About a week ago a website visitor left an email on my website asking me to review the performance of the robots on the forex robot world cup. He said he was surprised and he would value my input on the subject. Well, I once wrote a post about robot championships and competitions but I think that this competition requires me to do a little emphasis on my previously given points. I am not a fan of expert advisor competitions and through this post I will tell you why and why you should not fall for the forex robot worldcup robots' performance.
I have always understood the idea behind doing competition of different automated trading systems. Give a prize, stimulate the production of profitable expert advisors, then test them to see who wins and then sell them or use them. It seems to be an "everybody wins" situation. The people who make up the contest get to find a profitable EA to sell, the people get to watch the performance of a bunch of experts, the programmer gets a cash prize and after that people are able to purchase the robots from the maker of the competition. Isn't it brilliant ? As always, I have a couple of things to say about this and specially about the forex robot world cup competition.
Does the forex world cup competition find profitable trading systems ? Hardly. You see, when people are given a cash prize for just programming a robot and putting it to run on a live account for a small amount of time only one thing is encouraged : to take high risks. Most people who enter these competitions think this way, why would they care for what happens after the two months of live trading ? Just take a huge risk and if everything goes just fine the market won't have the time to cash on your market exposure and you'll win a big fat cash reward. You don't have anything to lose.
People really don't see it this way. For the regular Joe, the winners of these competitions seem to be the holders of the holy grail when in fact they are just some automated systems with absolutely high and unsound market exposures. The winning system cashed more than 60% on the first month. I would never put that to trade on my live accounts. Such huge profit means a huge market exposure with huge probability for loses. It is just the statistical way in which the markets work, you cannot get that reward without a high exposure, and you cannot have a high exposure before eventually giving everything back. I hate these competitions because they encourage unsound trading and experts that just show profitability for the two months of testing. I just see no value in their results.
Why do they do this ? Well, it is just a matter of marketing. You make up a competition, you get a robot with 2 months of very profitable trading then you may get a few more months, then you start losing a lot of money. At the beginning you will be able to sell many many thousands of copies of this EA because people will think "it won the competition, it must be good". These experts are simply anything but good for long term trading. They were designed to win a two month competition, not to provide you with a stable return on investment for the next 20 years. Think about that !
What has happened to the winners of previous competitions ? Exactly what I just told you. They have had very good results on the competitions and after that the market has cashed on their huge exposures and the accounts have been wiped. There is no way in which a long term profitable system would ever win one of these competitions because these systems are made to preserve capital and profit on very select market conditions. In order to make a real competition about which experts could survive in the long term and provide a reasonable return on investment with time they would have to run a 10 year competition, which of course would defeat their objective of having quick results for quick sales.
Long story short, do not get excited by the results of a 2 month competition, and do not buy any of the trading systems that go out of there. Otherwise you are going to risk that the market will cash the system's exposure on your live accounts. Remember, "designed to win a 2 month contest" is not the same as "designed for long stable profits". If you would like to learn more about long term profitable systems please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !
I have always understood the idea behind doing competition of different automated trading systems. Give a prize, stimulate the production of profitable expert advisors, then test them to see who wins and then sell them or use them. It seems to be an "everybody wins" situation. The people who make up the contest get to find a profitable EA to sell, the people get to watch the performance of a bunch of experts, the programmer gets a cash prize and after that people are able to purchase the robots from the maker of the competition. Isn't it brilliant ? As always, I have a couple of things to say about this and specially about the forex robot world cup competition.
Does the forex world cup competition find profitable trading systems ? Hardly. You see, when people are given a cash prize for just programming a robot and putting it to run on a live account for a small amount of time only one thing is encouraged : to take high risks. Most people who enter these competitions think this way, why would they care for what happens after the two months of live trading ? Just take a huge risk and if everything goes just fine the market won't have the time to cash on your market exposure and you'll win a big fat cash reward. You don't have anything to lose.
