Friday, April 30, 2010

My Life as a Currency Trader... (and I thought I would never say that)

Today I want to write a post which has a more personal tone than the other posts you may have read on my website in the past. A few people have asked me about my daily routine and if trading actually leaves room to "free me" from the 9 to 5 life style and provide me with the ability to spend a lot of time with my friends, family, etc. Within the next few paragraphs I will tell you the story of my everyday life so that you can see how my life around automated trading woprks and if this is the type of life style you would want to have. I have to warn you that my life doesn't include monthly cruises to the Caribbean or driving a Porsche out of my drive way but I can assure you that it has many negative and positive aspects, like any other life style has.

I am a big believer in early mornings and I usually wake up sometime between 5 and 6 a.m, usually with the first ray of sunlight. After doing this I usually check my email and answer whatever questions, doubts or inquiries people have sent me during the night, this usually takes me about half an hour although I can get even 25 emails every day which require thoughtful and precise answers (I am a fast typer by the way !). After doing this I like to spend an hour checking on the markets and the systems currently being traded, I check on all my personal, asirikuy and third party accounts and I send emails to anyone who has an account with a problem in order to correct it ASAP (most of the time there are actually no problems). Then I like to watch an old time movie - probably in the style of Indiana Jones or Independence day - or an old episode of Seinfeld (my all time favorite show) while I do my daily 40 minutes of cardio (you're all doing this too right ?).

After this I cook my breakfast and depending on the mood I either spend the rest of the day working or I take the day off and go out to have lunch and spend the afternoon with my girl or my family (which includes hers). I usually work more than 60 hours every week (no kidding), making and preparing videos for Asirikuy, writing the weekly newsletter, designing new systems, researching commercial systems, researching systems developed in forums, testing systems, analyzing data, etc. I often tend to think that the fact that I don't have a 9 to 5 job is actually detrimental to my life in the sense that I tend to over-work a lot, since there is no 9-5 span of time which limits when I work... I just sometimes work all the time !

I do have to say that there are several things I like about my life style, one of the things I like the most is the freedom to cook :o). I love cooking and I have to say that I spend about 3 hours every day preparing meals for myself and my girl when she is home. I am by no means a great cook but I am improving and hopefully in the future I'll be able to eat delicious meals everyday, courtesy of cooking skills developed over years of training. It seems that most chemists end up being good cooks, hopefully I am not the exception !

Now there are other aspects I hate, and the most important of this is that I have no control over when I can be or not be available. Trading - either manual or automated- demands a great deal of focusing and control, it is not an option but mandatory to have a 24/7 internet connection you can use all the time and you cannot simple "get lost" as there are many people (in my case) which count on you and your expertise everyday. So I actually do not work 9-5, in a few ways I work 24/7 .

Maybe I am just a hopeless workoholic but I like what I am doing and I think (at least hope !) that I am making a difference in the sense that I am providing an honest and transparent approach to automated trading without hoping for any massive reward. The earning I get from Asirikuy and this website are quite small (I would have to charge about 50 USD for the subscriptions if I wanted to live from this !) but I think that all the work is rewarded in the sense that I get to live from trading my own systems, I get to improve them as time goes by and I get to do all of this without having to be dishonest, unethical or scamming any poor soul. Will I ever get burned out from doing this and decide to just live from trading and leave the stress of handling my small -yet very time consuming- business ? Hopefully with all the good feedback I get and the satisfation this generates me this won't be the case :o)

If you would like to learn more about my approach to profit from automated trading and how you too can learn to get realistic profits using sound 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 !

Thursday, April 29, 2010

How I will win the MyFXBook Demo Contest... Muahaha

For those of you who are not aware, myfxbook has launched a contest sponsored by FXDD in which traders will battle with demo accounts for a chance to win a 1000-2000 USD price. This contest will be played on demo accounts and the winner will simply be picked up as the contestant with the highest equity at the end of the one month run. As I said on a post a few weeks ago, these contests are meaningless since they encourage the use of excessive risk and the use of unsound trading tactics in order to win, something which I will be more than happy to do to win this contest. As you heard me, on today's post I will talk to you a little bit about the tactics I will be using to win this demo contest and how I plan to absolutely EXPLOIT demo/live execution differences so that I will be able to win a trading contest with a system that wouldn't generate anything but loses in live trading.

So how do you plan to do this ? - You may be wondering - Actually it is a fact that many market inefficiencies cannot be exploited due to the fact that live execution prevents their exploitation. These differences which arise due to the fact that demo accounts do not execute positions in the real market would allow a trader to exploit them and generate unrealistic profitability in a demo account which could never be reproduced on a live account. A simple example of this concept is the use of certain scalping systems which would never work in live trading due to re-quotes and slippage, these systems however would be able to greatly succeed in demo accounts as they would allow you to profit from the market systematically.

There are however even darker ways of profiting from demo accounts which would never work on live accounts. One of the most clever ways is to exploit the feed of a fast, live broker and play "forecast"on the slow demo feed of the contest. This way you would be able to actually predict the future within the paper trading account, something which would never be possible on an actual live trading account due to the fact that all profits would be eliminated by requotes or slippage or the speed of the feed would probably not be significantly slower. This concept has already been proven and it shows that demo contests are useless since the exploitation of their vulnerabilities is clear and concise.

What I plan to do is to use an EA to exploit one of this very well known (or perhaps several of these) vulnerabilities to achieve an extremely high level of profitability on the demo account. If nobody else does this (which I doubt) and I manage to win the contest, then I still need to trade at least 10 standard lots on an account on FXDD in order to get the money. This merely means that I will need to pay about 200 USD in spreads something which I could easily do by opening and closing many trades in a really fast fashion with an EA. After doing this I would be able to withdraw the price, money which I would certainly donate to one of my favorite charities.

So what is the point of doing this ? Ruin the fun for the other people ? No ! My objective will be to show people that demo contests simply make NO sense and that running them only encourages the use and the publicity of systems which are simply not going to work in real life or at least not in the long term. Demo contests are detrimental to the picturing of realistic profit and risk targets and they certainly encourage the use of high risk and unsound trading tactics thinking that these results may be achievable in the long term when in reality they simply are not.

