Sunday, February 28, 2010

Dollar Cost Averaging in Forex Trading... Is this a Sound Approach ?

I have been asked a few times questions about strategies for long term investments in the forex market. Precisely I have been asked a very important question about capitalization : if a person has a system which is very likely going to be long term profitable, how can that person add capital to his or her trading account ? I have given this a lot of thought since adding capital to investments is a great way to increase the power of compound return in the medium/long term. On the next few paragraphs I will try to explain my views about increasing trading capital on forex investment accounts and how I believe this should be done in order to maximize profitability and reduce the likehood of investing in a strategy which is bound not to continue working.

So what do I mean by adding capital ? If you start your trading account with 1000 USD and your trading system has a return of 12% a year in average then you will have approximately 3300 USD in ten years. However if you add 10 USD each month, your balance will be 5600 USD in the end. If you add capital to an investment which compounds you will eventually get much higher profits. This technique in which money is added every X period without taking into account the system's current state or market conditions is called "dollar cost averag" because it assumes that in the long term you will add as much money in favorable as in unfavorable conditions, therefore "averaging" the effect.

This technique works quiet successfuly in the stock market but I strongly believe that it is a very poor choice when adding capital to forex trading investments. The reason is simply that any forex trading system has a chance of eventually becoming too risky to be traded, regardless of the amount of proof of long term profitability. There is always the possibility that a set of market conditions will show that your system will not be able to handle appropiately. Therefore you run a great risk of investing in a strategy which no longer works appropiately when you invest using dollar cost averaging.

How do we increase our investments in forex trading then ? My answer to this question is called "reward the best". What I do is pretty simple : You save a given amount of money every month, without investing it on any trading system. You only add the money to a trading account if that account reaches a new equity high (meaning that the system is performing as it should) if it does not then you simply keep on saving the money. So for example, if you have a 1000 USD account and you would add 100 USD a month using dollar cost averaging here you will save those 100 USD every month of draw down until a new equity high is reached. The month this happens you add all the saved money to the account. So suppose that you start with 1000 USD, the first month you get 1020 USD so you add 100 USD reaching 1120 USD, the next month you are at 1095 so you save 100 USD, the following month you are at 1100 USD so you save the money again and finally on the next month you are at 1140 USD so you invest the 300 USD (past two draw down months plus this month).

I have found that this technique works great since it does not risk investing money in a system which is too risky while it rewards systems that reach new equity highs. In particular I have noticed that when the systems I have coded reach new equity highs, they tend to do that for a certain period of time before going into a draw down period, therefore, reaching a new equity high and investing then adds capitalization power to the following profitable period.

If you would like to learn more about my automated trading systems and how you too can design a trading system to reach your long term profitability goals please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Saturday, February 27, 2010

Broker Dependency in Forex Trading... How Big is this Problem ?

The forex market is different from almost all other financial markets. Amongst all the differences, probably the greatest one is the lack of a central exchange in forex trading. People usually do not understand the large importance of a central exchange and how it helps both trade regulation and successful trading system development. The fact that we don't have a central exchange in forex makes the market both highly unregulated and difficult to trade since each broker feed is different from the next. On today's post I will talk a little bit about how this broker differences affect our overall trading and how they have a very high impact on automated trading system development, an impact usually far larger than what people imagine.

So what is the deal with having different feeds anyway ? There are several problems with this, some smaller and some bigger. On the smaller side we have the problem that having different feeds implies that different price levels are reached on the high/lows of candles. This effectively leads to some orders reaching TP and SL values while not reaching them on other brokers. This inevitably leads to some broker dependencies although the extent to which this influences overall results is not extremely significant.

On the other hand we also have that these small diferences in broker feeds which cause differences by a small number of pips in candle high/lows open/close values tend to affect indicator values to a great extent, since indicator values are calculation made on price action. Now, this specially affects strategies which are based on indicator crosses since very minute differences in broker feeds and indicator values can cause a cross to happen or fail to happen which leads to a very wide range on different signals on different brokers.

You can also conclude from this analysis that the smaller the time frame in which you trade a system and the smaller the TP and SL values of the system the much more prominent to broker dependency issues a trading system is since broker feed differences amount to a much larger percentage of the candles on lower time frames. For example, a 2 pip difference on the close of a candle may only mean 10% of a one hour candle while it may be 30% of the 15 minute candles that compose it. Therefore strategies based on lower time frames have a much greater tendency to show broker dependency.

Broker dependency is usually large and on systems that trade smaller time frames it may mean that results obtained on one broker may be totally irreproducible on another, therefore it is very important to design systems for the higher timeframes (one hour or higher) when looking for limited broker dependency and increased reliability. It is also mandatory to run a trading system on several brokers to know the extent to which these depency issues affect overall profitability and if such issues will or will not lead to a broker being globally more profitable than another. The best trading systems which have limited broker dependency will show different trades in the short term on different brokers but their overall profitability in the long term should match as brokers may compensate for each others performance as market conditions change (a good period for one will be bad for the other and vice versa).

If you are interested in this subject and in learning to develop and trade automated long term profitable trading systems please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Friday, February 26, 2010

Profits for Today or Profits for a Lifetime... Think Differently

It is funny how the world of automated trading works and how most people view automated trading systems. In general I have found people view automated trading systems as a "way out" a way towards quick riches, stress-free money-making and a sure-way towards a life of luxury. I believe that my vision of algorithmic trading systems has developed to stand far away from the most common approaches to expert advisors and I believe that this is the reason why it is so hard for me to communicate my train of thought to new traders. On today's post I will try to explain to you why my vision about automated trading is so different and why I think it is the most sound and reliable approach to this topic.

How do people view automated trading anyway ? I have found that people around the metrader 4 scene are rarely experienced traders. Most people around this scene are either experienced programmers or inexperienced traders with the idea that trading is a way in which they can get a lot of wealth in a very small time frame. People truly believe that they can make a huge income if they could only find that "holy grail" that will produce a lot of profit with little or no draw down through an infinite period of time. People lack any knowledge about system development, trading strategies or trading in general for that matter. This makes people stimulate the development of systems which can deliver short term results to satisfy people's immediate need for reward (as I have mentioned on previous posts on this subject).

What you get from this mess is the actual state of automated trading and retail trading. You get people looking for a trading system "that just works" and getting their accounts wiped time after time after time when the trading system which has been giving results for 6 months or a year suddenly stops working and starts to bring the account into heavy draw down. Why ? - people ask - simply because they were using a system that had no possibility of being long term profitable. People generally use systems without ever thinking : Will this system be profitable in 10 or 20 years ? Is it based on sound trading tactics and principles ?

Here is where I believe that my way of thinking is completely different. The first thing I ask myself is that exact question : Will this system be profitable in 10 or 20 years ? Is there a high likehood of this being the case ? Since this is rarely the case for commercial systems I usually get into a lot of clashes with people who strongly believe that the system they are using is profitable (because it has been giving profits for 1-12 months) but they fail to grasp the fact that there is no evidence that points to the system being profitable through the next few decades. Moreover, they ignore the logic behind the system and they don't know if such logic uses sound trading principles or if it is bound to be rendered unprofitable as time goes on. The fact is that most systems use tactics that will inevitably lead to wipe-outs in the long term.

I am a trader, who thinks like an investor. When your living expenses depend on the money you generate with your automated trading systems, it not only becomes important, but vital, to develop trading systems you can absolutely trust and work with, with the confidence that everything that could be done to prove their long term profitability has or is being done. It is a matter of changing time frames. I am thinking : Where will my systems and trading be in 20 years ? Not, how much was the system's profit in February ? What I have tried to develop through time is the only reliable approach to trading I have been able to find, the design of systems with sound trading tactics that have the highest posible chance of standing the test of time.

