Thursday, March 25, 2010

Forex Expert Advisors : FX-Pitbull an Unbiased Review

On today's review I am going to focus on another one of the recently released forex expert advisors. This trading system called FX-Pitbull claims to have been profitable since the year 2000 with a "universal" and reliable trading approach based on trend following. Within the following paragraphs I will analyze this trading system and the evidence provided to see if the EA has any merit for long term profitability. I will look at the back and live testing statements provided by the author and I'll do a close valuation of the system's logic, its soundness and its possibilities of being reliable and long term profitable. At the end of the review I will give my criteria about whether or not this EA is worth buying and testing.

The FX-Pitbull trading system seems to be pretty special at first glance. It was definitely not made by a seasoned marketer because it lacks all the usual story and hype of the regular expert advisor. This makes it a lot easier to pinpoint the evidence and discuss the trading system. The claims made by the author of the FX-Pitbull expert advisor are pretty straightforward, he says that the EA was profitable since 2000 and that it uses a reliable trend following approach which makes it "universal".

We also find a good amount of evidence which points out to the fact that the creator wanted to prove long term profitability. We find 10 year backtests and live updated, investor-access verified demo accounts through myfxbook widgets. However a close analysis of this evidence provided points out to several problems within the FX-Pitbull trading system. First of all, the backtests are run on the 5 minute charts. What is the problem ? The problem is that a 5 minute backtest only has 20 reference points per bar, making its effective modeling quality NOT higher than 50%. What this means is that backtests on 5 minute charts are almost useless as a way to provide proof of profitability or realistic profit/risk targets. In fact, the first time frame which is able to achieve "true" 90% modeling quality is the one hour time frame, reason why systems developed on lower time frames simply cannot be trusted to be reliably simulated.

Then I also find an important problem with the trading tactic used which is also reflected on the equity curve of the backtest. This EA seems to use a linear lot size increase or D'Alembert type money management, which although less risky than a full Martingale approach, will also bring an account into a wipeout eventually. As I have said several times, increasing lot sizes with loses is NEVER a realiable approach, we have seen other systems with this lot size calculation type fail, such as the Sidewinder family of commercial trading systems.

Then the demo account also has its fare share of problems. I wonder why was the EA not run on a live account ? Since most of the profitable trades of the EA are in the order of 10-20 pips it is possible that profits could be hindered by requotes and spread widening. It is also important to realize that the EA, trading on the 5 minute chart, is easily exposed to a fair amount of broker dependency since the 5 minute bars will be terribly different from one broker to another, adding more to the uncertainty about the experts performance.

It is very worth mentioning that the creator of this EA has done an effort greater than most comercial experts, the presence of 10 year backtests and a myfxbook verified demo account prove this to be the case. However we cannot avoid the fact that the EA uses an incremental money management technique and that the unreliability of the backtests could be pointing out to an underestimation of consecutive loses. Add 3 or 4 consecutive loses to the D'Alembert progression and you are starting to risk 20-30% of your account per trade. The fact that there are still no live account results also points out to important differences which could be present betwene both account types. The fact that this system uses progressive money management makes the live/demo results particularly dangerous in the sense that the system may appear VERY profitable before a progressive run which leads to a deep draw down, so BEWARE.

Due to the fact that this EA does not have realiable 10 year backtests to estimate its long term profitability and the fact that it uses progressive money management which is always a VERY unsound trading technique (please don't post comment on this subject as it this has proven to be the case on ALL ocassions, for both D'Alemberts and Martingales), I consider this trading system NOT worth buying or testing. I would encourage the developer of this trading system to remove the progressive money management and refine the system's exit logic. Making it trade on the one hour, instead of the 5 minute charts would also provide a good chance at reliable simulations which could lead to a good estimation of long term profitability.

If you would like to learn more about what I have learned about automated trading and how you too can code systems based on reliable trading tactics with sound money management principles 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 !

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