Monday, November 30, 2009

Forex Expert Advisors: Forex Warlord, an Unbiased Review

Two or three days ago a customer suggested the Forex Warlord System for Review. Since more people may be interested in the review of this trading system I decided to publish a review about it today. As always, my review will look at the claims made by the author of the EA and the evidence the author has to back them up. After analyzing this evidence as well as any statements and information about the expert's technique on its website I will tell you if the system fulfills my criteria for long term profitability and if it is or is not worth buying and testing.

This trading system is made by a guy that goes by the name of "Paul Liburd", I have never heard of him and I don't have the slightest idea if he is a successful trader or not. For all I know, this guy is just someone trying to sell an expert advisor. Is there any evidence of his success as a manual trader ? Does he show any statements of accounts he has traded profitably ? Then why does he say he is a successful manual trader ? It makes no say that if he is not going to show any statements. The fact that he is also the author of forex accumulator points to the fact that he is just a guy trying to sell his automated trading systems which may or may not work. God knows if he is an actual person or just a figment of someones imagination.

However we are not here to discuss if Mr. Liburd exists but we are here to discuss if the system he presents is or is not as profitable as he says. The claims he makes are actually all based on simulation. The few partial screenshots of winning trades he shows like the "38500 in 5 trades, nos loss" screenshot are just not believable unless we can get access to the statement. Any system can have 5 consecutive loses or profits, I don't care about those small aspects of trading. From the partial backtesting result shown we can see that the EA has a 10 to 1 risk to reward ratio. Talk about unsound trading tactics ! Of course, this EA is profitable in backtesting because, as many, it is probably made to take advantage of backtesting vulnerabilities that can be exploited. The result with this kind of EA is usually that in live testing profitability diminishes a lot and therefore the very unfavorable risk to reward ratio cashes on the market exposure and kills the system.

Are the backtests valid ? Well, there are NO live tests to confirm that they are, therefore we assume they are NOT because it is the most probable scenario. We always need to have back/live testing consistency in order to use backtesting as valid evidence of profitability. This guy is simply crazy if he thinks he can sell a system to knowledgeable traders with such scarce and incomplete proof. Why is the backtesting statement not available ? Why doesn't he show the dates ? Why are they no live tests if his system is so profitable ?

And what about the "manual performance graph" ? Please, I could make that in excel in ten minutes. Show us a REAL account with investor access we can believe and we will believe you got those results. Anyone can say anything and expect to be believed but it is just too bad that there are people out there willing to lie so bluntly. Of course, I will apologize for saying this and I will redo my review is evidenced is shown to backup every claim made on the website. I would like investor access to the statements of the manual system as well as 10 year backtests and live tests to confirm backtesting validity. Why do I feel I will never get this info ?

Because of all the things I have said before I consider this system NOT worth buying or testing until all the necessary evidence to believe the claims is available. Meanwhile, if you would like to learn more about automated trading system evaluation and the requirements for long term automated profitable trading please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Sunday, November 29, 2009

Forex Expert Advisors : FX Profit Mountain, an Unbiased Review

Along yesterday's search for expert advisors I happened to find another trading system called FX Profit Mountain. Today I want to dedicate this post to the review and evaluation of this automated trading system. This review, as all the other reviews, will evaluate the claims made by the authors of the EA against the evidence provided. After doing this I will be able to see if the EA fulfills my criteria for long term profitability and I'll be able to say whether or not it is worth buying and testing.

The FX profit mountain website is a little bit special in the sense that it addresses the main paradigm of expert advisor trading. The website explains (sort of) what a person generally has to do to become a profitable trader and what the characteristics of a profitable trader are. After that it plays on the fact that the trading of a profitable trader can be "automatized" by a trading system and used in an algorithmic fashion. This is what is usually believed by people who enter the world of forex automated trading, and they couldn't be more wrong. A computer is a computer and human is a human. To trade with a computer is to trade with a computer and translating the way a human trades into a computer is (right now) impossible unless the trader you are "translating" trades like a robot, that is, purely mechanical and non discretionary trading with very rigid rules. As a matter of fact, non of the traders I know trade with rigid, mechanical, non-discretionary rules.

But lets go on with the EA. The Fx profit mountain website actually makes little claims on their main webpage and only when we go into the performance section we start to see some claims of profitability. These results, coming from someone who wants to sell a system to the public are pathetic to say the least. These people expect us to try a system they have tested in live/demo for less than a month and they expect us to believe a plotted excel curve of profits in 2008 without any evidence of the actual trades ? What are these people thinking ?

You would have to do much better than that. Where are the backtests from 2000 ? Where are the months from Aug to Nov in the 2009 live test ? There are just too many holes in these guys results. These guys, like 99% of the guys out there are just selling a dream, not a trading system. Why do they say that their system is profitable when they clearly do not show the evidence to back this up ? Why are some months missing that should obviously be there ? The answer is quiet simple, the system most likely showed bad results during those months, or it was a demo account that was closed. Either way, if you are serious about selling a system you should be the first one to use it.

I mean, I don't even sell the god's gift ATR and I use it on personal and managed accounts, I would never recommend to trade something I don't trade personally. If you are an EA seller and you want other people to risk their money in a trading system you should be the first one to get behind your system and invest capital in it. Why would people invest in something you don't ?

Of course, the lack of evidence and the obvious "holes" in the evidence shown are more than enough to discard all the claims made by the people who sell the FX profit mountain system. The system is therefore, in my opinion, not worth buying or testing. If you want to learn more about the systems I trade personally and how you too can program and design your own automated long term profitable trading systems (it is not that hard :)) 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, November 28, 2009

Forex Expert Advisors : Forex Enforcer, an Unbiased Review

A few days ago I found a new expert advisor called forex enforcer. Since I had never reviewed this expert advisor I decided to write a post about it today. As with all other expert advisors I am going to evaluate the evidence provided by the author against the claims made by him/her in order to gauge the probability the expert has of being long term profitable according to my well established criteria for long term profitability. After that I will tell you if I think the expert is or is not worth buying according to both the soundness of its trading techniques and its credibility.

The Forex Enforcer trading system certainly does not look any better than the other hundreds of expert advisors out there sold commercially. The first thing you see when you enter the website is a very bold claim that states that the expert was able to turn 10,000 into 125,000 USD. Thing further from the truth. When will this EA sellers understand that it is not the same to make a certain amount of money in simulation than to make that same amount in real trading. It is totally invalid, and misleading to say an expert advisor "made" a certain amount of money when in reality in never did so. Of course, this is all part of the marketing tactic used to sell the EA.

This expert strikes me as the classical EA that uses backtesting faults to have large profitability in simulation. It only takes one good look to find out that there is really no evidence of the claims provided by the author. The backtesting statements are missing and even the full picture of the detailed statement does not show. This means that not only do we not know if the experts backtesting is of any use but we also don't even know the extent of the backtesting period. It is therefore totally wrong for the author to claim things as the ones he does on his website.

Another thing that bothers me is the use of trading examples as evidence of profitability. Trading examples are OK and a reliable way to convey to someone how a system works. However for trading examples to be of any use one has to show winning as well as losing trades. Charts showing trading examples can also easily be made up so we clearly need to see a live testing statement that shows us the result we are looking at so that we know its reliable.

This EA is sadly a part of the hundreds of experts out there that simply do not offer enough evidence to believe or support any of their claims. The EA makes claims it does not support through live testing and only backtests that are shown in a very limited way are present. Remember that back/live testing consistency is VITAL to believe ANY claim made by a commercial EA seller and we always need to have this information in order to assess profitability with certainty.

Because of all the above reasons, which can be summarized as a gross and intentional lack of evidence, this EA is NOT worth buying or testing. If the EA seller puts up backtesting from 1999 to 2009 and shows us live testing consistent results I will of course reconsider my review. If you are interested in viewing automated trading systems that are worth testing and really understand my criteria for long term profitability 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, November 27, 2009

Trading like a Couple, Correlation in Trading.