If you want to learn more about my approach to trading and how you too can change your mind to start trading with systems that have a high chance of being long term profitable please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Thursday, February 25, 2010

Forex Expert Advisors : Forex UltraBot, an Unbiased Review

During my yesterday's search for new trading systems I found the Forex Ultrabot expert advisor. Today's post will focus on the review of this trading system. As always I will focus on the evidence provided by the authors as well as the claims made on the website. This analysis will let us know if the expert advisor is able to live up to its claims or if it is simply another over-hyped worthless trading system like most of the expert advisors sold on the internet. In the end I will also give you my analysis about the possible long term profitability of this system and whether or not I consider it worth buying and testing.

From a first look, the UltraBot Forex expert advisor seems to give a good impression. You have 10 years of backtesting data with an almost 1:1 risk to reward ratio and an SL and TP in the 50-200 pip range. The UltraBot system also uses volatility adjusted exit mechanisms which should provide it with an edge against changes in market conditions (if it is implemented as the authors say). From an analysis of the backtesting statements we can see that the SL and TP definitely change as the market changes which speaks about and adaptive implementation. However the fact that lot sizes are not adapted against volatility could make the system's adaptability worthless since it is very important to adjust both position sizing and the exit mechanisms against volatility since both must work in unison. Failing to adapt one while adapting the other does not generally have a positive outcome as I demonstrated on my November 2009 article in Currency Trader Magazine.

However is this evidence enough to backup the website's claims about profitability and high trading accuracy ? Sadly, no. The problem is that the ultrabot authors provide evidence only in the form of backtesting statements. In reality we cannot simply rule out the fact that profitability in backtesting can simply be "made up", meaning that the trading system could have simply been made with the benefit of hindsight to use certain curve-fitted results on certain dates or other similar tactics. The fact that the 15 minute time frame is used could also points out to large broker dependency and modeling quality problems because of the reduced number of reference points available per bar.

From what we are shown on the website, all the results of the ultrabot expert advisor could simply be the result of hindsight and the exploitation of backtesting faults. Why isn't a live test of the trading system done ? With only a few sales the authors could open a few micro live accounts to show us live-updated performance of their trading system. Why isn't this evidence provided ? Why isn't there a live tests ? What are the creators trying to hide ? It is undeniable that the lack of live testing clearly means "we are hiding something" since live tests of this system could be made from even 100 USD per live account. Why would you ever risk to use a trading system which the authors do NOT care to use ? Clearly you should not.

Due to the lack of live trading evidence and the fact that the trading system's backtests could simply be the product of hindsight and curve-fitting I consider this trading system NOT worth buying or testing. If live trading evidence with investor access is made available I will be glad to rewrite this review to consider the newly available evidence. Meanwhile, this is simply another over-hyped expert advisor with no proven live/back testing consistency and a big probability of just being a worthless trading system.

If you would like to learn more about trading system design and how you too can learn how a likely long term profitable system is made and traded please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Tuesday, February 23, 2010

Forex Expert Advisors : CaliberFX Pro an Unbiased Review

A few days ago, while searching for new automated trading systems to review I came across the CaliberFX Pro expert advisor. On today's post I will make my best effort to review this trading system and tell you whether or not it is worth buying or testing. My review will focus on the analysis of the evidence provided by the author as well as a comparison between the author's claims and those backed up by the actual evidence presented. I will discuss the trading technique of the trading system as well as the likeness the system has of reaching long term profitability based on my experience in this business.

The CaliberFX Pro trading system website starts with a very bold claim telling us that the expert advisor is able to achieve multiple hundred percent profitability. However no time frame for this profitability is given so actually the statement is vague and misleading and only contributing to the overall "hype" tone of the entire website.

When we go a little bit further along the page we find a very limited, non-verified live-testing statement of a few days which is simply worthless in its current state. First of all, live tests must be third party verified (via myfxbook) or the investor access password needs to be provided in order for us to verify that a) the account is real and b) that the statement shown is not being manipulated. Expert advisor sellers have been known to show bogus statements with manipulated results so this information is a MUST to ensure that the vendor is being completely honest. Second, a live tests of just a few days is simply too statistically limited to say anything about a trading system's profitability. A few days are just a too small sample to say anything about long term profitability.

Then when we proceed further I find that the actual risk to reward ratio of the strategy cannot be figured out because the actual profit per trade is hidden or the lot size is hidden as in the case of the "strip" of backtesting which is shown. Why is this hidden ? why would they hide information such that determining this parameters becomes impossible ?

Another fact is that backtesting evidence shown is always "blurred". The only strategy tester report shown has 90% of the screen are hidden in such a way that we cannot look at the average profitable trade, average losing trade, winning percentage or -more importantly- risk parameters such as the maximum draw down of the strategy. The fact that the backtesting modeling quality cannot be known and that the backtest is merely limited to 1 year of analysis further points out that the seller is definitely trying to hide something from us. Why aren't 10 year backtests shown ? If there is a live test (as shown in the beginning), why isn't a myfxbook live-updated widget shown to give testimony of its ongoing performance ?

As you see, there are simply to many unanswered questions and the fact that the seller is simply being dishonest and willfully hiding relevant information about his or her trading system. For this reason, this expert advisor is absolutely NOT worth buying or testing. It would be as good as betting the money in a casino to buy a trading system which has absolutely no proof of long term profitability and moreover an EA which doesn't even allow us to have a look at the risk to reward ratio or maximum draw down of the strategy.

If you would like to learn more about automated trading systems and how you too can develop and trade your own long term profitable trading systems please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Curve Fitting Trading Systems... Can it be Avoided ?

Imagine that you have dedicated several weeks to the development of a profitable trading system. Your simulations are showing you brilliant results, so you decide to test your system on a live account for a few months. Then you discover that performance is nowhere near what you expected. What is wrong ? Well, the most probable explanation is that you have curve-fitted your system to past data and therefore your system is unable to behave similarly on a different data set. On the following paragraphs I will talk to you about what curve-fitting is, how it affects system development and how we can develop systems to avoid this seemingly unavoidable curse.

So what is curve-fitting anyway ? Simply explained, the term is derived from the fact that any given "curve" or data set can be accounted for by a given mathemtical function of arbitrary complexity. That is, you can always find a mathematical function which can predict with absolute accuracy all the items of a data set. However, the function may have absolutely no predictive power. For example, take into account the data set 1,2,3,4. Can you predict the next number ? You can immediately think of a function which can predict all the items of the data set but can it predict the next one ? Well, what if the next one was 12 ? then your function has no predictive capability even though it was able to predict all previous items successfully.

The problem applies to trading because the fact that a given system was able to exploit a market inefficiency in the past does not guarantee that the inefficiency will be present in the future. Usually optimization is great to curve-fit trading systems because what an optimization does is merely to "adjust function parameters" to find a mathematically sound answer to the problem. The better and tighter the optimization, the more curve-fitted the system will become, this is a reason why neural networks - which are excellent at optimization- tend to fail in successful trading systems as they always curve-fit their data excessively.

So how can we make a trading systems with the slightest possible chance of ending up with a useless curve-fitted expert advisor ? The first important measure is to do simulations on periods which are as long as possible. The longer the trading period, the more statistically significant the data set is and the less likely it is to allow the curve fitting of your system. Long time periods introduce a wide variety of market conditions which make curve fitting very difficult. However the number of trades is also very important. Having more trades for a given long trading period is better (against curve-fitting) since it implies a larger number of market conditions in which the EA was able to trade and succeed.

Another important aspect of curve-fitting is to avoid excessively correlated and exhaustive optimization of trading systems. Trading systems should be optimized one variable at a time or using two cross-related variables at a maximum without going into excessive detail. For example if an EA has a parameter which can go from 20 to 50 it is better to optimize it in 2 steps (20,22,24, etc) rather than running a full optimization of all values (20,21,22, etc).

Another great idea is to have very robust profitability, this means that results in an optimization should form "thick clusters" of profitability. For example, if in the above example 24 gives very profitable results but 23 and 25 are unprofitable then it means that in the future the system is bound to be unprofitable if there are slight changes in the optimum criteria (something which will happen). When running an optimization as many results as possible should be profitable and the area around the most profitable result should also be close to that result.