What do you think about this ? Are you going to code your own "unsound madness EA" to pursue the treasure at the end of the rainbow ? Make sure you leave your opinons and comments about my idea ! If however you want to know more about sound trading and how you too can reach long term profitability with your own systems coded for reliable 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, April 28, 2010

Forex Expert Advisors : Forex Pip Stack, an Unbiased Review

Today I will write a review about on of the most recently released trading systems available online. This trading system called Forex Pip Stack promises to deliver amazing results in virtue of the use of several different trading techniques including hedging, swing trading and scalp trading. Through the following paragraphs I will discuss the evidence of profitability available within the expert's webpage, comparing it with the claims made by the authors. I will also analyze this evidence in depth and provide you with reasons why this evidence is or is not reliable and why the expert has or doesn't have potential for long term profitability. Finally I will give you my honest and unbiased opinion of whether or not this trading system is worth buying and testing.

The forex pip stack website begins with claims made about the system being developped by a select group of "top traders". I tend to believe that this is simply not true due to the simple fact that the traders do not use their reputations to sell the products. I believe that this is a simple matter of common sense, if you were going to sell a product developed by you and you were a profitable trader without a doubt you would use your track record to try to sell your products more effectively or at least give your name so that people would trust your system development. This is one of the things I talked about a few weeks ago when I discussed the things EA sellers should improve, knowing the real name of the system's creator is vital to know if the person you are dealing with has any actual experience and expertise in forex trading.

However the most important thing is not the lies around which these sellers may base their story as this could be thought of as a simple marketing tactic but the actual evidence shown about the system's profitability. Sadly and not surprisingly the trading evidence provided by the creators of the Forex Pip Stack system is simply a bunch of backtesting results, some of them going back to 2000. However these backtesting results have several problems which become evident when you look at the profit figures achieved. What are these problems ? There seems to be an obvious exploitation of backtesting faults but we cannot pin-point them out correctly due to the fact that statements are not gives. Probably the problems arise from the use of a low time frame (which has a lower number of reference points and therefore a true modeling quality lower than 90%) and the use of very low TP values which may make the contribution of one minute interpolation errors very important. Certainly the backtesting equity curves are typical of systems that exploit such errors with very unrealistic profit targets and very limited draw downs.

Given the fact that we can also not discard hindsight or the use of other deceitful tactics in backtesting results, the actual confirmation of back/live testing consistency over an extended period of time also becomes of tremendous importance. The Forex Pip Stack website LACKS any live trading evidence with only a very recently started "forward test" which currently only has one trade. The fact that this forward test does not have investor access or third party verification through myfxbook further shows the unwillingness of the authors to provide reliable evidence of performance.

Certainly it could be said that we simply don't have any idea about the Forex Pip Stack's profitability, the backtests presented are with a very high likehood entirely unreliable and there is a complete absence of any actual investor-access verified live or forward testing record that shows us whether or not the system is able to match its live to its backtesting performance. For all these reasons I consider the Forex Pip Stack expert advisor NOT worth buying or testing. Of course, I would absolutely rewrite this review if the author presents at least a 6 month live test (investor access verified) with 50-100 trades with a direct comparison with backtest of that same period. Why do I feel this won't happen ?

If you would like to learn more about automated trading and how you too can develop your own systems based on a true knowledge and understanding of sound trading tactics 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, April 27, 2010

Trading or Gaming ?

It is very curious to see how automated trading has evolved for the past few years. The world of expert advisors seems to have a very special allure which draws people in, consequence of its absolutely attracting qualities that give people the feeling of "playing the game" and being part of the world financial markets first hand. Today I want to write a post about this part of automated trading and how most people involved in this field don't treat it like trading but like a game. I want to talk about the good and the bad things about this and the attitude changes that need to take place if people want to take this to the next level. I know I certainly approached this field as a game first and a lot of discipline and a clear cut strategy were necessary to bring me to the point I am currently at.

The automated trading industry is currently at its infancy and most people who have dealt with this for a few years have found that there is simply nothing certain about expert advisors. There have been systems that have promised heaven and delivered hell, systems which have brought some people massive financial ruin and no answer to the undelivered promises they made. This made people go into a "test before you get there" mode in which people trading with expert advisors decided that there was a logical chain of demo testing and live testing with the live testing being done with minimal risk in the beginning, later increasing risk towards higher levels.

The consequence of this attitude brings us to the current state of expert advisors. According to a few friends I have at brokerages, most people using automated trading systems have less than 5K in deposits with only a terribly small minority having more than this (only about 1 in every 10 thousand). This points out that people haven't really committed money into these systems as they are currently not trading with significant quantities of capital. People are simply running the systems to see what they can do, then most people actually change systems quite frequently, about 1 change every 2-3 months. What are people doing or trying to achieve with this ?

The answer is simple, most people using expert advisors are using them for almost entertainment purposes. People continue to buy systems with limited and unreliable evidence just to "try it" and then cash on the refunds; people are running many systems for very limited amounts of time and most of them are hoping to one day find a system - a.k.a holy grail - which will bring them huge equity gains in very little time with little risk. Sometimes they find an impostor which delivers for a while and then wipes their accounts (courtesy of stubborn systems, which I discussed yesterday).

The truth is that these testing runs without logic, analysis and truly learning about the field of automated trading bring people nowhere as - how I have said several times - knowledge is critical and the "testing without analysis" practice usually leads to the discarding of systems which may have potential and the use of systems which are unreliable. In order to get out of this cycle, the first step for me was actually learning (a lot !) and analyzing deeply. The second step was the creation of a plan answering the simple question : What do I want from automated trading and how do I get there ?

If you are serious about automated trading and you are not simply doing this to play the "find the holy grail game" (which by the way has no winner) then you may want to start to think seriously about learning trading and understanding the systems you are using to perfection. A "black box" won't cut it and it is absolutely necessary - at least in my experience - to understand your systems to a GREAT extent. After you do this you will need to think about a true financial plan with scheduled investments for the next 10-20 years to get you to your long term investment goals. Probably you'll need to have somewhere between 100-200K in investments if you hope to live from automated trading sometime so projecting to reach that target in 10 years from an initial 1K investment plus monthly additions is a good place to start.

As a trader I consider automated trading as something long term and serious and not simply as a hobby or game. For this reason I have committed all my efforts to the creation of systems which aim for long term profitability and not to the playing of the grail game. In my mind, long term reliability and the use of sound trading strategies are much more important than flashing short term profits and unrealistic profit targets, an approach which has worked for me - at least for the past 2 years. If you would like to learn more about my work in automated trading and how you too can design and program your own systems based on sound 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 !