People really don't see it this way. For the regular Joe, the winners of these competitions seem to be the holders of the holy grail when in fact they are just some automated systems with absolutely high and unsound market exposures. The winning system cashed more than 60% on the first month. I would never put that to trade on my live accounts. Such huge profit means a huge market exposure with huge probability for loses. It is just the statistical way in which the markets work, you cannot get that reward without a high exposure, and you cannot have a high exposure before eventually giving everything back. I hate these competitions because they encourage unsound trading and experts that just show profitability for the two months of testing. I just see no value in their results.
Why do they do this ? Well, it is just a matter of marketing. You make up a competition, you get a robot with 2 months of very profitable trading then you may get a few more months, then you start losing a lot of money. At the beginning you will be able to sell many many thousands of copies of this EA because people will think "it won the competition, it must be good". These experts are simply anything but good for long term trading. They were designed to win a two month competition, not to provide you with a stable return on investment for the next 20 years. Think about that !
What has happened to the winners of previous competitions ? Exactly what I just told you. They have had very good results on the competitions and after that the market has cashed on their huge exposures and the accounts have been wiped. There is no way in which a long term profitable system would ever win one of these competitions because these systems are made to preserve capital and profit on very select market conditions. In order to make a real competition about which experts could survive in the long term and provide a reasonable return on investment with time they would have to run a 10 year competition, which of course would defeat their objective of having quick results for quick sales.
Long story short, do not get excited by the results of a 2 month competition, and do not buy any of the trading systems that go out of there. Otherwise you are going to risk that the market will cash the system's exposure on your live accounts. Remember, "designed to win a 2 month contest" is not the same as "designed for long stable profits". If you would like to learn more about long term profitable systems please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !
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3 comments:
Hi Daniel-
Thanks for your site and e-book, i'm learning a lot from them.
Are you against commercial EA's generally speaking? I ask because I took a look over your site, and I haven't found a single commercial EA that you think is worth buying. If I missed something and there are commercial EA's that you like, let me know.
I read in your book that you shouldn't trade any system that you don't fully understand. Since the logic of commercial EA's are not fully disclosed, is your distrust of commercial EA's based on that statement?
If a commercial EA is tested according to the standards you outline (10-years back testing, 1 year forward testing, etc, etc) and the robot performs well across all those tests, is it still bad because the logic is not disclosed?
I ask because if you object to every commerical EA, you should just say so and focus only on reviewing EA's for which you have the source code.
Thanks,
Chris
Hello Chris,
Well, there are in fact some commercial experts I consider worth buying and testing. For example the DTS-1 and Winalot experts tested on the newsletter are good examples. There are however at least 4 or 5 experts I have considered worth buying or testing. Of course, fulfillment of the 10 year backtest and live testing back/live testing consistency requirements are a must.
It is obviously not good to trade systems you don't understand since this hinders your ability to understand them and use themn profitably. However commercial experts can be decompiled and their code analyzed (this is legal as long as you do not reproduce the code or share it in any way). It is not said that if you don't have the source code you cannot understand a system, you can either get the source code by decompilation or do an extensive analysis of the back/live tests to get valuable information about the logic. (in the case of decompiling, all the logic).
As I say, I do not object to commercial experts in general. I object to people who try to sell something for which there is no proof of profitability and that is what I struggle to fight. Almost ALL experts are not worth buying or testing because non of them provide sufficient evidence, they just want us to take a gamble with our money to prove their claims (again, the burden of proof is on THEIR accounts, not on ours). I just want people to see this and really ask "does this guy have what he is claiming?" and see that this is almost ALWAYS not the case.
Of course, the best approach is always to develop a personal trading system based on sound trading principles which the person understand and can trade with confidence through the years. To teach how to do this (design, program, etc) is the objective of the Watukushay series of expert advisors.
Daniel-
Thanks, I appreciate the reply.
Since I don't subscribe to the newsletter, I wasn't aware of DTS-1and Winalot, i'll take a look at those.
Also, I wasn't aware of the de-compiler option, that sounds pretty interesting.
Thanks again,
Chris
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