Then finally we also have the matter of adaptability. A system should be able to adapt to changes in market conditions therefore having some flexibility in its entry and exit criteria. If you optimize a system which gives very good results with a TP of 100 pips the system is likely going to be unprofitable in the future as market volatility and conditions fluctuate, invalidating the 100 pip TP. The best thing would be to optimize a dynamic criteria, for example, what percentage of the standard deviation is the ideal TP ? This ensures that the EA can change its exit and entry values in a dynamic way therefore adding another layer of protection against curve fitting.

However, despite all our efforts it is still a mathematical possibility to curve fit a trading system to the past given the fact that the future may have absolutely no relationship with it (like in 1,2,3,4,12). Nonetheless, following the above criteria in the development of a trading system aiming for adaptability, broad optimizations, robust profitability and large periods of testing data guarantees a better chance of suceeding even if there are significant changes in future market behavior. If you would like to learn more about these concepts and how I use them for the development of likely long term profitable systems please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Monday, February 22, 2010

Why Megadroid will Likely Wipe Your Account... I am NOT Kidding.

I have been becoming more and more worried about the large number of people who seem to be buying and using the megadroid expert advisor with seemingly successful results without realising the very large market exposure and risk they are putting their accounts into. Today I want to dedicate this post to the discussion of megadroid's evidence for long term profitability and why its trading tactics will lead to an account wipeout in the future with a very high probability. I want to write this post to know that I did my best to warn current Megadroid users about the potential hazards of this trading system. I want to make clear before I start that I do not write this post because I am "jelous" or "offended" by the profitability of other forex traders or because I want to sell my own systems. On the absolute contrary, I write this post out of genuine concern for people's capital safety and NOT to try to sell you anything. In fact, anyone looking for long term profitability can use one of my systems, Watukushay For Everyone, which I make available for absolutely NO charge.

I have to say that I understand the reasons why so many people may seem interested in trading the megadroid trading system. The system seems to have a wealth of both backtesting and live testing information provided by the author with a significant amount of third party tests which shows the expert to be profitable amongst time periods of at least 6 months on different brokers on live accounts. What is so wrong with megadroid then that compelled me to write this post ? Several things.

To start from the beginning, the information provided by the author is not confirmed by any third party and there have always been rumors about the author omitting loses from the statements, clearly we cannot trust the live account results of an EA seller without investor access or true third party confirmation such as that provided by myfxbook. There also seems to be significant discrepancies between simulations and live trading results (over longer periods of testing) which are definitely a result of one minute interpolation errors. Periods of 6 months of live testing compared to simulations show disparity related to the number of profitable and losing trades and great broker dependency between different tests, it then becomes evident that megadroid may be exposed to a much higher draw down than that predicted by backtesting results.

However the thing that worries me the most is the fact that the Megadroid expert advisor is a hidden Martingale. The EA loses with little frequency (which is needed even for break even results due to the very unfavorable risk to reward ratio of the trading system) but it doubles its lot size when it hits its big stoploss. The fact is that if you hit a series of consecutive loses of even as little as 3 or 4 loses, you could lose your entire account. Megadroid is a very risky trading system and it always exposes a VERY significant amount of capital 10-20% on every trade. Add a martingale to that and you have a time bomb.

To me, the current state of the megadroid expert advisor is like that of a Ponzi scheme when it gains popularity. Everyone is happy, many people are making money and finally the cash flow is so huge that the Ponzi scheme becomes unsustainable and the inevitable total loses of capital happen. Megadroid may remain profitable for more time, but the truth is that the system's market exposure is simply absurd, its a hidden martingale, a wolf in sheep clothing andI have absolutely no doubt that it WILL show its true colors as time passes by.

I hope that my arguments have been strong enough to convince those willing to listen to third party arguments to NOT trade this trading system as its trading tactics are simply unsound and its money management is simply against everything experienced traders would ever do. As I said on the beginning of this post, for those looking for long term profitability there is always Wautukushay FE. If you are however interested in a true understanding of the development of long term profitable system with sound trading tactics so that you can design and trade your own long term profitable systems please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Sunday, February 21, 2010

Why Forums Fail... The Problems of Developing Systems in a Community Environment

It has always appeared very unusual to me that despite the fact that massive efforts towards the development of profitable trading systems have been carried out in forums none of them have been able to come up with a long term profitable community-developed trading system. The objective of today's post will be to analyze the reasons why this is not the case and why the development of a long term profitable system in a forum or community-like environment will most likely not happen.

I bet you have also seen the bast quantity of automated trading systems which have been developed in automated trading forums. However it is clear that there doesn't seem to be a concensus towards the development of a long term profitable system. Most of the time the development of systems in forums follows several stages of development which generally end up with a system which uses unsound trading techniques and is only short term profitable at best. The steps I have found out go on in system development on forums are the following :

- System proposal by a forum member
- very limited forward or backtesting from other members
- implementation of additional entry filters to counter short-term problems
- implementation of unsound trading tactics such as the use of martingale money management
- more extensive forward testing
- some very limited live testing which may end up in wipeouts or significant loses
- elimination of the expert or recycling with additional filters or logic changes

The consequence of this development cycle seems to be associated with the fact that people in forums are in general not very experienced traders or have not had significant experience in the development of long term profitable systems. The expert advisors developped in forums always have the problems of being overly focused on entries and paying little attention to money management criteria - exit plus lot size allocation - which is absolutely vital for the success of a trading system in the long term. These shortcommings are usually tackled by introducing unsound trading tecniques which increase the short term profitability of a trading system but end up increasing its market exposure to unlimited levels.

I believe that these improvements over short term profitability always seem more attractive to new and inexperienced forum members which start to further develop these concepts into even more dangerous expert advisors. It seems obvious that the problem is the general lack of knowledge about sound trading tactics and the lack of adequate analysis of price action in order to develop trading systems. There doesn't seem to be a good understanding of the math behind indicators and all systems which are proposed and developed seem to be merely based on some visual observations of indicator action without any analysis of the underlying meaning of the information provided by the indicators.

Since forums tend to nurture short term profitable systems (which often offer very high and unrealistic profit targets with uncapped market exposure) instead of the development of sound trading tactics it seems to be inevitable that there will never be a community-developed long term profitable trading system unless there is a massive change in the perception of automated trading by forum members. However it is very unlikely for this to happen since new forum members join all the time and these new members often have an unhealthy taste for unrealistic profit targets and unsound system development.

If you would like to learn more about sound trading tactics and how long term profitable systems can be developed with adequate analysis of price action please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Saturday, February 20, 2010

It's Simple, Either You're Honest or You're NOT !

Through most of my career as an EA reviewer and an automated trading system creator I have been shocked by the large amount of dishonesty in the selling of commercial automated trading systems. What most people don't realize is that NONE of the commercial expert advisor sellers out there are being totally honest with them and all of them (that I know of) use one or another type of deceitful tactic to win over their hard earned dollars. This post will be dedicated to the discussion of this fact and the fact that there is a very simple truth: Either you are an honest seller doing your best possible effort to proof the profitability of your trading system and show it to others or you are a dishonest seller trying to sell something to your customers which you know or suspect won't work. It's simple, either you're honest or you're NOT.

Lets start from making things a little bit clear about what I mean by dishonesty in the world of automated trading systems. I am not simply talking about the fact that expert advisor creators lie about simple things such as "the number of copies available" or the "testimonials" or other aspects of their systems. I am talking about the most important aspect when buying a commercial EA which is merely the evidence provided by the author to backup a trading system's claims.

The simple fact is that today there are some simple standards of evidence which ALL automated trading system sellers should know about and put up on their websites. This evidence is nothing fancy but it can be inferred by using simple common sense. As a matter of fact, if the development of the trading system went on without taking into account that this evidence had to be created then the EA would already be not worth purchasing before the homepage is even made and the sales pitch created.

The evidence required is actually not that difficult to get if you are honestly working towards the development of long term profitable systems. You simply need a 10 year backtest of the trading system with 6 months of live testing (with investor access to the live account available to confirm the statements are REAL an UNALTERED!!) with a 6 month backtest of the same live trading period showing back/live testing consistency. Of course, this requires you to achieve a very long period of profitability in backtesting WITHOUT hindsight or the exploitation of backtesting faults plus the will to test your system on your own money on a live broker to compare your results with your simulations for a 6 month period in order to validate your claims.