Monday, April 26, 2010

The Draw Down Obsession... Why Stubborn Systems are VERY Dangerous

Through the past few days I have written a few posts concerning system development and why most automated trading strategies developed are not designed with the right statistical care and validity. Today I want to talk about a different aspect of system design which concerns a current problem which has obsessed EA sellers and free EA developers and which seems to be the core of most system development being done. This problem, which is the obsession of programmers with the elimination of draw down periods will be the subject of today's post. Within the next few paragraphs I will talk about this problem and how it afffects the trading system community by generating a series of "stubborn systems" which try to eliminate all market exposure - making the problem in fact far worse - than for regular systems.

We all know that draw down is not a good thing. You wake up, you turn on your computer and you see that your account is down some percent of its initial equity. You are losing money and losing is not a good sensation, you feel like a downright loser, you feel that you are doing things wrong and you don't want to run this system anymore because you fear it may drain your account even more. The answer to this instinct is to look for systems which have the smallest periods of draw down and the longest periods of profitability.

However you have to understand that the market exposure of a given system cannot be eliminated magically mainly because the future cannot be predicted. So for any given system you make, you will eventually have to pay the price of being wrong when you think the market will develop somehow and it develops in another way. People then try to make systems which are what I call "stubborn systems" which are reluctant to let the market cash their market exposure. These systems may avoid taking losing at all (no stop loss), increase their lot size after losing (D'Alemberts, Martingales, etc) or aim to win very little each time so that the odds of winning are extremely low (very unfavorable risk to reward ratio).

The truh is that these systems WILL have a high like hood of starting at a profitable place. It is very likely that people trading these systems for the first month or two will have a very high probability of getting into profitable trades. Draw down periods will almost never happen or - in the case of systems which do not take an exit or SL - they will only happen once, when the account is wiped. Moreover, systems with very small TP and very large SL values with very unfavorable risk to reward ratios are likely going to give unrealistic profit targets in backtesting due to the fact that one minute interpolation errors and the lack of execution problems - which do exist in live trading - will embelish their performance significantly.

Draw downs are not something that can be eliminated or made "very small". All the successful systems I have known in my life have extensive and sometimes deep draw down periods which are extremely difficult to handle for anyone trading them, reason why confidence and understanding becomes VITAL when handling these systems. In fact, holding a small draw down for a long period of time may be hard for most people. Imagine waking up and looking at a 5-15% draw down every day for one year, how would you feel ? Most people would say "this doesn't work" and they would archive the system when they probably don't even understand the system they are actually trading and its normal draw down / profit cycles.

I have found that this is one of the great defenses the market has towards everybody living from or using automated trading systems successfuly. Stubborn systems do not work but they are the systems most people are most likely to use while long term profitable systems are extremely hard to use and very non-rewarding (from a psychological point of view) and difficult to trade reason why only very few people actually use them. In the end, the people who search for stubborn systems and neglect to accept the fact that draw downs - sometimes even extensive and deep - are necessary to achieve long term profits and sustained growth will not be profitable while the few people who can accept this fact will in the end achieve success (not easily by the way !). What did they say about that person who laughed last ? :o)

If you would like to learn more about my journey in automated trading and how you too can design and program your own systems to achieve long term success 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 !

Sunday, April 25, 2010

Jumping to Conclusions... The Neglect of Statistical Significance

One of the most prominent mistakes I have noticed when people try to develop new trading systems or test commercial or free trading systems is their eagerness to jump to conclusions. I believe that the way in which many people evaluate systems and make conclusions about their profitability/unprofitability is actually faulted due to the fact that they don't take into account the significance of their results when evaluating a strategy. On today's post I will write about one -if not the most- important aspect when evaluating any trading system or strategy : Statistical Significance. Through the following paragraphs I will explain to you what this concept is and what its consequences are for expert advisor evaluation and trading system design.

When people design or evaluate a trading strategy they are usually very eager to say something about the performance of a system within a few weeks or a few months. Phrases like - if it works well on demo for a few weeks I'll put it on live - or - it didn't make a profit for 6 weeks - are very common and some of the first things new traders actually learn. The problem is mainly that this short-lived analysis of a trading system usually leads to conclusions which are only representative of short term performance and do not have any validity regarding the long term aspects of a given trading strategy.

I believe that this problem is mainly a consequence of the lack of formation people have regarding statistics - a field which is very important when developping long term performing systems. This science tells us that in order to draw valid conclusions for a given question we must have a big enough sample size. So saying that a system is unprofitable or profitable from a few months of testing is simply not valid because a few months are simply statistically not representative of long term performance. When you evaluate a trading system's performance in the short term you are simply evaluating it under current market conditions and possibly under a temporary draw down cycle which does not appear evident to you due to the short scope of the analysis being done. This is specially important for many systems that have predictably long cycles of draw down which then lead to very profitable trading periods, systems which would most of the time be discarded by people who simply don't evaluate systems in a rigurous manner.

Another problem of this "short term syndrome" is the fact that people quickly jump to conclusions about how to modify a system to make it "perform better". These modifications which are almost NEVER based on an analysis of a statistically significant number of trades may lead to an improvement of performance under current market conditions with a fatal blow to long term trading performance. On the other hand, there will also be a "praise" of systems which perform very well in the short term, often leading to the heavy use of systems that use unsound trading techniques and which put accounts at a great risk of facing a complete wipe out.

So what is a statistically significant sample size ? This question is not very easy to answer since there is no mathematical criteria to put aside a market condition from another. I have discussed this question a few time with a friend of mine who has a major in statistics and we arrived at the conclusion that - according to volatility measures - at least 5 years of analysis are necessary to draw valid conclusions about a trading system. Therefore, when going through system development and the proposal of modifications it becomes necessary to evaluate a modification or performance through the course of a five year period in order to draw valid conclusions.

In the case of systems which ARE back/live testing consistent, five years of live trading are necessary in order to conclude that the adaptability and performance seen in backtesting can effectively be reproduced under future market conditions. If the system is not back/live testing consistent the problem becomes harder as at least an initial 5 years of live trading with no modifications are necessary to make an analysis to propose changes to the system to increase its profitability.

I know that it is actually hard to go through hundreds of trades and evaluate one by one the effect of a certain modification. For most people it is much easier to just evaluate systems for a few months and draw conclusions which are simply not statistically valid meaning that they are not representative of the system's long term performance. Some people even venture to modify systems based on just a few weeks or days of trading, making modification which have an unpredictable effect on long term performance.