Through the last few months I have noticed that several of my customers are interested in the use of correlation in their forex exchange trading. Correlation, which is the statistical pairing of two random variables can be used in trading as it can tell us which instruments move together, which ones move opposite to each other and what percentage of the time we can expect the correlation to be true. However, there is usually an overestimation of the power of correlation in foreign exchange trading which can many times lead to invalid conclusions and the formulation of unsound trading strategies. Through this post I will talk about correlation, specifically about how it can and how it cannot be used in automated trading. I will try to discuss the usual ways in which correlation is tried to be exploited and why such uses of correlation usually generate strategies with extremely high draw down potentials.

If you do a small google search for correlation in the forex market you will find a huge wealth of websites that describe currency pairs and their relationships with each other. Of particular informative character is this website which accurately describes the meaning of correlation and how it is usually exploited in trading. Usually correlation can be used as a mean to diversify risk and to avoid the entering of contradictory positions. As per their example, if you enter a long trade on both the EUR/USD and the USD/CHF you are likely to go out with a loss as both currencies move in opposite directions. However, if you enter a trade on the GBP/USD and the EUR/USD you will diversify risk as both currencies move in the same direction, although not in exactly the same way.

So what are the ways in which correlation is exploited in automated trading ? Many people try to use correlation as a "standard" market conditions which must be returned to upon breakup from the relationship. For example, if the USD/CHF had a -90% correlation with the EUR/USD in average for the past 5 years and on a 4 month period this correlation changed to -40% people would take opposite positions on each currency until they regain their -90% "standard" relationship. This trading approach has many problems which lead to an uncapped market exposure. For example, what would happen if the extent of "decorrelation" reached levels far beyond 40% ? What precisely makes a currency unable to "decorrelate" from another ? Clearly the case can be made that while two currency pairs can remain correlated for a long time, they can quickly lose correlation because of fundamental changes.

A perfect example would be the EUR/USD and the GBP/USD which for the past few years have had a correlation above 80%. Nonetheless, after the market crisis in 2008, these pairs lost a lot of their correlation with the EUR/USD rallying towards 1.50 while the GBP/USD stayed in a very wide range from a yearly high it was unable to break. So would it be wise to always assume pairs will return to correlation ? No. Can we say up to which extent pairs will lose correlation ? No. As a matter of fact, all the systems I have seen which use returns from deviations in correlation as a trading strategy have ultimately failed. If you remember your sound training in trading you will remember the old phrase : The market can remain irrational more than you can remain solvent.

Is correlation useful ? Sure, it can be used to diversify risk and to understand and avoid the use of contradictory positions and systems. Does it have a "higher than usual" chance of success as an automated trading system ? No. Is it guaranteed that a system based on correlations will be profitable ? No. As a matter of fact, systems that are traded based on correlations often neglect the use of a stop loss or other order closing mechanism which usually makes them very dangerous and uncapped in their market exposure.

If you would like to learn more about automated trading systems and how to evaluate them and trade them profitably 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, November 26, 2009

The Dynamics of Change, Understanding the Spread

Certainly many people are aware of what a spread is and most people know that in times of high volatility and high market action the spreads on currency pairs in the currency market widen. People also know that when no one trades the spreads become smaller. Where does all this behavior come form ? Why does the spread change and how can we predict spread changes ? What determines the spread ? Today's post will be focused on addressing this simple but yet very important questions in the world of forex trading. Not only is understanding the spread important for successful trading, it is also important in order to understand how market players work and why the effect of the market is that or another.

Let us start by defining what the spread is. The spread, as many of you know, is the difference in cost between the Bid and the Ask price of a currency pair. It is the "commission" kept by the dealer which is simply the difference between the price at which it sells and the price at which it buys. Why is there a spread ? Obviously because exchangers want a profit for their job. Their job is to provide you with a currency for another and you pay them by offering them the currency at a lesser value or buying the currency at a larger value. However, what determines the spread ?

What determines the spread is nothing more than supply and demand. The dealer demands a certain "price" or spread for his service, which is X. If supply and demand is equal, then the dealer gets X for each transaction and nothing bad happens. However, what happens when demand is much higher than supply within a small period of time or vice versa ? Well, the effect is that the Bid or Ask price of a currency in the interbank market can change so fast that the two can invert and the dealer can have himself dealing with a negative spread. That is, an arbitrage opportunity would arise in which you could just buy and sell and get a profit or vice versa. The dealer's solution to this problem is simply to raise the spreads so that the risk of such an event happening becomes minimal. If there is a high volatility within a certain period of time, the dealers calculate the spread they have to use in order to be "safe" and prevent this possible profit opportunities which will come at a great cost to it.

Of course, you can understand that this will become very important also if there are many people using an automated trading system or trading at the exact same time. If people are buying or selling 100 lots of a currency at any given time they will greatly tilt the demand/supply scale and the brokers will raise their spreads to account for this. Many EUR/GBP and EUR/CHF scalpers which aimed at profiting from the Asian session have found this now to be the case with brokers raising spreads as a response to profit taking by large masses in this previously very much "not traded" time space. This was covered in much more detail in a post I wrote a few months ago about the Asian trading session and how the market was changing to adapt to the use of scalpers and similar trading techniques.

As you can see, understanding the spread gives a sense of how the market becomes efficient and how market players react to the conditions around them. After all, the forex market is nothing more than a game of supply and demand and knowing how these two components interact to generate the market is something which is not only interesting but highly useful in understanding the inner workings of the foreign exchange.

If you would like to learn more about systems that are not very much affected by the spread and can generate you long term profitable results 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 !

Wednesday, November 25, 2009

My Sorry Excuse for a Trading Journal...

For those of you who have followed my posts on manual support and resistance trading and who were excited with my manual trading journal I have to say : I am sorry. Certainly I had made an effort to put up the file on the FTP and to trade the system manually so that you could all see what I do to trade these S&R levels but certainly I may have disappointed a few people with the lack of description and the overall lack of discipline in which I addressed this journal at first. Truth be told, I have been terribly busy with my other trading duties and getting all the journal stuff done with all the analysis required would have taken me a lot of time I did not have in my hands.

To top that off, I started with a trade on the GBP/USD which I never even finished analyzing. After that I also did not open other trades on that account which I did trade on live accounts. Why ? Well, sadly the facts of life didn't help and I had to format the computer that carried the mt4 instance in which I had the demo account used for the S&R trading so unluckily for me I lost access to that account and therefore I could not place any other trades. I know that some of you are faithful to my website and in no way have I intended to waste your time. If you have visited my website for a while you should know that I always handle my projects seriously and tend to the needs and profitability of my visitors and customers.

Well I sure made a commitment to write a good manual trading journal and I certainly intend to do so. From now on the demo account of the trading journal will be VPS hosted to avoid any computer problems and I intend to write a small note on the journal every Monday as to why I traded or did not trade that week with a detailed explanation of each trade as I had explained before. Obviously the first trade I made will remain on the journal and I will finish its analysis so that we may start with a finished trade. So I invite you to check the trading journal file every week on the ftp and to check the account statement on the lower part of the left hand sidebar. I of course give you my word that it will be kept updated and that we will certainly learn a lot about S&R trading from it.

Again, for all of those who have been looking at a journal file that was not updated, I am sorry, but from now on the journal will be one of my primary concerns related to the website. However if you would like to learn about automated trading system and what can be done to design profitable one please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Tuesday, November 24, 2009

My Experience Teaching the Trade... Some Initial Perceptions

A few weeks ago I wrote a post about how I would try to teach foreign exchange trading to some people who knew nothing about forex trading at all. I would start to teach trading to a biology student and an electronic engineer, some regular folks out there who of course, have the quality of having a stronger than average sense of mathematics and science, something which I believe to be of limited if of any advantage in forex trading. My objective with this post is to tell you how things are going and what I have found are the problems with these people, what their personalities are and what they have going on for and against them in the world of foreign exchange trading. I will then try to tell you what I have done to try to correct their psychological issues and the results I have observed.