The truth is that long term profitable system development is NOT an easy task and these systems do not have the profit and draw down targets everyone loves to hear about. The easy way out for sellers is clearly to be dishonest and tell you misleading half-truths which make most people buy systems which WILL fail in the long term. If people simply discarded ALL the trading systems that do not show the above suggested evidence, they would be left with NONE. Why ? Because NONE of them are honest enough to show all this evidence without omission because for 999 out of 1000 it would mean the end of their sales pitch and for the 1 or 2 who would be able to show long term profitability it would mean a drastic reduction of their profit and draw down targets. Always keep in mind that the aim of commercial EA sellers is NOT to make money from their systems in the long term. Their aim is to make money from selling their EAs to you.

The truth remains the same, either you're honest or you're NOT. Either you are willing to show all possible evidence that your system is profitable or you have something to hide. If you would like to learn more about the systems I have programmed with long term profitability in mind and how you too can learn to design and program systems like these please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Friday, February 19, 2010

Forex Expert Advisors : Forex Assasin, an Unbiased Review

Yesterday, an asirikuy member pointed me out to an automated trading system I have not reviewed. This expert advisor, called Forex Assasin, promises to turn small amounts of money like 300 or 5000 USD into very high amounts in the order of 100K to 1 million dollars in a very small period of time (4-5 years). Today's post will focus on the review of this trading system, specially the evaluation of the author's claims against the evidence provided on the website and my opinion about the long term profitability of the trading system. After doing all this analysis I will tell you whether or not I consider the forex assasin trading system worth buying and testing.

The claims made by the author of this expert advisor are nothing sort of bold, misleading and outrageous. The first claim is that the system gave 5 million dollars in profit during the last 5 years when no evidence at all is given about this matter. This is the classic marketing scheme EA sellers try to pull on people by portraying simulation results as if they had been real. This is misleading and dishonest. Another interesting fact is that the seller of the EA portrays himself as having become a millionaire from trading the system, why is then no evidence about his past 5 years of trading given if they do exist in reality ? Why doesn't a person who achieved such an enormous success with automated trading share the story and evidence to sell his system ?

The answer is simple, the whole website is simply a lie created around the idea to sell naive new traders a dream of becoming rich quickly. The evidence given is merely a simulation of performance which by itself is meaningless. The backtesting results of the EA show us that the system trades on the 15 minute time frame, meaning from the beginning that backtesting quality will be plagued with errors due to the smaller number of reference points per candle. Adding to that is the fact that the TP and SL change momentarily through the backtest, a good hint that the EA has been hardcoded to change presets in hindsight according to changes in trading periods. A very big problem given the fact that this makes the EA absolutely curve fitted and its results utterly worthless and non indicative of future performance. However, even if this wasn't the case, the simulations are still worthless without any live trading results which allow us to do a back/live testing consistency analysis to really know how well simulations match real live trading.

It is also fairly suspicious that the backtests are only done from 2004 when they could have been easily done from at least 2000 or 2002. Perhaps the easiest way to answer this question is that the exploitation of backtesting errors and use of hindsight might have made profits exceedingly large (trillions of dollars) making the results too unbelievable for a sales pitch, therefore limiting backtests effectively eliminates this problem by limiting the amount of profits shown.

The forex assasin trading system seems to be nothing more than the usually hyped and useless piece of trading software which uses curve-fitted simulations plagued with inaccuracies to fool people into buying the EA. If the author of the EA was actually being serious and telling the truth about his system then he would : a) show us the enormous profits he says he was making on a live account with the investor password so that we can verify its validity b) provide a live trading, live updated trading account with investor password so that we can verify the expert's performance c) explain the momentary differences in SL and TP values in backtesting (which are not gradual like in an adaptive system but change abruptly from one period to another) d) provide back/live testing consistency analysis so that the validity of simulations can be confirmed.

When the author of the forex assasin provides all the above information I'll be more than glad to rewrite this review. In the meantime, this trading system is absolutely NOT worth buying or testing in the light of the evident lies, misleading statements and lack of evidence shown on the website.

If you would like to know more about long term profitable automated trading systems and how it is really possible to make profits in the forex market using expert advisors when sound trading strategies are used please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Thursday, February 18, 2010

Ayotl... Almost Ready for Action ! :o)

As you may know, for the past year or so I have been developing my own personal implementations of the Turtle Trading System developed by Richard Denis in the 1980s. I first developed System No.2, then System No.1 and then I published an article on the December 2009 issue of currency trader magazine. The article featured 10 year simulation results of System No.2's performance over a curency basket of more than 5 trading forex instruments along with some modifications of the entry criteria which boost the systems overall profitability and reduce its draw down.

For those of you who don't know - or missed my last post on the turtle trading system - I have been working on a fully automated implementation of the whole turtle trading system for the metatrader 4 platform which will apply all the rules as they were traded by the original turtles. The new implementation is able to handle a full turtle trading portfolio with any combination of System No.1 and System No.2 instances applying all the correlation and total trade limit rules enforced by the original turtle trading system.

After more than two months of demo testing and development, today I can say that the Ayotl system is ready to be released, in fact, the system will be released this Sunday to all Asirikuy members. The system is far more complex than any other EA I have programmed since it features 3 different expert advisors each one with a very distinct job within the trading system.

The first two expert advisors represent systems No.1 and No.2. These experts are loaded on each one of the different currency pairs the trader wishes to use and they handle the particular trades of each one of the different instruments according to the system's rules. The third EA, which is the most important part of the system is the Ayotl controller which gives or denies trade permissions to the first two experts. The Ayotl controller calculates correlation between currency pairs, checks the total number of trades, the trades per currency and the trades per instance and then issues permissions according to the allowed trades taking into account all the turtle portfolio management rules. Below you can see a picture of the controller in action. As you see the controller displays a large amount of information which is very useful for the turtle trader.
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As I said on the previous Ayotl post, this is, to the best of my knowledge, the ONLY FULL implementation of the turtle trading system. Without a doubt we will start testing the system on Asirikuy on a basket of 3-6 different currency pairs on live trading and we'll see if in fact the portfolio management rules do decrease risk and increase profitability when compared with simply trading independent instances of the trading system. I think that in the long run the Ayotl trading system will become a vital part of Asirikuy as one of our main tools to reach long term profitability.

If you would like to learn more about what I have learned in automated trading and how you too can become long term profitable in the forex market using this approach please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Wednesday, February 17, 2010

Forex Expert Advisors : The Forex Robot WorldCup Experts an Unbiased Review

Through the past few days I have been receiving several spam emails as well as requests from Asirikuy members to review the Robot WorldCup set of expert advisors. These expert advisors were run on a 2 month competition on live accounts through the past few months proving to give profitable results on this period of time. Now the people who run the competition are trying to sell these experts for 999 USD with the claims that this set of trading systems is able to produce very high profits in a proved, reliable fashion. On today's post I will review these claims against the evidence provided. I will also tell you my opinion about the likehood of long term profitability of these trading systems.

First of all, it is clear to me and it should be clear to anyone who has been trading with automated trading systems for a while that a system developed for a competition and a system developed for reliable long term trading are too completely different things. The aim on a competition is simply to win the competition while the aim on long term investment is to increase one's capital with the least possible risk on equity in a long time frame. On a competition the participants are not risking their money and they are trading on a very limited amount of time under very limited market conditions. This of course encourages the use of curve-fitting and very high risk levels which would undoublty not be used in live trading.

Is there any value to a 2 month live test ? The truth is that trading a system on a live account for 2 months does not give any significant information about a trading system's performance in the long term. Why do this people think that a 2 month test can guarantee the continuity of those same results indefinitely ? It definitely CANNOT. A 2 month live test only shows that the system was profitable under a given set of market conditions under a given amount of risk. For example, if Watukushay No.2 had been run with a Risk of 20% per trade (as some of these experts were) for the past two months it would have made more than a 140% profit in live trading. However this does NOT mean that the system can get a very high profit every month, it merely means that the system was very profitable within that period but a 10 year backtest reveals that this is not the average case and that running the expert with such high risk settings eventually brings the system to a deep draw down and wipeout owing to the appearence of unfavorable market conditions and the EXCESS risk used by the system.