It is easy to understand- with such a lack of rigurous analysis and evaluation - why there is an overvaluation of systems that give short-term result and a systematic discarding of some systems that have indeed potential for long term profitability. Most reviewers show little or no knowledge regarding this field and they will be very quick to jump to conclusions without having a clue about the validity of what they are actually saying from a "sample size" point of view. I encourage everyone interested in system design or in automated trading in general to get a basic formation in the field of statistics and particuarly in the field of "hypothesis testing" which evaluates the whole process of drawing valid conclusions from a given statistical sample.

If you would like to learn more about what I have learned in automated trading and how I focus my efforts in the teaching and development of systems which have a high like hood of being profitable in the future 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, April 24, 2010

Forex Expert Advisors : Forex Luger, an Unbiased Review

Today I am going to write a post about one of the most recently released (and spammed) expert advisors. This system -named forex luger - claims that it is able to "make you very wealthy in a few months". Within the next few paragraphs you will find my review about this trading system and my opinion about these claims. I will go through the evidence available within the expert's website and I will see if it is able to backup such assumptions. After doing this I will tell you my opinion about the expert's tradings strategy based on the system's evidence time and I shall tell you if the system has a chance at being long term profitable and whether or not it is - in my opinion - worth buying and testing.

The forex luger trading systems seems to be like the average commercial expert advisor being sold today. The website starts with very bold claims of extremely high short term profitability and the claim that these assumptions are "backed up" by actual trading. After looking at the whole website we find that this evidence actually does not exist and the conclusions reached by the author of the Forex Luger system is based on nothing but backtesting results.

There are several problems with the backtesting results presented by the author of the EA. Even though the results have a 90% modeling quality and 0 mismatch errors, the fact is that the use of a very low TP makes the contribution of 1 minute interpolation errors extremely important. A proof of this fact is shown as currency pairs become more profitable when the average size of the 1 minute candles becomes larger, effectively the currency pairs which exhibit the most important interpolation errors are the ones which have the highest profitability. This makes backtests absolutely unreliable and the evaluation of long term performance extremely difficult without many years of LIVE trading resutls.

After this we have a "testimonial" which shows a "live" account statement. Please be very aware of the fact that investor access is NOT given. Remember that EA sellers cannot be trusted and if investor access is not available then we cannot confirm that the account is live/demo or even real, it could simply be a fixed statement being uploaded to a mt4 stat provider. Now, the fact that the account seems to be updated frequently points out that it could be at least a demo account, something which is still of no use since scalpers are VERY affected by live execution variables such as requotes, slippage and spread widening. In reality you'll find that most scalpers can be profitable in demo trading but fail or are MANY TIMES less profitable in live trading due to the fact that live trading conditions most of the time disfavor the profitability of scalpers due to the above given reasons.

Looking at the average profit of trades taken by the forex luger system it is very accurate to say that the only way in which this system can be evaluated accurately would be in a live account. Until this is done, there is simply no way in which profitability of any kind can be evaluated. However, evaluating long term profitability will be much harder due to the fact that backtests are unreliable. So in the end at least 5 years of live trading, probably on several brokers, would be needed to say anything about the actual - real - profitability of this trading system. Backtesting results are bound to be VERY unreliable due to interpolation errors and demo trading results are bound to overestimate profitability to great extent owing to the omition of live execution characteristics.

Overall the forex luger system simply has no evidence to backup its claims as the reliability of all the available evidence is extremely questionable. The EA seller would have to put up at least 5 years of live trading results to provide any reliable evidence of profitability, reason why I think this EA will never come to proof it can withstand changes in market conditions. For these reasons I consider the forex luger system NOT worth buying and testing. The evidence shown says nothing and the absence of a live trading statement forfeits any real analysis of the system's trading tactic.

If you would like to learn more about what I have learned in automated trading and how you too can become successful in this area through knowledge and education 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, April 23, 2010

Mathematical Expectancy... A Basic Powerful Concept in System Design and Development

Through my last few posts I have mentioned the concept of mathematical expectancy , a very important and useful concept which many people seem to be unfamiliar with. The objective of today's post is to talk a little bit about the concept of mathematical expectancy and its usefulness, pointing out why it is such a fundamental and useful tool in the development of long term profitable trading systems and a key step in the evaluation of any given entry logic. I will start the post with the definition and purpose of mathematical expectancy and I will then continue with some examples and concepts which will show you why the analysis of mathematical expectancy is extremely important and a necessary step in the design of any given trading system.

Many of you may have wondered how successful traders come out with a good entry logic for their trading systems, being manual or automated. How can these people know the chances of success of a given entry logic and use it within their system development ? Many people who are new to automated or manual trading usually have an over-focusing - with little analysis - on the entry logic completely neglecting the development of the money management part. Not only does this pave the way towards the development of unprofitable systems but it doesn't help that the way in which the entries are developped is non-systematical and statistically not rigurous. usually you'll find that people develop a given entry logic based on visual observations of a VERY limited number of market situations and then modify the entries in forward/live testing as they fail under current conditions. This speaks about the lack of knowledge of this novice developers and the way in which they view market and long term profitability.

A simple question then arises. Is there a way to systematically evaluate different entries to know which entry is better, which time frame is better and what exit strategies may be more suitable ? The answer comes in the form of mathematical expectancy analysis- an absolutely simple- yet absolutely powerful technique which allows you to evaluate the POTENTIAL (different from the profitability which comes into play when money management is implemented !!) of a given entry logic. So what is exactly mathematical expectancy and how does it play a role in system development ?

The mathematical expectancy analysis is simply a technique which allows you to know the extent to which the market is bound to move in a certain direction after a given entry is taken. The analysis is fairly simple, you mark every entry for a given logic on a chart and then you mark a set given number of bars into the future. So for example, if you want to evaluate the mathematical expectancy of a moving average cross on a 10 bar period you simply mark each entry and then you mark the tenth bar after the entry. After doing this you determine the high/low of this ten period after the entry. This gives you the maximum the market moved in favor of your entry and against your entry during this period. When you do this over a very large sample size you can determine the average movement in favor and against you and you will be able to tell if the mathematical expectancy of your system is positive or negative. This marks the potential of your entry.

This analysis is very versatile and very important. By changing the number of periods in the analysis you can see if your strategy is better at capturing short or long movements and what timeframe fits your strategy best. For example, some systems may have negative mathematical expectancy on a small number of periods while the mathematical expectancy may be positive under larger periods meaning that the system is better fit at capturing long term movements than short term movements. This analysis also allows you to design appropiate exit techniques for a given entry logic since you know what the average movement against and in favor of your entry is you can calculate an adaptive SL or TP such that in average you will hit the TP and miss the SL.

