that the expert is able to generate anywhere from 400 to 900% profits in trading.

Now, all these profits and great results are of course, as you would expect, a result of backtesting. The backtests are also something worth mentioning, they are absolutely precarious with only 5 month testing periods, this of course, hints that the EA didn't probably give such a "nice" equity curve during the past or following months. The authors claim the EA works under "every market condition" however, they never show the expert being tested in a ten year period in which a considerable number of different market conditions did happen. Backtesting however is absolutely meaningless in this case because the forex infinity pro authors do not provide long enough live tests coupled with backtests that we can use to see if the expert is or is not backtesting consistent.

This trading system's description made me laugh. The statements are totally misleading, they don't say anything. Like, "advanced risk protection", what does this mean ? Nothing ! advanced does not necessarily mean good and conservative, it just means nothing, for what I know, advanced risk protection could be anything. How about "built in money management with loss prevention" and how does it prevent the loses ? This also does not mean anything. For example, having no stop loss is a loss prevention mechanism and it will totally wipe an account in the long term.

The people at forex infinity pro do the same thing EA sellers have been doing for the past year, they are treating us like we were retarded. They are screaming this outrageous claims they have no solid evidence to backup, they are saying their system works on every market condition when they don't have any evidence to show it, well, according to my review today, the forex infinity pro falls just into the old bucket with all the other expert advisors that aren't worth a penny. If they want to change my opinion, they are welcome, show me a 9 year backtest from 2000 and a six month live testing statement showing consistency with backtesting and I will test this EA myself. Meanwhile, we all know the reason why this evidence doesn't show.

Again, this forex infinity pro is, in my opinion, totally NOT worth buying or testing. If you would like to learn what has to be done to have a really profitable expert in the forex market and what profit and risk targets are truthfully realistic 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, October 20, 2009

Forex Expert Advisors : Forex Annihilator, an Unbiased Review

A few days ago a customer asked me to review the forex annihilator automated trading system. After looking at the website and analyzing the product I decided to write a review about the system today. As always, my review will focus in the analysis of the evidence provided by the author and the way in which it supports the authors claims. At the end of my review I will tell you if I consider this system worth buying or testing in virtue of the above. As with all my reviews, this review is unbiased as it can be with no gains for me for either positive or negative feedback of the system. Now lets start reviewing the forex annihilator expert advisor.

At first glance, the forex annihilator expert advisor look like 99% of all the other expert advisors out there. The website, as it happens almost all the time, takes a long time going into the story and the reasons why the author created the system with almost no background on the trading system's logic or the merits it has to be long term profitable.

Then the outrageous claims start to come out. The first claim made, when you open the website states "Underground Trader Discovers Secret $1 Million Per Day Trading Loophole & Raids It For $88,293.09...". What a bunch of non sense. This expert advisor NEVER made this money in real trading, it made it in back testing which is NOT the same. Again, another expert advisor seller that thinks that we are totally retarded. Why does this guy lie to our faces ? Well, for obvious reasons.

The website continues with absolutely no information but pictures of parts of backtesting results and some screenshots of trades. Backtesting coming from an EA seller is totally meaningless in the absence of live testing since there could be significant exploitation of backtesting faults, which is this expert's case. You can tell by the outrageous profits this guy gets from this tests. Of course, this is meant to take advantage of the people who have no idea about the difference between live and backtesting and how backtesting can be manipulated to give unbelievable results that will not hold up to be true in live testing.

Again, another EA seller that cannot backup his claims and only has very limited and invalid evidence of profitability. This guy says he lives from this system, why doesn't he show his live trading statements showing he does ? Because he does not ! This website is nothing more than a huge waste of time. In my opinion, in the light of all I have just told you, I consider the forex annihilator absolutely NOT worth buying or testing.

If you would like to learn more about what it takes to have a long term profitable system and how you too can learn more and start trading profitably with realistic profit and risk expectations 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, October 18, 2009

Testing without Analisys, the Dangerous Ways of Independent Testing

People who know me (as well as people who have been frequenting this blog for a while) know that I am always looking for ways in which I can help and protect new forex traders as well traders inexperienced in the world of forex automated trading from losing money trading expert advisors. During this year, I have realized that one of the most damaging things that drives traders towards losing money on unsound automated trading systems is just what is supposed to protect them from doing so, independent testers.