This sales pitch the forex robot worldcup experts are based on is nothing but a misleading half-truth. Yes, the experts were profitable for 2 months but no 10 year backtest is given to compare results and check for live/back testing consistency or even to have an idea of the performance of the experts under different market conditions (if live/back testing consistency is indeed existant). In fact, the backtests are limited to one or two years, something VERY suspicious given the fact that 10 year backtests are clearly available and easy to perform on the systems. Do they have something to hide over long term results ?

To me it seems evident that the whole point behind the competition was to get some very high profitable results for a short period of time on some systems only to have them sold after to make a MUCH higher profit that what they made on live accounts (and what the other systems lost). Why aren't the experts still being traded ? Why was the live testing stopped ? Chances are that if you run any given set of trading systems curve fitted to the last year of trading for 2 months with high risk settings, some of them are bound to give you very high returns. Will they give you the same returns in 10 years ? It is highly unlikely and the people who are selling the forex robot worldcup expert advisors have NO evidence of long term profitability. The danger in trading this systems is extreme as no idea of the performance under unfavorable market conditions is known and therefore people have no idea of the amount of draw down (or wipeout) they will go into.

For all the reasons mentioned above, the misleading profit targets, the lack of 10 year backtests with live/back testing consistency tests and the fact that the tests were overly limited and have been stopped I consider these expert advisors NOT worth buying or testing. If they add 10 year backtests, back/live testing consistency analysis and continue the live tests of this experts I will be more than glad to redo this review. Meanwhile this forex robot worldcup are nothing to me but a bunch of yet more short term profitable systems with no evidence or support for long term profitability.

If you would like to learn more about the systems I have developed with long term profitability and controlled risk in mind please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Tuesday, February 16, 2010

Judging Currencies by the Burger... The BigMac Index

In forex trading there are many ways in which a person can estimate a currency's value over another and determine if that currency is over or under valued against a partner. Amongst these ways to assess value we have the trade balance, the central bank interest rate and purchasing power parity. This last item, which measure the difference in price between similar goods in two countries is based on the presumption that a good purchased in a country has the same value in every country and therefore differences in price suggest differences in the fundamental value of the currencies evaluated. For example, if a pencil in the US costs 1 USD and in the European Union that same pencil costs 0.5 Euro, then the "fair" exchange rate of the EUR/USD would be 2, since this rate gives you the value of the pencil.

One of the most interesting concepts to evaluate price parity was introduced in 1986 by Pam Woodall in The Economist, this concept, the use of the BigMac to evaluate the differences in value between two currencies has gained a lot of support since McDonalds is widely distributed in more than 100 countries and its food is "standarized" to a certain extent.

It is absolutely true that the BigMac Index has been right in the past and will probably be right in the future about the fundamental over or underbrought situation of different currencies. For example the price of a BigMac in the US in July 2008 was 3.57 USD and in Great Britain the price was 2.29 GBP. If you calculate the "fair" exchange rate, you would get a value of 1.55 when at the time the GBP/USD was trading at more than 2, being overvalued by more than 20%. If you calculate the prices now with a BigMac in the US costing 3.58 USD and 2.49 GBP in London, you would get an exchange rate of 1.43, implying that the current value of the GBP/USD is overvalued by nearly 10%.

Of course, the BigMac index is not perfect in the sense that all the BigMacs are not equal. For example, the BigMac in Dubai doesn't have beef, but lamb and BigMacs in India have no meat at all. There is also the concern of taxes and import/export of commodities to make the burgers which are not taken into account by the Index itself. This overhead costs could add artificially to the purchasing power of a currency since the BigMac could be more expensive merely due to these additional costs which do not reflect the purchasing power of the currency when compared with a country where these costs are non existant.

However, I would have to say that with all its flaws, the BigMac Index remains an important tool to compare purchasing power parity amongst different countries since its is one of the most "standarized" consumer goods which has a measurable price amongst a wide variety of countries. If you are interested in comparing the BigMac index with your current long term views about currency exchange rates you can take a look at the 2010 BigMac index table for several countries here . How expensive is a BigMac in your city ? Leave a comment and we'll get to make some comparisons :o).

If you would like to learn more about forex trading and paritcularly how to be successful in the forex market using long term automated systems please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Monday, February 15, 2010

Avoiding the Forex Burnout... Staying on the Game !

Through the many years I have been trading the forex market and for the past 2 I have been building and trading automated trading systems I have more than a few times thought about quitting forex trading. Many of you may understand what I am saying here. There are a few times when your trading when the frustration and failure are so evident that you are just wishing to forget about the whole thing and move to something else. I want to dedicate today's post to this matter, I want to explain my personal experience to you and give you some advice on how to avoid getting burned out and so frustrated that no other path beyond quitting seems possible.

The first time I wanted to quit trading was definitely when I lost my first live account (sounds familiar ?). It is never easy to go into trading with so many hopes and dreams and then have them crashed within a few weeks. Definitely moving on and continuing to trade was not an easy thing to do and perhaps what mostly motivated me in this area was the fact that I took a deep look into my trades and my mistakes and I was confident that I could get them fixed. However this was actually not what happened leading me into the wiping of my second forex account a few months later. I can say in retrospective that the problem back then was my inevitable desire to get rick quickly. I then kept forex in the background for several months, trying to study as much as I could to try to solve my problems with the market.

Truly what then got me into trading again was the promise made by automated trading and then sometime later by automated trading system creators. I then found out that this was nothing more than a land filled with scams and deceit. Little did I know when I read the first EA product website that everything was nothing but an empty promise. However, being a scientist, I have a very high tolerance for frustration and a very analytical way of approaching things so I decided that if I was going to survive all these scams and find the "one true and good EA" I had to commit myself to do this in a way in which I couldn't easily quit. This is when this website came into shape. I wanted to go out, review and tests experts and find the true jewel which would make me rick.

In time and analysis, I started to realize the true make up of long term profitable trading systems and I started to see the real reasons why all those commercial automated trading systems out there failed. I started to see the holes within the evidence they provided and I started to see through all their "evidence" and gimmicks. Then I realized that if I ever was going to make any money in forex trading I needed to put my knowledge to work and build automated trading systems that could be profitable in the long term by myself. In order to truly commit to this endeavor I learned mql4 (I knew C and fortran form before so it wasn't terribly hard) and started to program what I thought were sound adaptive approaches to trading into expert advisors.

This is about the time when I started the newsletter because I realized that this would be in fact a way of not being able to avoid staying commited. I would not be able to just forget about the market or my systems when things turned sour and draw down periods arrived. I would have to stay there and analyze the most harsh market conditions and worst trading results whenever they happened and this fact that I had to "stay on top" of the market because of my commitment to my subscribers was definitely something which greatly contributed to my understanding of the markets and the subsequent development of more profitable systems.

In retrospective I think that I would have never been able to get to the point of "living from the market" in which I am today if it wasn't for this website. Definitely I found out that having the "obligation" to stay commited helped me a lot to avoid quitting when I felt like doing so, it helped me to deal with bad trading periods adequately and to really trust and have confidence in all the knowledge I have acquired through the years in forex trading. I would certainly recommend this approach to anyone who wants to succeed in trading in the long term. Build a commitment to other people around your trading, make up a blog with a trading journal, make up a thread in a forum around your trading and post there everyday, any idea which makes you "have to" stay on top of your trading regardless of how you feel about it will be a great way to avoid quitting when you want to.

Now I can tell you that I truly enjoy posting on this website everyday and I feel like I have learned tremendously for the past 2 years thanks to it. If you would like to learn more about what I have learned about automated trading systems please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Sunday, February 14, 2010

Indicators or No Indicators, What is Better ?