It is of course terribly difficult to explain all the aspects of mathematical expectancy within a single post reason why I only meant to give a small introduction to the topic within this post so that people interested in system design may know that this technique exists and has a paramount importance in the development of a system's entry logic. Within my website - in Asirikuy- I have made several videos explaining both the theory and practical aspects of evaluating mathematical expectancy over a 10 years period, in additon I have also coded an EA to allow people to evaluate any given entry logic . If you aren't interested in Asirikuy then at least you now know this tool exists and you can either make your own EA to evaluate this aspect or you can do your own research to find more information on the subject :o).

If you would like to learn more about what I have learned in automated trading and how you too can design and program systems to use in 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 !

Thursday, April 22, 2010

Predictable Volatility... Really ?

It is intriguing to find that one of the most common ways in which expert advisor makers try to exploit the market for a profit is the use of "predictable volatility". This concept is founded in the fact that the market is supposed to move "more" during some ours and "less" during other hours of the day, effectively making a person able to predict when the market moves the most and when it moves the least. This is true to a certain extent since it is not a mistery that - for example - the EUR/USD tends to move much more when the US and EU trading sessions overlap. This is natural and it is a consequence of the way in which the world is setup, it is only obvious that a currency pair will move more when the countries where the currencies are most traded are "online" at the same time. However, there is a long road from "predictable volatility" to the exploitation of a market inefficiency something which I intend to explain within the remainder of this post. I will try to argument why "predicting" volatility does not imply profits and why exploitations of an inefficiency based on this principle will most likely be short lasting.

Notice how I always put some quotes around the word predicting. The fact is that even though a person can effectively say -with a high like hood of being correct- that the cross between the US and EU sessions will have a higher volatility than the previous Asian session the person cannot tell you exactly by how much or if this volatility will be directional or non directional. The fact is that this person has exactly the same data as all the other market players who all know that the market moves more around this time (for the EUR/USD as an example) and less around the Assian session. So what advantage does knowing this give a person against other market players ? Basically none, since the information is already there and it is already priced into market action.

Then we have a problem related and additional to the above which is the move from the theoretical to the practical field. How would you exploit a time of predictable volatility ? It does not seem to be straightfoward as the technique used would depend greatly on the directionality and character of the actual market movements. For example, you may try to exploit a "predictable" surge in volatility on the EUR/USD by placing a breakout trigger above and below the current price level before the market reaches that predicted time. However, if volatility is non-directional you will find that you enter a trade towards the wrong side when price starts to whipsaw around your previous price level. In the end you'll see that the market is efficient to this information and does not allow anyone to take profit from this in the long term as the directionality of the increase in volatility is actually not predictable with a statistically significant probability. A mathematical expectancy analysis of a breakout strategy in the beginning of the US/EU session overlap reveals this to be the exact case.

Then the other strategy is to exploit areas where volatility is "predictably low" in order to use scalping techniques. I wrote a post concerning this before, particularly about EUR/CHF and EUR/GBP scalpers which exploit this principle. The main problem here is that the inefficiencies of periods of low volatility are based exactly on this fact. When you trade during a period of low volatility you are increasing volatility by your intervention. If enough people do this or if you introduce enough volume you'll make the market efficient to your own trading strategy. In fact, this is why most of this EUR/CHF scalpers started to fail or be much less profitable, due to the fact that the inefficiencies on this time frames were widely acknowledged and their "edge" was lost. The fact is that low volatility inefficiencies are what people would call "non-tradable" since trading them actually makes them less profitable, a tactic which would -as many people fear- die if trading volume increases significantly.

In the end I think that this "predictable volatility" tactics actually have no solid basis as the information they are based on is fundamentally known to all new and proffesional traders out there- besides - any mechanical trading system developed on the basis of "predicted volatility" at any given time is bound to be unprofitable with time as the volume changes due to the trading of this actual inefficiency. Looking at volatility patterns during this "predictable" times during the past few years reveals very important changes in the way they happen, their directionality and their start and end, pointing to the fact that long term exploitation of market inefficiencies based on them is not possible. Think about these trading tactics as glasses of water, once you drink the water, your done.

If you would like to learn more about automated trading and what I have learned regarding their design, construction and programming with sound 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 !

Wednesday, April 21, 2010

How the Market Changes... Adapting Against Market Conditions - Part Two

Yesterday we talked about the definition of a "market condition" and how systems can try to adapt against changes in this conditions my "making themselves ready" for the appearence of an "ideal type" market state. I gave you an explanation based on an analogy with a camera an trees placed at different distances which makes the ability of the camera to focus the systems adaptability and the type of tree the actual result. Today I am going to talk about the "lens" which may allow a trading system to prepare itself for changes in market conditions and the evidence I have found of this actual adaptation technique being simple and valid to adjust our systems to ever-changing markets.

So what does the "lens" actually do ? Imagine that you have a system that trades a very simple entry like a moving average cross with a stop loss value of 50 pips and a take profit value of 50 pips. The perfect setup for the system is when there is a moving average cross and the market moves 50 pips towards the favorable side before moving 50 pips into negative territory. This is what we could call the system's ideal trading condition. However if you analyze any moving average cross for the past 10 years and you determine the mathematical expectancy in terms of pips, you'll notice that the actual movement varies greatly as market conditions change. Sometimes the system would be able to capture 100 pips, other times 20, other times 50. In the end, you find that the "ideal" condition for the system is fairly rare and when it appears it seems that it is failing to achieve its true potential. What we want to do is implement some type of adaptation technique such that those 50 pips do not remain constant but that they change with market conditions such that the probability of reaching an "ideal" condition becomes higher.

But how does the market change ? What makes a moving average cross in 2004 give only 20 pips and in 2008 give 300 ? What fundamental characteristic of the market changes ? Of course, this is not an easy question. An analysis of market properties over time related to the extent of movements reveals that the size of movements such as moving average crosses increases as volatility does. This means that if volatility grows, then the extent of our TP and SL should grow too to show us the "ideal" condition under current market conditions. This is the technique used on many of my trading systems which adapts a system's parameters against changes in market volatility. This allows the systems to remain efficient and fit to the current market's ideal trade while maintaining a very good degree of simplicity.

So the "lens" of a trading system can be market volatility, with this tool systems are able to "focus" on current market conditions and get a clear picture of what an ideal trade under the current market status would be. This adaptation proves to be vital for systems to survive to changes in the instruments they are trading as systems which maintain fixed parameters are like a camera with a fixed focus, once the picture changes they aren't unable to determine what the image actually is.