In my mind, I have always thought that the idea of independent testing and verification is a good one and I do applaud the people that spend the extra money and setup everything so that people can have access to independent results of expert advisors. Nonetheless, what happens most of the time is that testing is done for the sake of testing and absolutely no analysis is done about the expert advisor's trading strategy, the soundness of the logic or the safety of the money management. Most of the time, independent testers just publish results without any sensible, solid criteria for automated trading system evaluation other than some seemingly random criteria that seems to adjust more to what they would "want to have" in an expert advisor rather than what is actually possible or realistic to have.

The problem of dangerous systems with short term positive results is also a very difficult one. For example, an expert advisor independent tester will test an expert advisor for one year, achieving a profit level of 200% of the initial trading capital. The trading system, for example, has no stop loss and a fixed, very small take profit. Even though any seasoned trader would recognize this strategy as inherently faulted and doomed for failure within the slightest failure of market reversion theory most people would just see the profit levels and would completely neglect any analysis. If the tester does not clearly state that the system will eventually cause an account wipe out people will get this system and trade it in the hope that the 200% yearly profit result will happen every year. Then people will lose their accounts, something which could have been avoided with a simple conscious analysis of the strategy.

I would advice any person doing any sort of independent testing to rigorously examine and analyze every aspect of an automated trading system before committing themselves to the testing or drawing any conclusions. It is worth assuming that many people will have trouble seeing the things that make a strategy worthless when they are confronted with profits, this because most people consider profits "hard evidence" of long term profitability, when this a necessary albeit not a sufficient condition. It is because of this that us, the independent reviewers and testers, should commit to the deep analysis of the strategies, pointing out to people what is fundamentally wrong or right about the trading systems we decide to analyze.

If you would like to learn more about what differences a long term profitable system from an unprofitable one and how you can interpret and evaluate trading results yourself 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, October 17, 2009

Forex Strategies : Trading Dynamically for Success, a Trading Strategy for Successful Manual Trading

After being in the foreign exchange game for several years, I have seen how desperate and misled people are when they go and search for a manual trading system they can use to succeed. In general, you always find website that offer general advice but fail to accurately portray the trading system or you find websites that suggest the use of a given set of trading signals with no reference whatsoever to any money management technique.

As you may know, any successful trading strategy must have entry rules, exit rules and adequate money management. As I have said on a recent post, money management must take into account you risk level, your equity and the current state of the market. Of course, the entry and exit of a manual trading strategy should also adapt to different market conditions, contrary to an automated trading system, manual trading has the advantage of trader discretion which can be exploited positively to maximize returns when compared to any given fully mechanical set of rules.

What I am going to describe now is one of the systems I use to trade the forex market manually. This system does not have very rigid rules and is therefore dependent on the traders knowledge of the market to succeed. However, I believe that trading manually always demands this, doing anything different would just reduce your manual trading to the level of a machine, something for which we have automated trading systems. One very important aspect of this foreign exchange trading system is that the money management is very clearly defined. Since this is the most important aspect of trading, it will most likely bring good profits to forex traders.

The system is very simple and uses no indicators whatsoever. What we will do is trade support and resistance levels (I do this on the EUR/USD daily chart). What I do is pretty simple, when a support or resistance level is reached, I place two pending orders around the level, located at a distance of 25% of the previous daily bar away from the level. One order will favor a breakout and the other will favor a reversal. Now, after we have an order triggered I will set the stop loss and take profit so that I have a 1:3 risk to reward ratio on the trade using the next historically important support or resistance level as takeprofit (note that the stoploss must be below the inital resistance or support level or I will not take the trade, because of the risk of a retest). The lot size traded will be such that if the stop loss is hit a loss of 2% of equity is incurred. This system ensures that both lot size, TP and SL are adjusted dynamically and always keeps the trader at a very favorable 1:3 risk to reward ratio which is the level of risk most proffesional traders are willing to take. The daily resistance and support levels work like a charm and the strategy will give you overall profits if your discretion about these levels is accurate.

Of course, as you see, the location of the support and resistance levels and the placing of the take profit is completely discretionary so the trader should be familiarized with how these levels work. Most traders will have no problem visualizing these levels after a year or so of looking at currency pair charts. Similar simple trading techniques based on discretionary trading of support and resistance levels are used by several successful proffesional traders and fund managers around the world. It is a powerful technique and removes fear and greed from trading as it encompases solid trading principles. Remember that fear and greed are no more than the manifestation of ignorance.