First of all, let me start with my friend who majored in engineering. He is an intelligent person, most people would consider him well educated and smart. He in fact caught up with all the basics of forex trading pretty quickly, learned everything from left to right in just a few days. After he got the handle of the basics he started paper trading and doing things that I had not told him to do. You see, I have approached this teaching in a very relaxed fashion, I tell them exactly what they need to do but I never control what they do or tell them to do otherwise, I have just given some sets of instructions and then watched for the results. The fact is that he is a very anxious person and he cannot really handle excitement and frustration. After paper trading for a few days he told me that the market was a piece of cake and that he could be live trading within a month. Oh, if I had a nickel... A week after that he was already down to the last cent of his demo account we started to talk about all the things that had gone wrong and what his personality traits were doing for and against him.

Certainly he is just a perfect example of a very specific type of trader. He is the type of person who gets frustrated easily by loses and feels a rush when he wins so his emotions trade for him in a very specific fashion. When he loses he gets frustrated so he gets into the market again to make up for it, then if he loses again he gets again to get back at the market and the cycle goes on and on until he loses everything. If he wins then he gets back into the market to win more and more, until it changes to a losing phase and then he loses everything. He turned a 2000 USD demo account into a 10,000 USD account, then wiped it out in two days. He is a greedy trader, an over trader by nature, that will be his weak point when addressing forex trading.

The biology student is pretty different from this guy. He is not so competitive and much more prone to do things as I tell him to do them. He however has the problem of having a lack of dedication and enthusiasm and tends to procrastinate on the things he has to do. He wants to succeed but does not want to take the time to do things, he sometimes makes hasty decisions because he is lazy and does not care to do enough research. As a trader he is reluctant to take trades because of lack of knowledge and he exits trades very prematurely, he is definitely what one would consider a fear based trader, his personality makes him lose trades because of his inability to take actions based on his knowledge, this will be the point the market will exploit when he begins to trade a live accounts.

So are they hopeless ? Of course not, the way in which they handle trades right now is a reflection of their lack of knowledge. They trade like they do because they don't know what they are doing and their personalities are their current drive. Since one of them is very eager and spontaneous his personality drives him that way, since the other guy is lazy it drives him the other way. Both of them will lose all their money if they started to trade right now live. My hypothesis is that both of these behaviors are based in ignorance and of course I think that as we progress and they learn more they will become more confident in order to leave their emotions on the side. Can I turn an emotional wreckage into a profitable trader ? We will see if within the next 2 months my emotional trading techniques are able to help these new traders ! Stay tuned for more posts on these techniques.

If you would like to learn more about automated trading and how algorithmic trading can generate long term profitable results 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, November 23, 2009

Forex Expert Advisors : forexrobottrader an Unbiased Review

Certainly today I am going to talk about a very well known and "tested by many" system found at This system, called Don Steinitz HAS MTF has been around for a little bit more than 2 years and it has, according to the author, generated a huge wealth of profit within this time. Today I am going to use this post to talk about this system, review its tactics and tell you whether or not I consider this system worth buying or testing according to my criteria for a system's long term profitability. As always, my reviews are unbiased as they can be as I get no reward for either positive or negative remarks about any system.

The author seems to restrain himself from making to many claims about the system but he does say that the EA has a +1959 average monthly profit in pips. Let me say that it is very misleading to say the profit in pips of a trading system as this does not actually mean anything because the lot size assigned to each trade can be different. You can still have a system that made 2000 pips in a month end with a losing period depending on the actual equity risked per each one of those pips and if some trades risked more than others. Of course, reporting results in pips is a very misleading tactic that usually leads people to believe that a system is more profitable that what it really is.

Now, the EA seems to be based on some very unsound trading tactics. Not because it is based on a multi time frame HAS but because the "no loss" strategy implies that the EA will never close its losing trades. Of course, having no way of closing losing trades is just a recipe for disaster. As losing trades accumulate they will pile of the draw down eventually wiping out the trading account used by people. Since this has been around for 2 years it is likely that this has happened to some or even most of his customers. Of course, if you go go forexpeacearmy you will find that there are many reviews of unsatisfied customers who got their accounts wiped out because of the unsound and stubborn trading tactics of this EA. It is obvious that not closing losing trades is an unreliable tactic because one simply cannot be right all the time and the market cashes on the unlimited market exposure given enough time.

There is absolutely no investor password access to verify the truthfulness of any live tests that may have happened, the backtesting statement links are broken and the graphs do show that the tests don't have a 90% modeling quality. This is of course totally unreliable since we need at least a 90% modeling quality to do back/live testing consistency tests. Of course, this n/a modeling quality is most certainly based on a high number of chart mismatch errors which speaks for the unreliability of the backtests done. The mt4stats live/demo test is still to young for us to say anything about the "no loss" tactic which is the reason why this EA dooms accounts to wipe outs.

Obviously in virtue of this unsound money management tactic, the absence of reliable backtests and the lack of availability of investor access to verify the "forward/live tests" done, I consider this expert NOT worth buying or testing. Of course, as soon as Don Steinitz provides the appropriate evidence I will be more than happy to reevaluate his trading system to include this new evidence and a new view on its long term profitability. If you are interested in finding long term reliable profitable systems or you are interested in programming them 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, November 22, 2009

Forex Expert Advisors : Dirty Forex an Unbiased Review

A few weeks ago one of my subscribers asked me to review the Dirty forex system which is offered at Today's post will be dedicated to the evaluation of this trading system which I mainly do based on the evidence provided by the author regarding the expert's profitability. With this in mind I then check the EA against my criteria for long term profitability and give my opinion about its trading.

Ok, first of all, I would like to start with a paragraph I found within the dirtyforex website :

"The DirtyForex team is starting a revolution. A secret war to tip back the scales in your favor. Our mission is to arm traders with tools that are proven to work, even if those tools are distasteful to some."

After going through the whole website and reading the whole content I am still wondering. Where is this revolution ? The dirty forex web page seems to be nothing more than a big ball of the same old hype we have come to get used to. Even more, the dirty forex EA is even more hyped than all the rest of them because these people don't even show a single back, forward or live result. I mean, this people do not show anything about their expert advisor.

They do not show any trades we can compare, they don't show backtests, pictures, live trade examples, nothing. This is one of the weirdest web pages I have ever reviewed regarding forex expert advisors. How is it that a seller wants to sell something by saying nothing about it ? There is absolutely no evidence to backup any of the claims on their website. How could we even evaluate an expert advisor when the author shows absolutely no proof of anything ?

For all we know, this people can be selling anything. Buying the dirty forex software is nothing short of a gamble. You would be buying something to which there is no evidence, you are buying something with no idea of what it really is. Is it another EUR/GBP scalper, a EUR/USD trend follower, a AUD/NZD grid trader a GBP/USD martingale, who knows ? For all we know, this EA could be any of the above stuff, it could even be the moving average sample that comes with metatrader. Come on, this people did cross a line trying to sell something with absolutely no evidence. Like if we were retarded, come on !

Of course, this EA is NOT worth buying or testing. I will gladly rewrite this review if ENOUGH evidence is given. If you would like to learn more about the world of forex automated trading including how to program your own long term profitable strategies 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, November 21, 2009

Forex Expert Advisors : Forex Nuke, an Unbiased Review

Today I plan to review the forex nuke expert advisor which was suggested by another one of my newsletter subscribers. This post will focus on the analysis of this trading system based on the evidence provided by the authors about its profitability. By using this evidence and my criteria for long term profitability I will then give my criteria of whether or not this expert advisor is worth buying and testing. This review will be as unbiased as it can be as I get no money from the authors or other parties for either good or bad comments about the system.

Let us start from the beginning. The Forex nuke website begins, as most expert advisor websites, with a very bold and unrealistic claim, 10K turned into 450K, and in the lower case letters they say "no hype". Let us yet again, tell our friends at forex nuke and other expert advisor websites that "turning" in simulation is not "turning" in real life. There is clear difference in opening an account with 10K that was turned into 450K than running a simulation on a program in 10 minutes, it is clearly NOT the same thing. It is very misleading to say that you turned 10K into 450K when what you really mean is that a simulation says that potentially 10K would have turned into 450K, however, the inherent limitations in simulation, such as hindsight, make this claims very doubtful.