There have always been a discussion in forex trading regarding the use of technical indicators and the development of systems based with or without indicators. Many people consider the development of systems without indicators better than the developments of systems with indicators merely because of the fact that people are used to the fact that "indicators lag" and "indicators are not accurate". Today I wanted to dedicate a post to the analysis of this matter. Through the following paragraphs I will give you my opinion on the subject and why the use or lack of indicators in a trading systems has absolutely no importance.

So the question is simple. Is it better to have a system developed based on indicators or based on mere price action ? The fact that indicators are mere mathematical operations over price values speaks to the fact that you are always developing your system on price action even if you use or if you don't use indicators. I think that the main reason why people find both development styles different is because indicators have a reputation of being unreliable. However I think that the question is really : should you develop a system based on a sound understanding of price action ?
The answer is inarguably YES.

The problem with systems based on indicators is that people often develop these systems wihtout the slightest understandiong about what the indicators are telling them. They are simply ignorant about the underlying relationship between the indicator values displayed on their screen and price action. Of course, any system developed without a sound understanding of price action is bound to end up in failure so these systems people create from an attempt to automate indicator signals without ever understanding their meaning are simply doomed to fail.

This is the reason why people tend to favor systems which are developed simply based on price action, mainly because systems developed directly over price tend to have a more fundamental reason to work than systems which are merely attempts to automate an indicator's signal without the slighest knowledge about its true mathematical meaning.

The fact is that developing trading systems is not a matter of the tools used. It does not matter if you use direct price action or any set of indicators, the truth is that the only thing that matters is that the development of your system is based on a true and sound understanding or price action. Without this understanding of how price works and what the indicators you want to use are really telling you about price (what their mathematical definition and what their meaning really is) there is obviously not even the slimest chance to develop a profitable trading strategy.

There is no doubt that successful trading systems can be developed either way. Watukushay FE is based on the RSI indicator while Watukushay No.2 and Kutichiy are based on simple price action. All three systems are likely long term profitable and all of them have very different approaches to trading. The only thing that they have in common is that they were developed from a true analyis and understanding of the price action underneath.

If you would like to learn more about how these systems were developed and how you too can start developing your own long term profitable systems for forex trading please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Saturday, February 13, 2010

The Indicator Series : The Momentum Indicator

On the last post I wrote on the indicator series we discussed the MACD indicator and how it can be thought of as the "market's speedometer". Today we are going to talk about another very interesting indicator which tries to show us the prevalent direction of market change an instrument is going through. Within the next few paragraphs I will talk about the momentum indicator, its mathematical basis and some possible ways in which it could be implemented successfuly in an automated trading strategy.

The momentum indicator is a very simple technical tool which tries to show us a comparison between the price of the current bar (open, close, high or low can be used) and the same price of a given number of periods in the past. The indicator is calculated according to the following formula :

Momentum = (Price of Current Bar / Price N periods)*100

As you can see, what the indicator does is merely a calculation of the fraction represented by current price of the price of N precious periods. By multiplying this fraction by 100 the indicator effectively represents a percetange of current price against previous price levels. This means that if we calculate the 14 period momentum indicator on close price and the value of momentum is 102 it means that the closing price of the current bar is 2% higher than the average closing price of the last 14 periods.

As you may see by now, the usefulness of the momentum indicator by itself is not pretty straightforward as you are only using information comparing the current bar to a given N number of periods in the past and you may get a lot of false signals just because price on the current bar is higher than average. The traditional way to trade the momentum indicator is to get into positions as the indicator crosses the 100% line which effectively indicates that current price is now higher than previous price levels, however this often leads to late entries since the momentum indicator gives a signal after significant movements have happened and therefore this approach is only profitable when price action is particularly slow.

There are several ways to deal with this problem to create a more profitable system based on the momentum indicator. Particuarly we could base decisions on a derivative of the momentum indicator and enter when momentum starts to become positive. This will effectively get us into trades when the close of bars are becoming higher ignoring the fact that they may be above or below the average of the previous N periods. However the fact that the price of the current bar has heavy importance in the calculation of the indicator makes it a noisy one and the first derivative would have to be smoothed so that it didn't use differences between current and last bar values of momentum but the difference between the current and some N past bar. The image below shows a few trades using this concept.


If we follow this concept then it may become simpler to actually calculate the second derivative of momentum and simply enter or exit trades when the second derivative of momentum crosses the 0 line, effectively signaling that a change in market direction is starting to occur far before we actually see current price levels above or below the 0 line.

As with all the other indicators we have talked about, a successful automated trading strategy based on the momentum indicator will also have to contain sound volatility adjusted money management and adequate exit mechanisms in order to work properly. If you would like to learn more about my experience in automated trading and how you too can become successful using fully automated trading strategies please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Friday, February 12, 2010

The Road to Financial Freedom Series... Part No.3 - Organizing your Life Around Your Goal

Through the last two posts of the road to financial freedom series we have discussed the definition of financial freedom and the attitude necessary to finally attain this goal. Today I am going to focus on explaining what should be the first step on anyone's journey towards financial freedom for anyone who wishes to succeed in forex trading without sacrificing other much more important aspects of their lives.

First of all, I will have to tell you that I am not the kind fo person who thinks money can do everything and I am therefore not willing to do any possible thing for money. I believe that there is a lot of value in having financial freedom but I consider that there are other things in my life which are far more valuable than the fact that I can live without having to work a 9 to 5 job. I have always had this very clear since the start of my journey in forex trading and I want to communicate to you what my first step in forex trading was : Organizing my life around my goals.

What does this mean exactly ? Well, when you start a journey in forex trading you have to think that you are not the only one starting the journey. Probably people around you (family, friends, etc) will be affected by your decision to seek proficiency in trading. The first thing you have to do when you make the decision that you will be trading and trying to do it profitably is to talk about this with the people around you. Bear in mind that by talking I don't mean telling. You need to truly explain what you will be doing and the time you plan to spend on trading and see how it affects your life and relationship with others around you.

Once you talk with the people around you you should build a schedule with them in order to guarantee that your new endevour will not affect your present relationships. For example, if you are married you should talk to your wife about what time you will be trading so that this time is exclusively devoted to this matter. Even if it is only half an hour or a whole hour a day your partner and closed ones should be aware of it so that they understand what you are doing and leave you your space to do it. This of course, also comes with the fact that you need to place boundaries in your life between trading and other activities. When you are playing with your kids or having dinner with your family don't think about trading, that is not what you are doing :o).

Another important issue, especially if you are married, is to discuss the financial issues openly and honestly with your partner. Don't make promises which you are much likely not going to be able to keep and don't go behind your partners back to use money to later "surprise them" with profits (more likely loses by the way !). Always be open about the very high risk of forex trading and the amount you will be investing. Talk about the potential in the future with your family but also make it clear that you may lose all that money in the beginning.

I have found often that failing to be open and communicative with the people in your environment about trading often leads to very bad situations like having to disclose your partner that you lost your lives saving (yes, this happened to someone !), or realizing that after years of training you are finally profitable but your wife and kids have left you because you were no longer a father and husband but merely a trader (this is also a true story !).

I was very communicative and open with my close family when I started my journey in trading and I have to say that I don't regret it a single bit. In fact, I believe that support from my close family was one of the positive factors that guided me towards success in trading. All the time I had people around me who knew what I was trying to do and who were understading when things turned sour. It is very important to understand that you are not alone in the world and that a big decision such as seeking financial freedom needs to go hand-in-hand with the support and affection of those around you.

If you would like to learn more about my achievements in trading, particularly automated trading and how you too can start to follow a path towards long term profitability using expert advisors please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Thursday, February 11, 2010

Forex Expert Advisors : Forex PipAndroid an Unbiased Review

Today while searching for new expert advisors to review I came across the seemingly new pipandroid forex trading system. On today's post I will write a review about this trading system aiming to address the long term profitability of the system as well as how the claims made on the website are backed up or not by the evidence provided on the expert's website. Within this review you will find my analysis about the evidence provided by the expert's authors as well as my view about the long term profitability of the forex pipandroid trading system.