If you would like to learn more about the automated trading systems I have developed and how you too can design, program and trade long term profitable systems on the foreign exchange market 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, October 16, 2009

You say profit... I say draw down...

Every time I read a forum thread that attempts to evaluate expert advisors, an expert advisor reviewer website or an EA seller website I realize that most people put the wrong focus in the testing of expert advisors. Today I will focus on a very typical mistake people make when looking at trading strategies and how this wrong focus can translate into loses in the world of foreign exchange automated trading.

Image you enter an EA seller website or a regular expert advisor reviewer website, then you look at an expert advisor, what is the first thing they tell you ? Without a doubt, the first thing most people analyze about a trading system and how most people evaluate these strategies is through the amount of profit they make in a given amount of time. In fact, the majority of expert advisor selling websites just focus on this aspect of trading.

I have always found this to be a totally wrong approach to the evaluation of trading systems. Why is that ? Because I certainly don't care that much about profit because profit is a secondary aspect for me in trading, the most important aspect in trading for me is capital safety. Thats right. Many experienced traders and fund managers will agree with me in that the most important characteristic of a trading strategy is how good care it takes of your capital. I would never trade a strategy that made 50% in one month and then wiped my account 8 months later, I am not interested in taking very high risks in order to achieve high profits. As I have said, the most important thing for me is capital preservation and how the EA can trade in a conservative fashion.

So what is wrong with focusing on the profits ? Everything ! The problem is that when you focus on the profits you ignore the chance the automated trading system you are trading has of wiping your account or leaving you in a very bad, deep draw down. What happens then ? Many people trade expert advisors in the hope that they will get amazing profit returns when in reality these profit levels are tied to insanely high risks through unlimited or very high market exposures.

My advice is very simple. When you are examining a trading system you should know the maximum draw down level it has an the mechanisms it uses to limit its market exposure (more on this on my ebook). That is why you will see that I often put much more focus on the reduction of draw down levels and the control of market exposure through dynamic money management systems than I do in developing a system that can turn 500 USD into one million dollars.

The question expert advisor creators and reviewers have to ask themselves should be reversed. It should not be, can the expert make X money ? It should be, how much money can the expert make with an X maximum draw down ? Of course, the estimation of the maximum draw down level of a strategy must be inferred through extensive reliable historical testing validated by live trading results. If you would like to learn more about how this testing is achieved and what characteristics are vital for long term profitable systems as well as how you too can program and design your own long term profitable trading 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 !

Thursday, October 15, 2009

Neural Networks in Metatrader 4 using FANN

Through the past few years I have noticed that more and more people have become interested in the use of neural networks in the development of forex automated trading systems. Most people seem to believe, even if they don't fully understand them, that neural networks are the ultimate tool to profit from the market. My objective with this post is to describe the latest development in the implementation of neural networks in metatrader 4 as well as to give a description about what neural networks are and their inherent limitations.

Most people believe that neural networks give the computer a "brain" or a constantly updated "artificial intelligence" that will give any program a human like capability to trade and adapt to different market conditions. There is nothing further away from the truth. Although a neural network does try to simulate to a certain extent the way in which biological neural networks communicate, it does not work the same way. Neural networks are formed by a series of computer processes (neurons) that work in tandem to achieve a certain result. Usually, the "importance" or weight of each neuron's process is changed via an optimization with a fitting set and then the neural network is set free in the true working environment.

In trading this can mean several things. For example, a neural network can be used to say if we should enter a trade long or short with a 50 pip stop loss and take profit based on price movements. A fitting set of X years is fed to the neural network which analyses all possible trades on different price movement conditions and determines which ones are the ones that generate profit. After this, we trade the neural network on the real market and it filters trades according to what it "learned". Note, that the learning and execution processes are totally separate so no true dynamic adaptation ever happens.

Neural networks, as a matter of fact, have not been very successful at forecasting prices since they tend to over optimize themselves to a given set of market conditions, therefore failing afterwards. However it has been found that neural networks are very good at filtering signals from classic trading systems so you could feed a neural network all the positions a strategy took for the past X years and the network could then filter unprofitable results in the future with some success. It is not artificial intelligence but rather a way of doing "intelligent optimization" of a trading system.