The people at forex nuke show us an EA with an unfavorable risk to reward ratio of about 1:5 which offers only very limited backtesting results that only cover the last two years. Again, as I have always said, why in the world don't they show us backtests from 1999 if the data is available to do so ? Well, my best guess is that this EA is curve fitted to the 2008-2009 period, hence the very positive results in back testing, while it will probably fail in live trading. Why don't they show any live trading results to validate their baktesting results ? For all we know, they could have just made an EA that traded based on current bar closes or one of the other hundreds of things that can be done to exploit backtesting vulnerabilities. Can we believe a backtest from an EA seller without a live test that validates it ? NO.

So after discarding this very limited backtest and having no additional live or forward testing information what do we have left ? Nothing. Sad to say but the forex nuke is yet another very hyped and probably NOT long term profitable expert advisor which is of course NOT worth buying or testing. These people would have to provide us with far longer backtests (from 2000 to present) and live tests that validate the backtests if they want us to believe ANY of their claims.

If you would like to learn more about how I evaluate expert advisors and what is a reliable and 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 !

Friday, November 20, 2009

Forex Trading... Is this really for you ?

Today I wanted to write a post aimed at those people out there who are looking to try, starting to try, or have been disappointed by forex trading. Today my objective will be to describe what in my opinion are all the draw backs of forex trading, manual or automated that are always overlooked or ignored by people who start trading the fx market.

Sure, I remember too when I started trading this market. Everything you read is positive and sincerely you get the feeling that with a little work and dedication all those things they promise you might become true for you. For example, most of the time you hear that forex trading will "free" you from your 9 to 5 job, that it will bring you an amazing amount of profit working from home and that you can, as other people have, achieve a "stress free" luxurious live style. This of course, as it appealed to me, may appeal to the thousands of people out there getting into foreign exchange trading every day.

Whats the catch then ? Why don't we see thousands of millionaires or independent people living from forex trading each year ? Truth be told, forex trading is not for everyone and most people discover this the hard way. Not because everyone is not capable, or because people are not intelligent enough, no, not because of these things. Trading is not for everyone because everyone does not have the psychological or financial capabilities to deal with the facts of forex trading. I will now try to outline the things that happen in forex trading that people NEVER told you that may make you look for other different opportunities best suited for your personality and psychology. What are these things then that are bad about forex...

  • Forex is NOT a 9 to 5 job. That is, trading does not offer a fixed amount of predictable profits every month. There are losing months, winning months, breakeven months. If you try to pressure into getting profits when it is not time for profits you will only get more loses. Why is this so stressful to most people ? Well, most people are used to getting a paycheck every month. What happens if you don't get one for 5 months ? would you be able to survive ? This is something that people who trade know and something they do to plan things out.
  • Trading requires much more education than what you think. People often think this is not the case if they use automated trading system. I outline in my ebook the reasons why it is EVEN MORE the case when you use an expert advisor to trade your account. I spent nearly three years trading before I could get 3 consecutive profitable months. It certainly takes a lot (at least it took me alot) to learn how to trade the forex market, manually or automatically.
  • You need a good starting capital. Of course, I have said in other posts that you need to have at least double your desired yearly income invested in order to be able to live from forex trading. This is absolutely true. If you try to live from forex using a very small amount of capital, chances are that you will lose all your money. Being underfunded is one of the MAIN causes why people lose their money in trading.
If you want to have a check at your door every month and you want your income to be predictable to some degree you can choose another form of independent life that is more suited to what you want. For example you can start a small online business, a brick and mortar business, a consultant business, all these things have a lot of profit potential and require just as much work as forex trading, however they have the advantage of being more reliable and less stressful (well, this depends on what each person finds stressful) than forex trading.

To be extremely sincere, forex trading is not what most people put it out to be. This is not a get rich quick opportunity, or something you can do with just "a little work". This is like starting a business that relies 100% on your dedication and which may sometimes give you no profit, and sometimes give you a lot. Is it for everyone ? No. But sure, they are independent opportunities for everyone who wants to live without having a 9 to 5 job.

For those of you along for the ride, forex trading is a challenge and it has to be treated as such. There will be frustration, there will be bad times but in the end if you have the dedication (which is a LOT of dedication), you will see things get better and you will get something which is priceless, the ability to make money in trading. If you would like to know more about my concepts about automated trading and how you can evaluate and build 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 !

Thursday, November 19, 2009

Watukushay No2... Beyond My Expectations

A few days ago I wrote a post about the next EA in the Watukushay series. For those of you who have not heard about these expert advisors, the Watukushay project was an idea I had in order to develop and evaluate a series of different expert advisors with a careful documentation of the whole creation process. The idea is that people are able to see what the necessary steps are for the creation, programming and evaluation of a long term profitable trading system.

As I said on the last post, the Watukushay No.2 expert advisor is completely based on price action. I have just finished all the preliminary coding and evaluation and I have to say that this EA far surpassed my expectations. It took me a few weeks to find a way to build a profitable logic solely based on price action as candlestick patterns depend greatly on the context in which they occur and entering or exiting trades based on a single pattern proved to be a totally unreliable and unprofitable strategy. I tried at least 15 different candlestick pattern with non of them by themselves generating a reliable system.

Finally I realized that the problem was that my approach was too simplistics. I decided to apply the sound, logical trading advice we hear from our start in trading. I decided to only enter trades on a very popular candlestick continuation pattern (the three soldiers) and to exit a trade based on either an ATR adjusted TP or a series of candlestick reversal patterns, such as a hammer, morning star or engulfing candlesticks. As you would expect from such a sound trading approach, the results were overall profitable although there was still a lot of room for improvement.

This is when it came to my mind that I was defining candlestick pattern rigidly when in the market a hammer or a 3 soldier pattern was different in 2000, 2004, 2009, etc. Of course, the easiest solution was to adapt these patterns also towards market volatility. So what do you get ? You get a trading system that is absolutely adapted to the market, more than any other system I have ever coded. The EA adjusts the size of the candlestick patterns as well as the SL and TP based on market volatility and the EA is able to profit seaminglessly from Jan 2000 to Nov 2009. This EA has given one of the most beautiful equity curves I have seen. The EA uses a very wide TP (80% of the ATR) and a wide SL (100% of the ATR) and every identification of a candlestick pattern is done based on previous bar closes so it is safe to say that backtesting is reliable (although live testing will definitely confirm this) since there are no one minute interpolation errors and no hindsight whatsoever.

You can see on the backtest shown below the equity curve given by this EA. It is very smooth with every year reaching new equity highs. The EA has a very good risk projection with the maximum draw down being just 6% for each 10% average yearly profit one wishes to obtain. However this is in fact improved by the ATR lot size money management which when risk is increased achieves an incredible 100% average yearly profit with a maximum draw down of under 40%. The EA should also be pretty much broker independent as a few pip variations will not affect the overall candlestick patterns, however, brokers that have Sunday candles vs those that don't can show different results as the overall patterns may change. Up until now this have proven to be the best results for the EUR/USD, I run several tests on other currencies but it seems that the ATR values of the patterns change a lot depending on the instrument traded and therefore all the optimization needs to be redone for every currency pair traded.
I am very pleased with this EA, this is the first EA I ever code that used absolutely no indicators (besides the ATR) that is actually more profitable and smooth in backtesting than the god's gift ATR. Of course, this EA would be tested live on my weekly newsletter and all its programming and evolution will be a new chapter on my ebook. This chapter will treat how candlestick patterns can be defined in code and how I came up with each pattern as I progressed through the programming of the EA. I am currently writing this chapter which should be out in mid December and should be around 30-60 pages long. If you are interested in the Watukushay No.2 EA 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, November 18, 2009

Getting to know me...My Contributions on Currency Trader Magazine

If you are a frequent reader of my blog you should know by now that I have always had a deep interest in research and publication. However I had always felt quiet limited in the area of currency trading in this regard as I had not been able to find a way to publish my research and ideas somewhere different than my blog. Sure, my blog is a good place to publish these stuff and I do thank you all for your visits and time but truth be told, anyone can publish whatever they want on a blog and no one has any chance of knowing whether what is published is true or is not.