It would be naive to say that volatility is the only actual parameter of the market that changes with changing market conditions but it is the easiest parameter we can measure that allows us to generate an adaptability criteria. Of course, other ways of adaptation which measure other aspects of the market such as "pattern shapes", "length of trends/consolidations", etc are also possible but their measurement is far more complex and doesn't necessarily generate better results than those that arise from a simple volatility adapting criteria.

If you would like to learn more about adaptability and how you too can learn to build systems which adapt to changes in market conditions using volatility 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, April 20, 2010

How the Market Changes... Adapting Against Market Conditions - Part One

One of the most common and interesting topics of discussion when dealing with expert advisors is definitely market adaptability. If we were able to make a profitable expert advisor then would we be able to make it profitable under every set of market conditions ? Through today's post I will discuss the first part of this fascinating question which is the definition of a "market condition". We will discuss the concept of "market condition" and I will give you my opinion and thoughts around this matter. Through the following paragraphs you will learn more about the origin of the concept, what it generally means and why it is a very gross over simplification of an almost infinitely complex matter.

So what is a market condition ? One of the first things new traders learn is that the market behaves in several "ways". Regular forex education books usually tell traders that there are mainly 3 ways in which the market can move, it can move up, it can move down, or it can move sideways. When I was first taught this question I thought it was simply confusing, misleading and terribly difficult to understand. Doesn't the market need to move up and down to move sideways ? How do you separate these three cases then ? With no mathematically rigid criteria to tell you (a) is moving up (b) is moving down and (c) is moving sideways I felt that the mere definition of the concepts was faulted.

Then further study into this matter led me into the next very popular definition we get, the market can be either trending or ranging. When people say that the market is "trending" they mean that price is moving into an overall direction with significant momentum while the "ranging" concept implies that price does not go anywhere and sustains a medium level of both up and downside momentum which interchanges easily. Again, these concepts have no mathematical basis and they are almost "ethereal" in character.

What is the reality then ? The reality is that price movement is an extremely complex matter which cannot be simply encapsulated into a rigid category. The fact is that there is no way to truly tell which way is which all the time as the market usually goes into periods where there is a "combination" of ranging and trending, sideways and up/down movements which cannot simply be defined as ranging or trending.

So what is a market condition - better defined as a "market state" - then ? Imagine that you could take a photograph of the market at a given moment, that is a market condition. The actual state of the market at any given moment in time is a market condition. Usually the status of the market changes with the evolution of time and these fact leads it into different new conditions which are - by definition - not equal to any other condition seen before.

How in the world are we supposed to develop profitable systems then ? Well, the fact is that we simply cannot distinguish between one market condition and the next in such a way that the system could be profitable under all of them. Systems however, tend to have an ideal market condition under which they are able to gather profits. If we can use a criteria that allows us to make the system look into different conditions and try to fit them as its ideal, then we might have a chance at having a system which is able to succeed even under ever-evolving conditions.

Imagine that the system is a camera and that new market conditions are trees placed at different distances. The adaptability factor is like a lens which allows the system to focus on each new tree that appears and see it as it saw the first tree. Now imagine that we are only looking for apple trees and there is a mixture of peach and apple trees. The lens can focus on all the trees but some of them will be apples and some of them peaches, something which cannot be determined before actually focusing the image. The same thing applies to trading systems with adaptive techniques. The system adapts (focuses) on new market conditions but only some generate profits (those close to the ideal, apples) while others generate loses (those far from the ideal, peaches). The system cannot distinguish between these conditions to filter them before trading them because the system does not know the future, it merely knows that after focusing it sees a tree but the nature of the tree is not known until you see it.

So actually what we do with adaptive techniques is follow the market and focus on present conditions such that an evolution towards a condition close to the ideal would be profitable but we cannot actually know beforehand. Therefore you can make a system that adapts against changes in the market but you cannot eliminate its market exposure, a beautiful conclusion that talks about the fact that all systems go into profit/draw down cycles, regardless of their adaptability.

Tomorrow I will talk about the "lens" we can use with automated trading systems and the evidence I have found that this is a valid criteria to make trading systems adapt to changes in market conditions. If you would like to learn about adaptive techniques and how you too can create simple systems based on sound trading techniques which adapt to changes in market conditions 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, April 19, 2010

Forex Expert Advisors : FXZapper an Unbiased Review

Today I will be doing another review of a recently released forex automated trading system called FXZapper. Within the next few paragraphs I will analyze this trading system by using the evidence of profitability provided on its website. I'll be able to compare the evidence with the claims made by the author and tell you if the EA offers reliable and extensive enough evidence to be considered worth buying or testing - on top of this - I'll be able to analyze the trading system evidence and give you my opinion about the possibilities this trading system has of being long term profitable. Please remember that I look for reliable trading systems which have enough evidence (reliable evidence !) to consider that they are both able to adapt to changes in market conditions and have a high like hood of generating a profit in the future.

The FXZapper website is the kind of expert advisor website which is specially dangerous to new forex traders. When you look at the site everything seems to be pure and transparent and you seem to have arrived to what some people call "the holy grail". Why wouldn't you want to buy a system that has been able to turn an investment from less than 5K into more than 100K in live trading with no extensive draw down, progressive money management, etc ? The fact is that you wouldn't and neither would I but the problem is that the evidence provided by the people who sell FXZapper is NOT that of a live trading result. Please remember this clearly - results provided by commercial EA sellers cannot be trusted - we ALWAYS require investor access confirmation in order to provide reliable verification of live testing results.

The "third party verified" status the people at fxzapper attribute to their system is NOT true, mt4stats does NOT verify investor access and their results could have been easily made up from backtests and updated. If you check the backtests and the live tests you may notice a very strange coincidence within the trades, something which would have NEVER been expected for a scalper given the fact that spread widening and requotes would have affected trading to a very large extent. Why do they avoid to show investor access or myfxbook investor access verified results ? The truth is that the "live results" shown are probably NOT the result of live trading but a made-up html made up from backtesting results. If I am wrong then I encourage the people at fxzapper (which I have already emailed) to post investor access, something which I am almost sure they won't do. It is also important to notice that their results are NOT updated live (which could easily be done every hour if this "live" trading was true), something which points out that they are NOT updating this from a live account but feeding it with premade html statements.

Now things turn out even worse when you do some research about this FXZapper trading system, several sources online point that the EA is a copy of a free EA created by Funyoo called XBars MA Scalper, something which would not be new to the creators of this EA which seem to be the creators of FxBrokerBuster yet another knock off of a funyoo freely available trading system.