All these implementations had been quiet difficult to make in metatrader 4, previously needing a lot of external coding in the form of dlls. Quiet frequently, most of these efforts were limited to a few individuals with no access to other programmers who did not have a ready to go way to program and play with a neural network using the mt4 trading platform. Gladly, I found an article about the implementation of FANN (Fast Artificial Neural Network Library) on mt4. The article talks about the implementation of all the FANN functions and the porting of the functions into the mql4 environment. There is also an example included in which a MACD strategy is optimized using a neural network approach.

Without a doubt, this opens up a huge door for the use of an opensource neural network program in automated trading. I will for sure play a little bit with it and certainly try it for the optimization of certain trading strategies (Maybe we could reduce the draw down periods of some long term profitable strategies by using this type of approach ?). I do hope you read the above article which explains all the aspects of the FANN implementation as well as some ideas on how FANN can be used in automated trading.

If you would like to learn more about the long term profitable trading systems I use as well as how you too can design and program your own long term profitable 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 !

Wednesday, October 14, 2009

Forex Expert Advisors : iticsoftware.com Experts, an Unbiased Review

A few days ago, a customer sent me an email requesting the review of several expert advisors available at iticsoftware.com. These expert advisors which are named Stomper, Eldorado, Chinchilla, Upstream Portfolio, LimitsOffensive, neuralscalping, smart vision and multitrade are available for purchase on their website. These automated trading systems range from scalping to trend following and are supposed to give a very comprehensive and profitable portfolio for anyone wanting to trade the forex market using automated trading systems. The objective of these reviews is to evaluate the expert advisors in the light of the evidence provided by the authors.

The first thing I have to say is that I actually like the website designed by the iticsoftware.com team. There is almost no hype and no claims made about the experts' profitabilities. It is quiet refreshing to see a website that goes straight to demo and live testing instead of showing endless screenshots of useless backtesting results and trade examples. However, when I looked deeper into the results I saw several things I did not like.

If you notice the demo and live testing results of many of the expert advisors, like eldorado and forexer, you will notice that there are very prominent open draw down periods. That is, the experts were losing a very signficant amount of equity, sometimes even close to wipeout levels, on open trades. In fact, if these experts were put to trade just before these draw downs happened, they would have wiped the accounts. This points out to the lack of adequate closing mechanisms and actually a lack of market exposure limitation. In fact, I consider all experts showing this behavior to be extremely risky because of this.

Certainly they are experts that do not show this happening. The most clear and prominent example is the Stomper expert advisor which shows backtesting from 1999 and almost 2 year long live testing. This is certainly something I cannot ignore as I always look objectively at all the evidence presented and it certainly calls my attention that they have traded the expert for so long. Now, they are certain things that we must consider in order to look at these tests and evaluate them accurately.

The backtests sadly cannot be taken into account because of the very small amount of the takeprofit which makes one minute interpolation errors completely prominent. As a matter of fact, a comparison between live and backtesting shows almost no correlation since you see almost no loses in the strategy tester report while live testing does show a lot of losing trades. Since backtesting is not consistent, we are just left with the live tests for the evaluation of long term profitability.

The live tests are also quiet suspicious since there seems to be a void in the trading period from 10/2008 to 03/2009 which is also suspiciously aligned with the largest movements suffered during the beginning of the current economic crisis. I never like it when these periods appear in live testing. Why was trading interrupted ? was it because of the expert's logic ? or because it was stopped ? These are a few questions the people at iticsoftware would need to answer in order for me to understand this odd behavior on the live tests.

Now, the EA is also traded on one of the brokers with the most favorable EUR/GBP spread, which is Alpari UK. As a matter of fact, trading on any other broker with spreads higher than 3 may affect trading in a very unfavorable manner since it would reduce either the probability of winning trades happening. Since the nature of the expert advisor is scalping, I am almost certain that the EA will stop being profitable as soon as market condition shift towards a different behavior on the EUR/GBP (something which is happening recently), reason why I personally would need at least another year of live testing to even think about long term profitability (since backtests cannot be trusted for this EA).

Another interesting point is the fact that the draw down seen for the Stomper EA is also huge and suffering from that draw down at the start would have wiped the account. It seems that in order to achieve the currently highly unrealistic profit returns, the people at iticsoftware grossly overtraded this expert advisor. I estimated that with adequate risk, the EA would have produced about 30 to 100% during the past two years, something which is certainly not bad at all.