Certainly I write in my blog in absolutely good faith, I would have to say that I am often restraining myself from writing things so that people may not overestimate my conclusions, this is something I have learned during the past two years, something that I think has made me a much better blogger and reviewer. However I do understand that many people may view my blog with skepticism, what guarantee is there of the truthfulness of the contents besides my word ? Sure, in the world of forex, particularly in the world of automated trading systems, you have to know that the person you are trusting is someone who knows what he is talking about. Anyone can make a blog and start writing things about the currency markets and if you sound convincing enough people will believe what you say, regardless of the actual truth that it holds.

For all these reasons I wanted to find a place in which to publish my research on algorithmic trading systems so that the people who come here know that they are reading content from someone who has experience on the subject and knows what he is talking about, not someone who randomly decided to start a blog about currency trading. This is when I found currency trader magazine. I like the fact that it is freely available to anyone who wants it and the fact that its contents are written by reputable traders, fund managers, etc, pushed me forward to try and get my first article published on the magazine.

I wanted to start with something simple that I consider of interest to everyone so I decided to write an article on adaptive money management and the dramatic importance it has on a trading system. This article which treats the effects of fixed equity, movable stop loss and ATR adjusted money management on a simple MA cross system (which my blog readers will certainly know as Watukushay No.1) was published on the November issue of the magazine.

As an added bonus you all get to see a head shot with a small bio of me on one of the first pages of the issues. This lets you know that I am a real person named Daniel Fernandez who trades the forex market and knows what he is talking about. I am not a person who was "made up" to go after your money or someone who found about currency trading yesterday and decided to start a blog on it. I am a dedicated trader and researcher who is genuinely concerned about the profitability of traders like YOU. If you are interested on the article, make sure you subscribe to the magazine, it is free and I will most certainly try to get a high quality article up on the magazine at least once every month.

Last but not least, if you are interested on automated trading systems, how to program them and what characteristics you need to take into account to find a long term automated 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 !

Tuesday, November 17, 2009

Deepest Pocket Wins ... Argumenting for Once and for ALL why Martingales CANNOT be traded Profitably in the Long Term

I have to say that I become a little bit irritated each time I go online and have a conversation with someone who argues in favor of martingale trading systems or when I see an EA seller selling this wonderful martingale expert that gives a 100% monthly profit. For this reason I decided to write this post today, this post will give all the arguments, once and for ALL that clearly show why Martingale trading IS unprofitable and CANNOT be traded profitably in ANY possible way. This analysis will also apply to any type of system with a similar progressive money management scheme. Before continuing, this post is not meant to be rude or mean against people who trade Martingale systems, this is merely to show you that it is not reliable and will eventually lead to the loss of all your trading capital.

As you all know, the Martingale system, developed in the 19th century, is a trading system in which a trader will double his stake when he loses a trade resetting the count after he wins a single trade. What is the problem with this ? Well, the first problem with this is the exponential increase in risk which make the system eventually risk very large amounts of money for very small profit amounts. I will now try to argument against each one of the points put forward by people who trade martingales :
  • If my account size is big enough it will not be wiped out. This is an awful mistake. Martingale systems will always wipe an account because the increase in risk is exponential while your increase in equity is liner. That is, increasing your capital from 1000 USD to 10,000 USD does not buy you 10 more losing trades, it just means 2 or 3 more losing trades. However, you will not lose 1000 you will lose 10,000 USD.
  • But if my system has X maximum consecutive loses then increasing my capital by Y will make the system safe. Wrong again. The fact that your system has X consecutive loses in historical testing or live testing does not mean it cannot have more. All trading systems may face a very large number of consecutive loses. In practice, you will never be able to sustain more than 10 consecutive loses, something which is likely to occur with almost any trading system. You are playing the deepest pocket game. In gambling, when two players are going for martingale strategies the one with the most money wins. Who has the deepest pockets, you or the market ?
  • Ok, I accept that my account will eventually be wiped out, however if I withdraw my profits I will still win in the end. This is a very naive argument in favor of Martingales. If wipeouts will always happen, which is the case, the frequency in which these wipeouts happen is unknown, so for example, you may get a wipeout in a month, then one next year then 8 the year after. In the end, a series of wipeouts will remove all profits from the previous runs in which the trader was lucky.
Can money be made from Martingale trading ? Of course, and money can also be made in Vegas. When you trade a Martingale system which is statistically shown to wipe any account and eliminate any accumulated profit either through succesive wipeouts of opened accounts or through the wipeout of a single account with all the profit you are simply betting on its success. Gambling is something that should not be done in trading. You know that there is a saying in trading. If you are going to gamble go to Vegas, at least the drinks are free. If you are considering or trading a Martingale take all the above points into account, they are based on sound and proved arguments.

If you would like to learn more about automated trading systems that use sound money management systems geared towards market adaptation and capital preservation 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, November 16, 2009

Knowing Before Knowing, The dangers in Hindsight

A few days ago, one of my new pupils in forex told me that he had been going through some automated trading system websites and that he payed close attention to the disclaimer shown at the end (shouldn't we all pay attention to that disclaimer). He wanted my opinion about hindsight and why it is important to consider it when trading either a manual or an automated trading system. Since this is an extremely important subject I wanted to dedicate today's post to the discussion of hindsight and how it can affect our trading negatively, specially when evaluating discretionary trading strategies. What is the problem of hindsight ?

To begin with, having hindsight is knowing something before it happens, that is, knowing the future. When we are evaluating our automated or manual trading strategies we have the benefit of hindsight. We all know the EUR/USD reached a high near 1.60 and during the next year dropped to near 1.29. We know that the pair then rallied towards 1.5, we all know this. What is wrong about this ? Well, it depends. I thought that I was barely affected by hindsight until I discovered that on an statistical study of a system I was doing on the EUR/USD I had been subconsciously supressing short positions before 2008 and long positions after mid 2008. I was in fact getting better results because I knew what was going to happen and I was subconsciously looking for profitable results. This is an inocent, bad consequence of hindsight, I was overestimating profitability.

Of course, there is a much more evil side to hindsight. Expert Advisor sellers looking to get very high profits in backtesting results can effectively manipulate their systems so that they "know the future" and trade in an exceedingly profitable fashion on historical data. Obviously if the system has any "hint" of the future it will most likely achieve very high profitable returns. This is the main reason why we cannot trust mere backtests from EA sellers, we always need live tests that show consistency with the backtests so that we know that the system behaves the same in real live trading conditions as it does in simulation.

Then it gets worse when systems are designed around hindsight. As an example, it has become popular to trade grid systems on the EUR/CHF or the AUD/NZD based on the hypothesis that this pairs are range bound. How do you know they are rangebound ? As a matter of fact, had you made the same hypothesis 5 years ago you would have gone through some very bad range extensions that would have wiped your account. Backtesting strategies that are based on a range that we know now but previously ignored obviously yields profit, since this range did happen. But could you have forseen that range somehow in 2000 ? 2005 ? You couldn't have. The same applies now, could you forsee the range that will be in place in 2020 ? NO ! Will there even be a range then ? As you can see, grid trading is a perfect example of a system designed around hindsight that assumes the future will be the past, nothing could be more wrong.

Hindsight is a very powerful force. When you evaluate or program either your automated or manual trading systems you should be very careful to leave hindsight aside. You should always consider that a healthy system must have no assumptions either about the past or the future, good long term profitable systems trade as market conditions change and have no assumptions about absolute ranges, past trend directions, etc. A good system trades the market as it plays out and assumes nothing about where it is going or where it has gone, it simply trades when the market shows a certain scenario it has been programmed to react to, then it takes advantage of it.

If you would like to learn more about hindsight free automated trading strategies designed to tackle varied market conditions through ATR based techniques and other adaptive tactics 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, November 15, 2009

Forex Trading Software : Supremo Fx an Unbiased Review

A customer asked me a few days ago if I could write a review about the SupremoFX trading software. Even though I usually do not write reviews about manual mechanic trading systems like this one today I made an exception to talk about this forex trading system. My review will focus on the evaluation of the claims made by the author against the actual evidence provided. After this I will give my opinion about whether or not this software is likely to help someone who is currently unprofitable in forex manual trading.