Analyzing the backtests tells you more about this expert advisor's trading tactics, the backtesting results show you a 7:1 risk to reward ratio and indeed a very small take profit of only 10 pips which makes the EA subject to one minute interpolation errors in backtesting, reason why the profitability of the system seems to be extremely high on the backtesting results. As I pointed earlier, the fact that this EA is a scalper will also mean that it will suffer from great divergences between demo/live/backtesting due to the re-quotes, spread widening and slippage which are common when live trading.

What I see with this EA - without assuming that it is a scam copy of another EA - is a deceitful attempt to present made-up statements as live trading results which shows in the obvious disregard towards the basic investor access verifying process which is VITAL to know if live trading results are indeed real and coming from a live and not a demo account. Then the backtesting results tell me that this EA is probably not going to have accurate simulations or demo/live consistent trading results since simulations and demo trading are simply ignoring execution problems which become vital when dealing with this problem.

To sum it up, the lack of reliability of the evidence makes this EA not worth buying or testing for me. If the people at FXZapper offer investor-access to the supposed "live results" and show us evidence that their code is NOT the same code as the funyoo EA mentioned above then, and only then, will I reconsider doing this review. Meanwhile, this people should really take a lesson in honesty and ethical behavior... Taking an EA made by another guy, changing its name and selling it under false live testing results ? Come on... The line must be drawn somewhere !!

If you would like to learn more about my experience in automated trading and how you can profit too using this type of systems by trading with sound risk and profit targets 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, April 18, 2010

How it All Came to Be... The Story of EA Reviewers

It feels like it has been decades when I look back a few years and see the start of what would become a daily-updated blog about automated trading systems and forex trading. Many things have passed during these two and a half years, reviewers have come and gone, experts have been tested and discarded and people have got their accounts funded and wiped. Today I want to write a post to honor all of those who have participated in this story of true expert advisor reviewing, many have found this endeavor to be too exhausting and time consuming while others have found the strength to continue with their tests and their quest for that holy grail people have been looking for since 2007. But how did this all began, how did we take the decision to start reviewer websites ? Why did so many quit and who actually remain ?

This whole journey in forex automated trading started for me in middle 2007 as I was living in the quiet and lovely region of Cumming Georgia with my girlfriend. I had already been trading the forex market for a few years (with some pauses, actually I had used mt3 before but didn't realize it had an auto trading feature) and I was certainly determined to make it work this time. One day, I had the "brilliant" idea of searching for the phrase "forex automated trading" and quickly some results popped up about metatrader, the forex-tsd forum and some very initial commercial EA websites which were more about some programmer making an EA and selling it rather than a mass marketed scam ( although this experts also didn't work).

I remember buying my first couple of experts, testing them on live accounts and feeling utterly disappointed. How could this people be so dishonest ? Why would they sell me something which would lose money so quickly and failed to show any of the results advertised ? This is when I started to look for reviewers and, to my surprise, the only true website I found which tried to review experts in an independent way belonged to a nice fellow from Singapore called Ckow Yong. I quickly contacted him and we engaged in an idea sharing relationship which lasts to this day.

However, as good as CK's approach was to EA reviewing and the great effort he was making; I didn't like several things about his site including his offering of affiliate links and the fact that he traded systems like black boxes without ever wondering if it was key to understand the logic behind them. This is the time when I decided to start this blog in which I first had a CK-like approach (without the affiliate links) and then I started to move beyond what he had done, analyzing and focusing on why all these commercial systems were not working and what could be done to make a system that worked. I consider that my website is the 2nd true unbiased review site and for this I think I am one of the "old guys" in the reviewers scene, not as known or as popular as others, but still, an old dog in this field of EA reviewing and automated trading :o).

Sadly, commercial systems took a toll on CK's patience (since nothing was working) something which prompted him to leave the expert advisor scene in search for some more reliable ways of making profit in trading. I think that CK came to the same conclusions as I did but we both took different approaches to solve the problem. He decided that experts were actually not the way to go, while I decided that making long term profitable experts should be a real possibility since all my reading and analysis had taught me that the market was certainly inefficient to some extent.

Then the "true scam age" of automated trading started with the introduction of FAP turbo and about 10 new different expert advisors every month. I can tell you that this period trialed my patience but at this time I was already a lot more knowledgeable and I was able to see right through the sales pages to give my true insights about the expert advisors I was reviewing. At this time Donna Forex started to come into the picture. She took an opportunity given by the FAP turbo expert advisor in which many people wanted to use it but they didn't know how to work with it (which settings to use, how to evaluate them, etc), since CK wasn't in the scene anymore and I wasn't interested in this system, Donna came in to fill this gap and help people use this commercial system. After this I believe that Donna has filled the space left by CK in the sense that her approach is quite similar, newsletters, affiliate links, an effort to remain unbiased, etc.

Then we had some other reviewers like DuyDuy ( who did not like to write English prose very much but did want to test expert advisors. His blog, which is still online to date, shows performance charts every now and then of the different systems evaluated by him. His approach is the simplest and utterly the most dangerous and the most transparent, he simply shows trading system results, and you decide what is worth using and what is not. The problem being mainly that this encourages the use experts which show short term profitable results which are bound to wipe accounts in the long term, something which I have talked about in a few previous posts.

In 2009 we saw the appearance of some new guys to the scene, with Casey from being the most prominent. His approach to automated trading reminds me clearly of my early days with CK and reading the forex-tsd forum. Casey has always been focused on scalpers and Martingale systems and I believe that he is what I consider the questing knight of the EA reviewing community, he is attempting to find something which we have all found from experience and analysis doesn't exist but I believe that he is now starting to realize these things himself and probably we will see some interesting evolution from his part this year. Casey also did some very important contributions to the EA scene by revealing how many expert advisors were simply copy-cats of other trading systems found freely on forums.

Almost three years have passed now and I feel that we have all done our part to enrich the automated trading community with whatever approach we think is best. Donna continues to test commercial expert advisors as Duyduy and Casey while I have decided to go into a different direction in which knowledge and understanding are primordial for success. I think that they will all realize in time that commercial trading systems are not the answer (mainly because one thing is to develop an EA to sell and another to develop an EA to trade) and they will take whatever path they think is best to sort this out. It is exciting to think about the future and about where we will all be in a few years. Definitely I hope that we will all still be active and working in our own ways to bring people a true solution to long term profitability in forex automated trading.