As I have said, the fact that there is a void in the live trading, the fact that the EA has a very small take profit (therefore very broker limited) and the fact that scalping makes the EA very vulnerable to changing market conditions (it also has no logic to adapt to changing markets) makes this EA not worth testing or buying. In my opinion, the creators should provide an explanation for the void in testing as well as another year of live testing and possibly testing on a different broker in order for me to reconsider this stomper review.

As far as the other experts go, the fact that all of them (except stomper) have huge open draw downs at times and also have backtests which are inconsistent with live and forward testing results makes me conclude that non of them are worth buying, since non of them seem to adequately limit market exposure. However, I do appreacite the effort of the people at iticsoftware.com to provide readily available live and demo testing results. In the future, lower risk settings which give more realistic perspectives should be used in testing (in my opinion). If you would like to have a deeper explanation of the reasons why I consider any of the indiviual experts not worth buying or testing please leave a comment and I'll elaborate.

Also, if you would like to learn more about automated trading systems, how to evaluate them and how to finally start trading profitably with conservative, long term profitable 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 !

Tuesday, October 13, 2009

Why Does Everyone Want a Scalping Strategy ?

Time after time I get into conversations with people who are absolutely new to forex trading. I do this in order to profile them, follow their progress and learn more about their needs, deficiencies and therefore develop ways in which I can help them become better traders, lose less money, etc. One of the things that I have always found a little bit curious is that as soon as these people get to know the world of automated trading systems they dive into a search for scalping trading strategies. For some reason, scalping seems to be excessively appealing to new traders. After a lot of analysis I think I have found out the reasons why.

First of all, you should all know that I consider that it is impossible or at least terribly more difficult and less profitable to trade with an automated trading system that scalps than with one that follows trends. The reasons for me to believe this are very well founded and concise.

To start, scalping strategies work on lower time frames and are therefore subject to drastic changes between different market conditions. For example, a given scalping strategy that was profitable in 2007 may not be now and vice versa. Also, scalping profitability is determined by the spreads in a very significant manner such that spread widening can completely wipe out the profits of a scalping system. You also cannot forget that the small nature of the price movements makes scalpers vulnerable to broker feeds, stop hunting, etc. Long story short, making an automated long term profitable strategy that uses scalping is very hard, if not impossible. In fact, I do not know a single scalping automated trading system that has shown at least 2 years of profitable trading, let alone, anyone who lives from trading automated trading scalping systems.

So why do new traders focus on this obviously more difficult and risky trading approach ? After doing an in depth analysis and asking several new traders, it seems pretty obvious, the answer is mainly psychological. People prefer to trade losing strategies with ridiculous risk to reward ratios because the more people take profits the more they feel like "winners" while really profitable systems that take many loses and then big profits make people feel like "losers" just because it is difficult to deal with extended periods of loses.

There is also the fact that scalping strategies take people out of the market fast and trade often. Most new traders do not like the feeling of being in the market because it triggers their greed/fear buttons pretty fast. While a trend following strategy usually has opened positions from hours to months, scalping systems usually close positions within minute, sometimes seconds, of the trades being opened. Trading often is also something new traders like because trading often and making a lot of small profits makes them feel like "winners". Again, the psychological factors kick in, even though it is pretty obvious that trading more often makes traders spend a huge amount of money in spreads , something which is absolutely avoided with trend following systems (like I have written in other posts).

The truth, as I have found it to be, is that automated scalping strategies can give that short term "winning shot" that makes new traders enjoy them so much but they are never (in my experience) long term profitable. New traders stick to them like flies to honey but in the end, those big losing trades will come and the monster will show its face. A paramount part of making novice traders profitable is to make them face their emotions, the results at the beginning will be disastrous but with adequate guidance they will become profitable in either manual or automated trading.

If you would like to learn more about which systems I call "long term profitable" and why I call them like this 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, October 12, 2009

Metatrader 5, Public Beta in the Horizon

After more than a year of development, the people at metaquotes have finally broken their silence to reveal that the metatrader 5 platform is now in a closed beta testing with some metaquotes forum members. The new metatrader 5 platform was introduced into its first testing phase in late September and, according to the developers, it will enter public beta testing soon. Of course, this beta testing will not include any live trading yet as we still don't know any brokers who will be pioneering the use of this novel platform.