First of all, I hae to say that the SupremoFx website is pretty strange. You get a website with a video of a guy talking for 17 minutes with no other images or you get a text webpage in which you get to see the "evidence" of profitability provided by the trading system. They are several things that I found very puzzling whe looking at the Supremo FX software. First of all, it seems to be a mechanical trading system, so much that the "evidence" provided seems to be the result of backtesting the strategy on metatrader 4. Why do these people abstain from selling the EA they made to backtest the strategy ?

This is pretty strange. The guy on the video claims that "trading robots" are subject to being outdated and failing but he wants people to profit from an absolutely mechanical trading system. I don't understand, if the system is mechanical, then results between a human following instructions and an EA would be the same. What is the difference then ? Why isn't there an EA ? Probably the answer would be that the EA is not profitable during former years and the people at fxsupremo want to keep people away from knowing this, I simply cannot think of any other reason why this people would choose to avoid to share the expert advisor.

Another important matter is that they never made 100,000 USD from 10,000 USD. These results are based on backtesting which of course, is NOT the same as making the money in live trading. If there really is a live trading account that has made all this money then why don't they show this statement up from ? Why isn't there any live testing statement or investor access to a trading account showing the results ? I know that if I had a mechanical manual system that had turned 10,000 USD into 100,000 USD I would be sharing the statements all over the place. Without a doubt the claims made by this guy, as he says are "too good to be true", this system does not have any evidence to support its claims. It is just the same old hyped forex software we have got accostumed to.

As you may already see from the above paragraphs I think that this signal software is not worth buying. The way in which the webpage is portrayed, the nature of the results and the fact that there is an EA that was programmed but not sold are all things that make the SupremoFX mechanical trading system smell funny. There are however totally automated solutions in the forex market that can generate you profits with adequate risk and profit targets. If you would like to learn more about them and how you 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 !

Saturday, November 14, 2009

Forex Expert Advisors : Forex Conquest an Unbiased Review

Today's post will be dedicated again to the review an evaluation of a commercial automated trading system. This forex system, named forex conquest, claims to be able to turn 900 into 2000USD in two weeks, or make 43,240 USD in five months or almost 150K USD in less than a year. We will now see if this EA lives up to the test and is able to provide convincing evidence of these claims as well as demonstrate its potential for long term profitability. As always, my review will aim to evaluate the claims provided by the author against the evidence on the website. I will then do my own analysis on the trading strategy of the EA an give my opinion about the expert's long term profitability.

To start, the claims of this EA are nothing short of bold. The author of forex conquest claims it can turn 900 to 2000 USD in two weeks, this is a profit above 100% which in two weeks would only make me think one thing, a very high market exposure. However, things are a little bit different. Because this EA NEVER TURNED 900 to 2000 USD or 3000 USD to 150 K USD. This is one of the great deal of EA sellers that treat a simulation like if it was the real thing. Let me ask you. Does flying a cesna on flight simulator means I have flown an airplane ? This is how truthful it is to say that an EA has actually made a profit it never made. Making money in a simulation is to making money in real life as flying a cesna in flight simulatior is to flying a real airplane. Making in simulation and making live are two totally different things. To say the least, the author should provide us with the backtesting statements so that we can at least have a slight idea of what the system is all about.

There is not much in the forex conquest website. A bunch of hype and some screenshots and numbers which are totally meaningless. Where are the statements ? where is the backtesting, the live testing, the forward testing ? Where is everything ? This guy is selling a dream, he is not selling a trading system. Who would buy something that has absolutely no real evidence of profitability. This EA is way behind most experts in that it does not even provide enough material for me to even evaluate the trading strategy. The only statement on the website is pretty puzzling since it shows several trades without a stoploss or any other means of risk protection. Does it have an internal closing mechanism ? does it never close loses ? This are questions that cannot be answered because there is simply an absence of evidence.

As you may have infered from the second paragraph, this expert advisor is NOT worth buying or testing. There is not enough, really hardly any, evidence of profitability provided by the creator of the EA. The author would have to put up live testing statements and backtesting statements from 1999 so that we may have a real idea about the EA. If the author does I'll be glad to rewrite this review to include deeper analysis. Of course, there are long term profitable systems that you can use from today, if you want to learn more about these systems and how they achieve realistic profit/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, November 13, 2009

Video Webinars Now Available to Newsletter Subscribers !

After a few weeks of writing about my intentions to build a new website with teaching videos about how to profitably trade in the forex market with automated trading systems I have started to work on the idea and the videos. In order to start my work on these videos I decided to ask for the help of my newsletter subscribers. As a bonus to their newsletter subscription I decided to make some of the videos available to them so that they watch them and comment on what they like/dislike about the videos and what I may improve/change on them.

After three weeks of uploading one new video each week I have found good feedback from my subscribers. The videos are done over a powerpoint presentation that I go through as I speak, I found out this to be the most efficient way of putting up the videos as I am able to explain things, show important bullet points, show graphs, statements, etc. It is a very interesting experience for me as it helps me build up, strengthen and clarify teaching concepts as well as enjoy conversations and emails with newsletter subsribers, which after all, are all fellow traders I appreciate.

The objective of this post is to bring attention towards the videos which will now be available as part of the newsletter subscription (you get access to all former videos plus all videos that come out while you are susbcribed), one new video comes out each week with an interesting topic that is geared to help new and experienced traders grasp important concepts in the field of automated trading. Without a doubt this videos will benefit people who want to trade profitably as they include at the moment and will continue to include in the future, very relevant topics to those that want to achieve sustainable profitability in automated trading. The videos usually 20-40 minutes long and are stored on an FTP and available for download to new and present newsletter subscribers.

I also wanted to use this post so that people may tell me what topics they would want to be treated on the videos. Would you be interested in topics about profitability ? money management ? Programming ? Indicators ? Strategies ? What do you find the hardest in automated trading, what topic do you think you need to learn more about ? Please feel free to leave comments with whatever suggestions you may have about this or anything else related to the videos or the new website. I will make a video about one of the suggestions left here and make it available totally free of charge :-).

Again, if you would like to learn more about profitability in automated trading and how it really can be achieved 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 !

Thursday, November 12, 2009

Forex Expert Advisors : Forex Godfather an Unbiased Review

A few weeks ago a newsletter subscriber asked me to review the Forex Godfather expert advisor. Today's post will be focused on the evaluation of this expert advisor and the evaluation of the claims made by the authors against the evidence provided by them for the forex godfather's actual trading. By looking at the expert's website and evidence I will then analyze the experts probablity of being long term profitable and tell you if I consider it worth buying and testing or if it is, as most expert advisors out there, another overrated EA which does not have enough merit as to be considered worth the try.

To begin with , the forex godfather website makes a terribly bold claim about making 91,418 USD and holding every trade "for ransom". Terrible claims made by a terribly evaluated EA with the mere intention of selling it to unweary and inexperienced traders who believe this claims to be possible with 100 USD initial investment. As with many other experts, no hint of the initial balance is given on the claim, a very misleading tactic to make people think that they can achieve this profit with whatever initial investment. When we look at the evidence of profitability, it is extremely disappointing. What we see is a backtest coupled with a few charts and pictures of "live" testing statements.

Now, you cannot trust positive backtesting results from an EA seller for several reasons. The first one is that the EA might exploit problems with the backtester (like using information from the future, one minute interpolation, etc) for this reason we always need live/backtesting consistency to be proven. This guy does not show even one live testing statement that shows the expert's results so that we may compare them to backtesting. Oh wait, we don't have any backtesting statements either. Whats up with this guy ? When people are selling and EA, if they are really providing a profitable system in good faith they should provide download links to all of the evidence available. Why is backtesting done only from 2004 ? Why isn't it done from 1999 if there is data available to do so ? Why is there no live test from December 2008 if the "live" statement screenshot is from them. If the system is really profitable why isn't then a live testing statement showing this to be the case ? These questions really answer themselves.

In my opinion, this EA is probably based on a simple strategy, like a moving average cross or similar which has been curve fitted to show the backtesting statement you see on the website, why not from 1999 ? why no live testing statement if the screenshot is from Dec/2008 ? Simple, this expert is probably not long term profitable and the author does not want to show information that may be prejudicial to his sales. How unethical.