The pipandroid expert advisor website contains what appears to be a wealth of evidence about the system's profitability. However once you pay close attention to all the information provided you will notice that key information about the expert's profitability is missing and obviously purposefuly hidden.

Lets look at the "live testing" evidence provided by the authors which is supposed to prove the claims of profitability made on the website. What is wrong with this live testing evidence ? Several things. First of all, the "live testing" evidence shown, contrary to what they say is NOT third party verified. The website where these guys are publishing the results is merely a website that publishes files posted on it through an FTP transfer, the website does not verify the authenticity of the account through the use of an investor access password like, for example, myfxbook does. Therefore there is no way in which we can truly know if the accounts shown are real or actually only demo accounts and furthermore, there is no way in which we can even know if they are real. Expert advisor sellers have been known before to alter live trading results to hide loses so we cannot trust any live account information without TRUE account verification through investor access passwords.

Assuming that the accounts are real, we see that the EA is actually trading with a HUGE market exposure and with a very unbalanced level of risk. Why are USD/JPY positions only 1/10th the size of GBP/USD positions ? Each losing trade on the GBP/USD is equal to about 10% of the trading account. Who in the world can trade peacefully with a 10% risk per trade ! If the results shown on the website are indeed from a live account it is evident that they have picked exceedingly risky trading levels to reach those results.

They will also lead you to believe that the backtesting results shown below are "indicative" of the experts performance. Well, there are several problems with the backtest shown. First of all, only a single backtest of an unkown currency pair and time period is shown while the live trading of the EA taken place on several different currency pairs. If they would really want us to have an indicative of profitability from backtesting results then they should : a) provide backtesting results of the past 10 years, b) provide backtesting results of ALL the currency pairs traded by the EA, c) show us separate LIVE ACCOUNTS verified through INVESTOR ACCESS showing back/live testing consistency for a period of at least 6 months so that we can know that back and live tests are comparable.

What we have in the case of the pipandroid trading system is the classic attempt of an expert advisor seller to shove short term profitable results down the buyers throat to sell an expert advisor which simply does not have any evidence for long term profitability. It would be naive to think that the "live results" (if at all real) at VERY high risk of only one or two months would be indicative of the live performance of a system in 10 or 20 years. The fact is that backtesting information is not being shown, live tests are too short and they are done with great risk to the trader's account. Definitely everything is geared up to show you a picture that there is simply not enough evidence to backup.

From all the above I would have to say that the pipandroid trading system is definitely NOT worth buying or testing. We would need to see much longer live tests with 10 year long backtests for each currency pair traded with the EA (those which have enough data available) to have any substantial possibility to consider this EA long term profitable. Meanwhile, it is only another EA trade with exceedingly risky settings to show short term profitable results with little to no evidence of long term profitability.

If you would like to learn more about automated trading systems and how I plan to achieve long term profitability in automated trading please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Wednesday, February 10, 2010

Trader Psychology : Being a Loser... Knowing How to Deal with Losing Periods

Today I wanted to write a post about one of the most critical aspects of manual and automated trading : the ability to deal with losing periods. It is very interesting how for most people (me included) it is extremely easy to deal with profitable periods but the instant that balance drops below the profitable margin we start to get into a psychologicaly different mood. Different people react differently to losing periods but usually the general reactions are the same. When facing loses, people start to make an incredible amount of mistakes in folllowing their trading systems or methodologies. People trading automated systems usually take them off their platforms and start to search for new ones, people trading manual systems start to make very emotional entries with exceedingly high risk levels.

Definitely one of the hardest parts of trading is dealing with the fact that your trading is not perfect and the market is not always aligned with your expectations. Every trading system in the world will go through draw down periods and more often than not these draw down periods are extensive and will deeply test the psychological strength of the person trading them. Going into draw down is a natural consequence of trading and it should not affect the way in which you trade. The key is simply to deal with each trade as if it was the only trade you had ever taken. The burden of previous trade results should not put a strain on your mind.

Of course, easier said than done. People find it difficult to follow a strategy which has been giving them loses mainly because they start to doubt the system they are trading. People wonder if the system will put their account into an infinite draw down spiral which will blank their accounts. Here is when confidence and knowledge become the decisive factor in the trading of systems and methodologies. Do really understand your system/method and its profit/risk targets ? Do you have enough confidence in your system to continue trading it despite the loses you are getting ? Certainly these are questions which a person should know the answer to if he or she wishes to be successful in trading. When you are in a losing period ask yourself the questions above. If you don't have the answers, then probably you should study your method or system more in depth or change to a system/method you truly understand.

I have to say that I've found that the ability to trade through losing periods without making changes to their trading methodology/system is one of the main reasons why profitable traders are profitable and people who lose end up losing their whole accounts. Profitable traders do not increase their risk level when they trade and they do not make emotional entries when they have their accounts in draw down, something which people new to trading jump to when the psychological stress of being losers starts to take a toll on their emotions. Remember, take each trade like if it was the only trade you had taken, manage all trades equally even if your in a draw down or profitable period. Keep you risk targets small and your risk to reward ratio favorable.

If you would like to learn more about autoamted trading systems and how to trade them successfuly despite the psychological pressures by truly knowing and having confidence on their trading logic please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Tuesday, February 9, 2010

Introducing Watukushay No.3 - Kutichiy, a Very Simple Likely Long Term Profitable Weekly Breakout Technique

Through the past few years I have developed several different expert advisors based on breakout techniques. However all these systems I produced relied on breakouts of long periods of time which yielded a small number of trades per year due to the infrequency of such breakouts. The development of systems that aimed to profit from breakouts of lower periods of time has always been an interesting idea to me and the development of the GBP/JPY breakout system using a lot of complicated filters (which limited the trades excesively) was a first step in the process towards a weekly breakout system which could be long term profitable.

I realized after some analysis that the reason why most weekly breakout systems available out there are not successful is mainly because of their lack of adaptability against changing market conditions. If you look into any forum and search for breakout systems you will find many expert advisors which are not long term profitable due to the fact that they use fixed SL, TP and lot size values which does not allow the system to adapt to changes in market volatility, eventually rendering the system unprofitable.

Then it occured to me that perhaps it was possible to develop a long term profitable system based on short term breakouts if the parameters of such breakouts were adapted each week against changing market conditions. Each week would have its own custom criteria fitted to each week's particular volatility and this would most likely yield improved results over the non-adaptive formula used by most programmers out there. After a significant amount of research I was able to come up with a long term profitable weekly breakout system which is explained in detail in the current version of Currency Trader Magazine (February 2010), you can download the magazine for free and read the article here.

However I still knew that more improvements could be made over the trading technique exposed in the magazine and after some tweaking of the initial setup explained on the article I was able to greatly increase the profitability of the trading system on several currency pairs. Below I show you the backtesting equity curve for the EUR/USD in testing from Jan 01 2000 to Jan 01 2010. A 10 year test of the trading system.
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The fact that the system seems to struggle in 2009 is a mere consequence of the fact that lot sizes traded are much bigger than in 2003-2004. A very similar draw down period occured within those years as you see on the graph.

This new trading system which is the third development in the series of Watukushay expert advisors is called Kutichiy which is a Quechua word which translates most accurately as "answer". I named it like this because Kutichiy is the answer I was looking for regarding short term breakout systems. This expert advisor adds another weapon to our portfolio for long term profitability. The expert advisor is already being tested in a live account and the expert advisor plus all backtesting statements and an introductory video explaining its use and logic are available within the member's section in asirikuy.

Of course, as part of the Watukushay project an ebook section about this system will be developed within the next few weeks. If you would like to know more about watukushay expert advisors and the watukushay project please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Monday, February 8, 2010

Will Forex Die in the US ?...My Opinion About the Idea of 1:10 Leverage

Through the past two months I have read a lot about the idea of the NFA to limit leverage in the retail forex industry to 1:10. I have seen in many places how most traders seem to totally disagree with the thought of lower leverage limitations and how some traders do think that it is a sound idea to protect people from losing their hard earned money in the forex market. To really give an opinion about the restriction to a lower leverage level we must analyze the problem. What are the reasons for the NFA to lower leverage ? What will lower leverage do ? Is there really the need to lower leverage ? The objective of today's post will be to answer all these questions and give you my opinion about the consequences and viability of lowering leverage to 1:10.