As for the changes introduced, the metatrader 5 platform will include several improvements over its current version. There are many upgrades for manual traders who will be able to execute predetermined orders with the click of a button (like, open 5 longs with 20 take profit and 30 stop loss and the like) and this will all be done within a trading chart. Other smaller estetical improvements, like the ability to place any image on the trading chart are also going to be implemented. Without a doubt, the metatrader 5 platform will become a new powerful tool for all manual traders out there.

Regarding automated trading, the changes will be even more productive and drammatic. The current programming language, mql4, will be replaced with the new mql5 language which will have many advantages over the current version. For example, the mql5 language will be totally object oriented, a fact that will save us, programmers, a lot of work and time with dealing with these expert advisors. The language will also probably be easier to learn for beginners since , for example, the need to build loops to select orders (which makes the scripts inefficient) will no longer be necessary and orders will be easily selectable. Programming will therefore become much easier.

The only problem is that all current mql4 programmed expert advisors will not work with the new mql5 language, therefore, all programs will need to be ported to the new language if people want to keep using them with the new platform. However you should not panic, brokers will offer mt4 support for at least 2 years, until 2012, and through all that time, we will have time to port all our programs to the new language. In what concerns my expert advisors, I will certainly port all of them as soon as the mql5 language is out, just to start learning the language and testing all the new features.

If you want to know more specific details like the quality of the new strategy tester, the availability of tick charts, etc, sadly all these information has not been revealed yet and we will have to see the program working in the public beta to find out. However, the fact that history is now stored in tick format should hint that custom timeframes and volume charts (as well as more accurate testing) should be available.

If you would like to learn more about my current automated trading systems and how you can start trading profitably with a long term profitable system you understand 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, October 11, 2009

Can You Trade Automated Trading Systems Successfully ?

I have always thought that the way automated trading systems are portrayed to the general public is absolutely wrong. You buy a system that works, you plug it in, you see the profits roll in. Truth be told, nothing could be so far away from the truth. Although I go into much greater depth about this topic on my ebook, I wanted to write a post today about what I think are the necessary characteristics a person needs to succeed in the world of forex automated trading and automated trading in general.

To start I wanted to tell you something you will probably find very contradictory : Not everyone can be successful in automated trading. Of course, you may think I am totally wrong because you just need a profitable system, a person to plug it in and then the system does all the work, right ? Well, it is definitely not that simple. First of all, automated trading is not free from psychological effects as it is usually portrayed by most EA sellers (more on this within my ebook) and second, a person not only needs to have a profitable trading system, the person needs to know it is profitable and the person needs to be able to trade it. As I have said before many times, the market protects itself from everyone making profit from automated trading by making long term profitable automated systems extremely hard to trade, as the turtle trading systems, most people would never trade the long term profitable systems even if they were given to them for free.

So what characteristics does a person need to succeed in automated trading ? From my experience and the characteristics I have seen on the people who have managed to trade these systems consistently, I could tell you at least the things they have in common :
  • They are willing to learn. This means that they are able to grasp new concepts, take in and find new knowledge.
  • They are willing to accept reality. They are all glad to forget the unrealistic profit targets offered by most EA sellers out there and make peace with what is realistically achievable with automated trading solutions. The more you cling to the huge (50,100 even 1000%) monthly returns offered by EA sellers the more time it will take you to be profitable with automated trading.
  • They do the work. These people are looking to become dedicated to automated trading, they are not looking for a "set and forget ATM" or some other get rich quick scheme. These people take automated trading as if it was a job.
  • They are not stubborn. This is a very bad quality, specially because most stubborn people end up paying for their unwillingness to learn by losing large amounts of equity. They are too ways to learn, listen to the people who know or learn it the hard way, sadly most people have to learn things the hard way and few of them survive it.
  • They do not have huge egos. I have found that people who feel that a 3 month losing period makes them feel like failures tend to fail in automated trading. People who are able to accept that loses are common and necessary in trading always have the fastest way towards profitable automated trading.
Being stubborn and having a huge ego is definitely the worst combination since these people (as I have seen) are usually very attached to unrealistic profit targets and are always in the quest for a holy grail. Sadly, these people often lose the largest amounts of money and many of them end up quitting when they realize that what they had been searching for was just a mirage in the middle of the desert.