Of course, I consider this system NOT worth buying or testing as the author does not provide any valid evidence for his claims. Moreover, the EA seller seems to be hiding evidence that should be easily available, as the live testing statement from 2008 and the backtesting statement so that we can truly evaluate the system. Of course, profitable systems do exist and can be traded for realistic profit and draw down targets in the forex market. If you would like to learn more 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, November 11, 2009

Watukushay No.2, Trading with Candlestick Patterns

Many of you may be familiar with the Watukushay Project and how its goal is the development of long term profitable systems in which the whole development is carried out in a step by step fashion in order to help new and experienced traders better understand the process of automated trading system design and creation. The first expert from this project, the Watukushay No.1 EA was launched a few months ago. Its whole development was included as a pretty long section within the ebook that details the way in which the EA was programmed, the thought than went into its design and the way in which this expert advisor is meant to be traded, optimized, etc.

As soon as I ended up the development of this expert advisor I started to work on the next Watukushay EA, Watukushay No.2, which will be my second work for the project. Since the first expert was based on simple indicator trading with dynamically adjusted money management, I decided to base my second expert in a totally different approach. The second Watukushay expert will be based entirely on price action and will work on some very simple and successful candlestick patterns coupled with some simple trend following techniques.

The development of a system that will not be based on indicators will help traders see how to implement such a strategy and it will also serve as a way to illustrate how successful strategies can be programmed exclusively from price action. The money management used on this expert will also be different with no inclusion of the popular ATR adjustement technique I have been using in such an extensive manner during the past year. This new money management technique will also illustrate how there are different ways besides volatility indicators to adjust position as well as SL, TP or TL and it will also show how this can all be done with simple price action, with absolutely no need of any indicators.

Probably I will be finishing programming, testing and optimization sometime within the next two weeks but the inclusion of the whole development process on the ebook as well as the testing of the system on the newsletter will only probably start until early December when I finish the whole writing, editing and publishing process. I will give special care to the programming now so that everyone can have a very good understanding of how this candlestick pattern based expert was programmed and how I came by the trading strategy and optimized it to achieve the profitable results you may be hopefully looking at.

Those of you who are experienced in trading may be happy to know that I will be implementing the candlestick pattern with the highest probability of success, this turn out to be very simple, very studied candlestick patterns such as the hanging man, the hammer and the three soldiers. Of course, such knowledge of the probability of the candlestick pattern success did not come up from research of my own but from a careful review of the currently available literature. After reading several books about candlestick patterns with strong statistical analysis of the success rate of each pattern I kept less than five that proved to be the most likely to be successful in today's forex trading.

What will the profit targets be ? Will it be more profitable than the god's gift ATR or the Watukushay No.1 ? Stay tuned for more info on this ! If you would like to learn more about the Watukushay project, how you too can design and program your own profitable automated trading system or how you too can trade the free god's gift ATR successfully 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, November 10, 2009

The Nature of My Reviews, Nothing is Carved in Stone

Since last month I seem to be receiving a lot of criticism from some website visitors and traders because of my reviews on several different automated trading systems. Some people keep on posting comments on several different places of my website regarding the profitability and "wrongness" of my reviews on several of the automated trading systems I have been commenting on. These comments are usually filled with insults and profit claims that are not being backed up appropiately. Most of these comments seem to come either from the actual EA sellers who obviously don't benefit from my comments or from traders who feel my opinions are faulted and feel somehow "offended" by my freedom of speech.

For this reason I decided to write a post today in order to talk about the focus and expectations of my reviews and what people should take into account when they read my opinions about automated trading systems.

First of all, I take my time to analyze each one of the systems I review, as a matter of fact I always take more than an hour, sometimes even two or three, reviewing each one of the sites I take a look at. I always analyze all the evidence provided and gauge it against my knowledge in order to say whatever I say about the systems. Second, I am ONLY interested in systems that show enough evidence that there can be a good possibility that they will be profitable during the next decades. I am NOT interested in systems that give short term profitable results or that are based in unsound trading strategies such as grid systems and martingales. Please understand that I look for CAPITAL SAFETY, I always need a website to have long term backtests (from 2000) with live tests that SHOW consistency in order to even consider a system as being worth buying and testing.

However, I am a human, and as a human being I am prone to error. I may overlook evidence, fail to see new evidence or misinterpret trading records, etc. I am not free from fault. If you feel that I have not done a system justice and you believe that it has shown enough evidence to be considered long term profitable please place a comment on the review with the following conditions :

  • Do NOT insult me. I never insult anyone and I do NOT expect this from my website visitors, I am open to argument and whatever point you make should be made through argument. Not through insults. Insulting shows lack of education and culture, if your arguments are strong enough, they will speak for themselves.
  • Place links to evidence. If you say you have the evidence but you don't show it, it is as good as you not having it. If you are going to counter any argument, please show the evidence to do so.
  • If you are going to say a system is long term profitable please show links to 10 year backtests with at least a 3 month live tests that are CONSISTENT with the backtests. This is in order to ensure backtesting is RELIABLE and does NOT exploit one minute interpolation errors or such other problems.
  • When posting results for scalpers (TP is less than 3 times the spread), please post only LIVE results as demo vs live results for scalpers can be dramatically different due to spread widening, requotes, etc.
  • Please do NOT place comments about the profitability of grid, martingale, progressive money management, or other unsound systems. These systems are known to eventually wipe accounts out, this is based on statistic.
If you provide sound counter-arguments and evidence for them in any of my reviews, I will reconsider my review and even buy and test the system as part of my newsletter subscription. My reviews are NOT carved in stone and they are prone to change in the face of the appropriate evidence. I get NOTHING from saying anything positive or negative about any system, I just use my knowledge and criteria to gauge their long term profitability. Please understand that my criteria is pretty tough because my opinion may cause several people to actually use any systems I recommend, therefore I feel that I have the responsibility to only advocate for systems that have extremely sound and adequate trading principles.

If you would like to know more about the systems I have considered long term profitable or how I evaluate and program automated trading systems please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Monday, November 9, 2009

Forex Expert Advisors : Forex NightFox an Unbiased Review

Today I am going to dedicate this post to the review of a trading system which was suggested to me by a few newsletter subscribers. As always, I will honor their request and write a review abouth the forex nightfox expert advisor with my views about its trading. As all my reviews, this review will focus on the evaluation of the claims provided made by the author against the evidence provided as well as my analysis of the expert's overall trading and my opinion about its long term profitability. Please remember that as all my reviews this review is as unbiased as it can be with no benefit for me for either positive or negative feedback about the trading system. When you read this review keep in mind that I am as interested as anyone else in finding a reliable, long term profitable trading system, my opinions and anaysis are the fruit of years of experience in the trading and analysis of automated trading systems.

Well, lets start from the beginning. The website starts with some pretty bold claims of profitability. The expert claims to have made 7,595 USD in profits from the forex market in 2009. This seems to be backed up by a trading statement from mt4stats shown later on the website. When you look at the statement it becomes apparent that the account cannot be said to be either demo or live, we don't have the slightest idea if trading came from a live or demo account because no inverstor access account password and login are granted. Now, why is this difference extremely important with this expert advisor ? The answer lies within the trading tactics used by the EA.

Not to my surprise, it turnt out that the forex nightfox expert advisor is a EUR/GBP scalper, what is wrong with that ? First of all, it is extremely important to know this because the EA is taking very small profitable trades in the order of 5 or 4 pips, any spread differences and widening found in live trading would obiously negatively affect the EA. As a matter of fact, many of these scalpers are profitable in demo and unprofitable in live testing due to this single problem with EUR/GBP spreads. Besides this, the problem of a very high 10:1 risk to rewards ratio makes the trading strategy unsound. Furthermore, the fact that the EA is scalpers points out another problem.