So what is leverage anyway ? Leverage is simply the ability you have to open up positions with "borrowed money" from your broker so that smaller changes in the exchange rate between two currencies represent a higher gain or loss to your account. For example if the EUR/USD exchange rate was 1.5 and you had no leverage you would need to invest all your money and have the rate go to 2.0 for your profit to be around 30%. However the same is true about your risk, you would need the rate to drop to 0 before you lost all your money and a drop towards 0.5 would still mean you have 30% of your money. Effectively leverage increases your ability to profit from small movements, for example a 1:100 leverage means that the broker is representing 100 times the money you put forward in the market meaning that your money is affected by the exchange rate as if it was 100 times larger. This means that you would need just a change of 0.005 for your profit to be 30% in the above example. This also means that a move of 0.015 would wipe your account.

Right now I tell you that I do not believe in conspiracy theories and I honestly don't think that the aim of the NFA is to remove leverage because the US government is not getting a tax cut from forex brokers (whcih they do get) or because people are running away from stocks, etc. The truth is that 90% of retail forex traders or more lose their whole accounts in trading and the NFA is responsible for investor safety so there is something wrong going on here if there is an investment option in which traders are losing money like if it was gambling. The NFA is responsible for this in some way. Effectively limiting leverage does make losing your money much harder since you require much larger movements to wipe you out. These gives traders more time to trade and will inevitably reduce the mortality rate in the forex market.

Now some people will say that it is not the responsibility of the government to protect people from their own decisions, if people want to risk their money in forex trading then let them, it is their responsibility to assume the risk. Well, by that logic we might as well legalize Ponzi schemes, don't you think so ? The fact is that most people are losing money, therefore there needs to be a protection mechanism to avoid this.

However there is of course a negative side to this leverage reduction which most traders are pointing out. Eliminating leverage does effectively eliminate flexibility in the sense that only longer term position holding becomes a viable way to produce income (without investing more capital). Of course, people who scalp or day trade will find this measure detrimental to their trading since the current movements will only allow them to get a fraction of the profit they used to get for the same money. They will efectively have to increase their account sizes by a factor of 10 if they want to keep making the same amount of income trading the exact same way. This of course makes access to day trading harder with larger funds required but the inherent risk as percentage of capital is reduced tremendously.

The immediate consequences of changes of leverage will be immediately apparent. Traders will have to change to long term position holding if they do not have enough capital to carry on day trading. People who want to day trade will need to put forward ten times more capital and the combination of these two facts will inevitably reduce the number of losing traders to a fraction of what it is today. At least in US brokers. However people who open one position at a time that risks only 1-2% of their capital on larger market movements don't need to worry about this. For example, if you are currently trading 0.02 lots for a 2% gain on a 1000 USD account (200 pips) you are currently representing 2000 USD in the market which means that with 1:100 leverage you are only using 20 dollars to effectively represent this position. With 1:10 leverage you will use 200 USD, so the fact is that current traders trading like this will have no problem with the changes in the rules.

Of course, the very bad side of the story comes when you realize that 100:1 and 200:1 leverage is still offered outside the US so people will massively move accounts to off shore brokers in order to have the ability to preserve their current trading style and capital requirements. This will lead to people wiping their accounts in off shore accounts rather than US based accounts and this will be absolutely disastrous for the US forex industry. I think that less than 10% of the current forex account holders will stay in US brokers if such a change in leverage takes place. It is obvious to me that limiting leverage will have the sole effect of destroying the US forex business since trader protection will be offset by the fact that US traders will need to move to non-US brokers.

However the NFA also thought about this and along with the NFA rules there is also a part which stipulates that in order for non-US brokers to admit US customers they will have to comply with NFA rules so chances are that most non-US brokers will also stop accepting US customers or limit leverage to 1:10 to US customers to comply with these rules for people from the US (this is how I interpret it, if any of you disagree please leave a comment !).

I believe that this conjunction of rules will definitely reduce the number of losing traders in the US, however it will certainly increase the capital requirements and demand a change of trading style from current US forex retail traders. However you have to think about how many people benefit and how many people will take a hit from the NFA regulations. It is clear that 5-10% of traders will find these rules bad for their trading (forex brokers too) while 90% of retail forex traders will find that the rules effectively allow them to preserve their capital better.

To sum it up, I strongly agree with the fact that high leverage is the chief technical cause of people losing their money quickly in the forex market and that a world wide leverage limitation is likely going to put a stop to the majority of these loses. It will not mean the end of the forex business (although brokers will have a lot less customers) and it will indeed decrease the number of people who lose their money quickly in a tremendous way. However I bet some of you are day trading and strongly disagree with these measures because of the consequences they bring to your personal trading. Make sure you leave your opinions and we'll make up an interesting discussion !

If you would like to learn more about what I have learned in automated trading and how you can also learn how to program and design your own long term profitable trading systems please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Sunday, February 7, 2010

Forex Expert Advisors : Venus Forex Robot an Unbiased Review

Yesterday while searching for automated trading systems which I have not reviewed I came across the Venus Forex Robot. This expert advisor has a very interesting website which appears to contain evidence of profitability. Today's post will focus on the evaluation of this evidence against the claims made by the author and the detailed evaluation of the trading statements to determine the like hood of this system to be long term profitable. After doing all the analysis and using all my experience with automated trading systems I will tell you if I consider this expert advisor worth buying and testing or if it just another over hyped expert advisor with unproved claims and a very rhetorical web page.

The Venus Forex Robot website is not unlike most forex expert advisor sales pages, the creators of the EA start with the usual attempt to empathize with the trader's present situation and then they start to show some evidence of profitability which will be the center of the discussion for the remainder of this post.

The evidence shown for the profitability of the Venus Forex Robot is nothing but lacking. The backtests shown for the EA cover a very small period of one single year when it is clearly possible and easy to do a backtest for at least a 10 year period. Certainly doing a backtest of only 2009 data is a deliberate attempt to hide more evidence about the expert's past performance results. There are many systems which will give you profitable results for a year and then fail the next and come break even in 10 years or lose ten times more than what they won on the next year of testing. Having reliable simulations for the period of 2000-2010 is vital to know that an automated trading system is able to handle varied market conditions. The fact that the simulations of the Venus forex robot are deliberately limited to a single year of testing certainly tell us that the creator of the EA is trying to hide something. Most of the time the problem is that the EA fails to perform on past years, there would be no other obvious reason to hide those testing results.

Another very interesting fact comes when we look at the demo test shown by the authors of the EA. If you carefully analyze the statement you will notice that almost ALL the profit gained by the EA comes from 5 profitable trades taken at the beginning with more than 30 times the lot size traded in the end. The initial trade was taken with a 1.00 lot size while the last trades are taken with a 0.03 lot size. You could think that this is due to a "dynamic" adaptability to market conditions but this is definitely not the case since the backtests show that all trades in 2009 where done with the same lot size, a fact that also points out that the EA fails to adapt its trading size to changing market conditions. What this tells us is that the authors of the EA deliberately used a very high risk in the beginning of the test later reducing that risk, probably to make loses much smaller and stay with the profit they had gained in the beginning.

This is terribly dishonest but its exactly what the evidence shown on the statements tell us. I will be glad to remove this analysis if the people at Venus Forex Robot leave comment telling us why the dramatic change in lot sizes when backtesting results show that a constant lot size is used.

There is definitely not enough evidence to consider this expert advisor long term profitable in the light of the evidently limited backtests and very limited and possibly manipulated demo testing information provided. The author of the Venus Forex Robot definitely seems to have something to hide about his/her EA ? Why is it so ? In the light of the very limited evidence and the lack of enough testing to even determine that there is a possibility for long term profitability I consider this expert advisor NOT worth buying or testing.

If you would like to learn more about automated trading systems and how the key to automated trading system profitability is within sound trading system design 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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