I think that these are the main characteristics I can think of right now. Make sure you leave any other ones you can think of on the comments. If you would like to learn more about why it is so hard to profit with automated trading systems and how it can be done and realistic profit and draw down targets can be achieved 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, October 10, 2009

Forex Expert Advisors : Fx Equity Builder (FXEB) an unbiased review

A few days ago I noticed that one of my website visitors searched for the "forex equity builder" expert advisor on my blog but he or she couldn't find it. I had never heard about this fx equity builder trading system so I decided to look out for the website and give this system a review. As always, my intent with this review is to evaluate the claims made by the author's against the expert advisor's trading evidence after this and a careful evaluation of how the system trades I will give my opinion about whether this system is worth or not buying and testing.

It was a pleasent surprise for me to find that the fx equity builder website is pretty clean with no hype or unecessary descriptions whatsoever. These people decided to cut it straight to the performance evidence. No marketing tactics are used to get people's money and the expert advisor's price is given straight away with no "only 10 copies available" or such common non sense.

Now, regarding the expert's claims, the only outrageous claim made by the authors refers to the fact that their expert can turn 10 thousand USD into more than 1.6 million dollars in a single year. Again, this claim is made in virtue of backtesting and holds no truth whatsoever to what the system can do in real live trading (at least this has not been proved yet). There is some very limited live testing which has only been up for less than one month.

The next interesting thing about this expert advisor is the way in which it trades. It is what I would call a EUR/CHF scalper using a grid trading system that uses no stop loss whatsoever. In fact, it completely relies on forex mean regression theory. This system is very similar to GT-shadow and robominer, two systems which also use mean regression theory as a way to profit from the forex market. The problem with these systems is that the absence of a stoploss and the rigid nature of the take profit makes the system limit its profits and let its loses run. That is, there is absolutely no cap on the market exposure these systems have.

The extremely sad thing about these trading systems is that they are inherently very dangerous, like system with progressive money management, grid trading systems can make profit for even a few years, only to then have a badly positioned trade in a highly volatile market kill the whole account. It is the nature of having an unlimited market exposure and your entire balance as the draw down limit. If your EA enters a position and then the market trends strongly in the opposite direction without ever reversing you will suffer the consequences. As it is said by several people on online reviews, this EA wipes accounts when backtested for the past several years.

In the light of the inherently uncapped market exposure of this trading system which means that there is no inherent limitation of loses I consider that this system is, as the robominer and gt-shadow expert advisors, not worth buying or testing. If you would like to learn more about automated trading systems that have long term stable profits and limitations of their loses with realistic profit and draw down targets 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, October 9, 2009

A New Website Project, Interactively Teaching and Learning How to Trade

During the past few days and thanks to a suggestion made by a fellow trader I have decided to embark myself in a completely new project that will surely make it easier for everyone out there to learn how to effectively and profitably trade the forex market in an automated fashion. What is this new project and what is so revolutionary about it ? I will try to answer this question through the rest of this post.

As you have known, for the past few years I have dedicated my time to the review and programming of different trading systems as well as the evaluation of automated trading systems and the teaching, through my ebook, of how regular traders can learn to design their own trading systems, evaluate existing systems and really analyze and determine which of them have or don't have the potential to be long term profitable. After starting the Watukushay project (which I will keep working on !) and publishing the first results on the ebook, a fellow trader adviced me that there was a better way to communicate all the learning material to my fellow traders.

The idea is simply to build a website offering video based learning that will enable my readers to learn everything I have published on my ebook, as well as new material and programming, through video material. The advantages are obvious, I will be able to make videos of every aspect of automated trading, including programming from the base, the explanation of backtesting, forward testing, analysis, etc. I will have the ability to walk people through all these aspects on videos they can easily follow. This will remove all the misteries from things such as reliable backtesting, VPS setup and much more complex things such as basic programming and strategy building.

The idea is to have this website's contents available through a one time payment (with a video or two added each week). Obviously the reason for this is that it will certainly take me a lot of time to build all this material into the high quality website my customers deserve. However I am a little bit uncertain about how much is a fair price for all this content (of course, I plan a huge discount to all my existing customers). My idea is to start with about 5 hours of videos with about 5 or 10 more minutes added each week. So what do you think ? Please leave your comments with your opinion and suggestions about this idea as well as what you consider would be a fair pricing for a one time fee for such a website.

Now, if you would like to learn more about my ebook and how you can start trading the forex market profitably with long term profitable 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 !

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