If you look at the expert's backtesting it is obvious that it suffers from big one minute interpolation errors due to the extremely low TP. This couple with the backtester using a fixed spread makes the backtesting of the forex nightfox and other EUR/GBP scalpers extremely unreliable. Of course, the backtesting that would match the demo testing period is missing, probably because it would be a prove of this lack of consistency. The fact is that backtesting of this type of EA generally shows a lot more profitable trades than demo testing, which still shows profitability, however this is all lost when the EA changes to live testing and real spread widening and requoting starts to happen. Of course, this is the reason why EUR/GBP scalpers are excesively broker dependent and fail to work in long term live trading conditions. More over, the mere scalping strategy is something I dislike since these strategies eventually become void due to changes in the characteristics of the lower timeframe movements.

Since the backtesting is unreliable we cannot know the expert's real performance since 2000, furthermore, since there is no way to know the live performance of the EA since the mt4stats statement cannot be trusted to be live there is absolutely no guarantee against the claims provided by the author of the EA. In my opinion, this nightfox EA is as good as the next EUR/GBP scalper, based on an unsound risk to reward ratio and being excesively dependant on the broker spreads, execution and feeds. Of course, you cannot cope with a 2 pip slipage or a 2 pip increase in spreads when you are in fact getting into the market just to take 2 to 5 pips.

Based on all the above analysis about this expert's strategy I would have to say that this EA is NOT worth buying. The people at forex nightfox would have to provide LIVE statements with investor password access (to verify they are really live accounts) on several brokers so that people can really see the effects of live broker feeds on this EUR/GBP scalper. If the current statement is in fact a live statement then post the investor access password and the name of the broker so that people can achieve similar results. Of course, a 10:1 risk to reward ratio with a 5 pip TP on the EUR/GBP is bound to be unprofitable in the end because of the change in short term trading conditions, the problems associated with brokers and an eventual streak of loses which will wipe months of profits.

If you would like to learn more about what systems I consider worth testing and how you too can become profitable in forex automated trading using 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 !

Sunday, November 8, 2009

Measuring System Vulnerability : The Market Exposure Index

If you have been reading my blog for a while you may be familar with my use of the term "market exposure", as a matter of fact, most of you may be aware that this is a concept I use most the time to describe trading systems and gauge their possibility to be long term profitable. But, what is exactly market exposure and more precisely, how can it be measure ? Well, those of you who are subscribed to my newsletter may already have seen the video I posted on the FTP about market exposure and how this is vital for the description of a trading system. However, since this concept is pretty important and mentioned throughout my whole website I have decided to dedicate today's post to the analysis of the concept and the formal introduction of what I like to call "market exposure index".

The first thing we need to do if we want to talk about market exposure is to define it. What is market exposure ? There are actually several ways to explain the concept but the simplest one is to think about market exposure as the magnitude in which your system becomes vulnerable to loses as a consequence of the opening of a position. That is, whenever you open a position in the market you are getting "exposed" to losing your money as the market can take a move against you. The vulnerability of any system against taking loses is what I call "market exposure".

Now that we know what market exposure is we are left with a more challenging task. How do we measure market exposure ? How do we measure the vulnerability of a trading system against the market ? The first thing we need to do is think about the factors that affect market exposure, what affects the exposure of a system against the market ? The most important things that determine market exposure are the system's risk to reward ratio and the overall winning percentage of the EA. That is, the probability to win a trade. You must take into account that these two variables have to be deduced from extensive historical or live testing as short tests could bring unreliable results. Also take into account that the probability to win a trade, is never 1, that is, there is ALWAYS the possibility to lose a trade. Stubborn systems, like grid trading systems that assume the market will always "come back" to achieve a profitable result eventually lose as, even though the probability to lose can be low, it is still present and the fact that you are putting your whole account balance at stake makes the system to eventually wipe your account.

So how can we measure market exposure ? This is the reason why I came up with what I call, the market exposure index. This quantity, which is expressed by a simple mathematical formula can tell us if the market exposure of a system is capped. The formula is very simple

market exposure index = 100*(fraction of losing trades)/(average reward to risk ratio)

For example, the god's gift ATR, GBP/USD has a market exposure index near 60. Any market exposure index below 100 implies that the strategy is profitable and adequately capped. Any result above 100 indicates that the system is unprofitable, the higher the market exposure index, the higher the risk of a wipe out. For example, Martingale systems, whose risk to reward ratio increases exponentially with every losing trade have a market exposure which is generally equal to equity over the fraction of profitable trades. Grid trading systems have the same risk to reward ratio, something which lets us know from the start, through the market exposure index, that those are strategies with very important market exposures that WILL cause account wipe outs in the long term.

Hopefully, if you liked the idea, you can start using the market exposure index as a way to gauge the viability of trading strategies and the way in which they protect your equity from the market. Strategies with very low market exposures are the best since ideal strategies would have a very low risk to reward ratio with a very high winning probability. Most of the time, the best systems have a compromise between these two things.

If you would like to learn more about trading systems I have developed and how you to can evaluate and trade automated systems profitably 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, November 7, 2009

Cutting the Costs of Trading... Virtual Private Sharing ?

In the past few months I have written one or two posts about the cost of trading and how the cost of a VPS is most of the time "ignored" from the equation. As I have said a few times, having a reliable VPS is vital to trading success with expert advisors as trading with a VPS guarantees small lags as well as a permanent connection to the broker. Many people think this is not necessary. I won't argue that it is possible to do this from a home computer without any problems, however, eventually something may happen which you will not be prepared for and this is the time when a VPS need becomes primordial. You may also want to check your journal log on your metatrader platform on your home computer, you may notice lags, disconnections, etc, which may be a cause of using your home computer, all these things may not become apparent unless you look for them within the logs.

Now, assuming that having a VPS is an absolutely basic need (which I believe it is) then it becomes a problem to find a cheap, reliable VPS. As I have said previously, investing less than 2000 USD means that you will probably not have enough monthly profits to pay for a reliable VPS. However, I have recently though about ideas we could use to try to reduce this cost and still be able to use a virtual private server.

The first thing that came to mind was simple. If a decent VPS is able to run at least 6 to 10 metatrader platforms without any problems at all, then why can't we share a VPS between traders to "ease" our trading costs ? Obviously, thousands of problems come to mind. First, you would have to trust others with your live account, what if someone does something that causes you to lose money ? What if something happens and the VPS is rebooted, loses connectivity ? What if your mt4 platform gets shutdown by one of your peers ? Well, certainly all of these things will be important matters in sharing a VPS. The next question was then fairly obvious. Is there a way to share a VPS in which the privacy of each account is not compromised ?

The answer, is YES. It figures that the solution to all the above problems is pretty simple. Say, Joe rents a VPS service for 30 USD a month, he has almost 750 MB of RAM which is enough for at least 10 metatrader platforms and he wishes to share his VPS with someone to offset his costs. What can Joe do ? Well, Joe then decides to "subrent" his VPS to 5 different people who are entitled to run one metatrader platform with their live account. In order to prevent everyone from interfering with each other Joe simply creates 5 additional login accounts with limited priviliges who cannot modify other people's processes or run anything more than their metatrader platform, Joe also sets up an FTP server so that every user has an account and is able to upload their experts and indicators to their home folder. At the end, Joe has a VPS which he "subrents" for 5 USD to each user, this leaves Joe with a total of 25 USD a month and a total cost for him of 5 USD. In fact, Joe could even charge 6 USD and have the cost totally eliminated for him.

Is this solution ideal ? Well, of course, it is true that Joe would have to know how to limit the accounts' access accurately, otherwise people may end up interfering, Joe would also need to limit RAM allocation to each user, otherwise one user may end up getting all the RAM in an inefficiently run (or with a very heavy EA) metatrader platform. Of course, some ground rules would have to be brought up and some trust needs to be existent between the users. However, the above solution solves almost all the problems related to "sharing a VPS". This new concept of a "community VPS" could save people who have small accounts a lot of money as it will be a very easy way to still keep profits while running their accounts in an always online, reliable, VPS environment.

What do you think of this solution ? I made a small test with two login "limited" accounts on one of my VPS with pretty good results, hopefully some of you may want to recreate my achievements or even start selling some "share" of your VPS. Also, if you want to learn more about the automated trading systems you can run on your VPS and how you can get long term profitable results from them 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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