There are also some new guys, like Chris ( . I encourage them to go on and build their own knowledge regarding automated trading systems and how to use them to be profitable. Definitely it is a long and hard journey but also a rewarding one altogether. To all reviewers and traders working on automated trading, I wish you the best luck, hopefully we will all still be working on our websites and content in ten years :o)

If you would like to learn more about what I have learned in automated trading and how you too can build and design profitable automated trading systems based on sound trading tactics 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, April 17, 2010

The Road to Financial Freedom Series... Part No.4 - The Beginning of My Experience

They say that the greatness of a man is not measured by the number of times he avoids to fall but by the number of times he is able to stand up. No sentence would be more appropiate for anyone during the first years of any financial endevour - and specially to me. I remember clearly my first years of forex trading when I was a lot younger and a lot less knowledgeable (although I still consider that the knowledge I posess is very little) and a friend of mine suggested I started to trade the forex market with him. At the time it seemed like a very good idea and since I was very eager to make large amounts of money this was the absolutely perfect opportunity. Nevertheless, things turned out to be a little different. Today I want to talk to you about my beginnings in forex trading so that you can learn from my mistakes and start your journey towards financial freedom in the financial markets.

When I started trading, my friend was pretty clear with me : "forex trading is very easy, you can make a lot of money in a very small amount of time". The best thing for me was that - although this sounded too good to be true- he had the proof to show that this was possible, he had taken a 500 USD account to 5000 USD in less than 2 months. For me this was like a dream come true, finally a way to invest and become rich starting with a very small investment. I saved my first 500 USD and opened up a foreign exchange account to start my way towards financial freedom while my friend was already managing more than 50K in money from different sources. Another friend also started to trade with us and managed to take his initial 200 USD investment to 1000 USD in less than a month by following the simple trading strategies our other friend had been teaching us for the past few months.

My account was also in very good shape. Through the use of his trading tactics I was able to turn 500 USD into nearly 800 USD in about 2 weeks...Then reality kicked in. For those of you who are experienced traders or who have read my blog for a while it should be evident that we were trading with a very large market exposure without even knowing so. Evidently, we started to lose money as the market started to show us unfavorable trading conditions. As the newbie traders we were we increased risk taking as the weeks passed ending with a "win all, lose all" situation in which I decided to bet my last 50 USD to make them 500 USD or lose them in the process (of course, I lost them). My other friend had 900 USD and decided to bet them against an NFP; he lost all his money two hours after the news were out. The story of our "trading father" was not much better either, he ended up taking his 50K (which was managed) to 20K only to then get it back to 55K after some nerve-wrecking trading experiences, in the end he got lucky but after these events he said that he would never trade the forex market again.

To this date, I am the only one of us who is trading successfully and I can say with confidence that it was because I wasn't afraid to accept my problems and tackle the issue again. After losing this account, I lost another and only then did I start to look into forex trading with different eyes. I realized that the gold mine I was looking for which could turn my 500 USD into a million in four years just wasn't there and I decided to analyze the problem and find a solution. I looked for people who had been trading the market for more than 4 years, people who managed accounts, etc to know how much money they were making and what I was likely to make with the capital I had. The results were both discouraging and encouraing since the forex market could definitely be a better investment than traditional stocks, mutual funds, etc, but it was much harder and much less than what I had been promised in the beginning.

I believe now, after having my own experiences and reliving these events through the tales of others, that you should tackle issues yourself. You should always have in mind that people will try to tell you that this or that can be done but usually these claims will either be short termed and unrealistic with no substantial evidence that this can be done in the long term. In the end you should always develop knowledge and analysis yourself, do not take my work or anyone's word as carved in stone, search for your own answers and in time you will find them. Certainly, it will be a GREAT effort and no product you can buy will get you there. If you are lazy and you do not want to process all this knowledge yourself, the market will punish you. While others know what is happening and learn from the events that unveil you'll be like a blind-folded man, without the slightest opportunity of looking beyond your nose.

Finally I can give you a wonderful piece of advice which gathers all these experience. If there is something you think you can do to improve - do it -, because if you don't, someone out there will do it and that person will have an edge you don't have and that person will take the money you will lose. Take out of your mind that forex is for quick riches, that you can simply set and forget an automated system and see the profits roll in or that you can just buy or sell the red and green arrows of an indicator to be profitable, it won't happen. It is much more than that, something which is terribly obvious and at the same time extremely difficult to understand. Once you do, your true journey towards financial freedom will start.

If you want to get an education regarding automated trading systems and you would like to learn more about how you can make profits in the market with realistic profit/risk targets developing your own sound trading systems based on knowledge about the market 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, April 16, 2010

Making a System to Sell or Making a System to Trade... Two Very Different Approaches

After working in automated trading systems for so long and revieweing hundreds of commercial expert advisors I think that one of the key problems in the area of expert advisors development and the main reason why most commercial systems do not amount to anything worthwhile is the fact that there is a strong difference between developing a system to sell it and developing a system to trade it. You may think that such a difference does not exist because any system which is good enough to be traded is good enough to be sold and that is true to some extent. However, the problem is centered around the fact that making a system that can be sold is much easier than making a system that is good enough to be traded because most people do not have high standards for the judgement of automated trading systems, probably due to either lack of experience or lack of willingness to enforce it.

To me, a tradable expert advisor is a system which shows enough evidence to be considered to have a high like hood of being profitable under future market conditions. This evidence should include extensive 10 year backtests coupled with years of live trading to show the expert's back/live testing consistency, etc. Designing, programming and trading these systems is very hard and demanding. If an honest sellers wished to code a system and offer real, reliable evidence of profitability he or she would need to spend years testing the system in order to ensure the highest like hood of future performance. After all this effort it is also very likely that this person will have problems selling the system due to the fact that profit targets are probably much lower and draw down periods are probably much longer and deeper than for the other systems which would be available in the market.

What we currently have in the expert advisor market is best defined as a systemhrrea, it is an uncrontrollable urge of sellers to put forward as many untested and unreliable trading systems in the fastest fashion possible with the most cheesy and unethical marketing techniques to get people to buy these systems. The expert advisors being sold often have very limited if any evidence of profitability coupled with an obvious willingness to hide evidence and a dishonest - almost insulting - set of stories which have no place in reality.

This problem is of course a consequence of the fact that selling expert advisors is a risk-free way of making a profit in a high-risk market. The people who end up paying with their account balance and hard-earned money are the buyers who often have no idea that they are being sold a piece of very well decorated garbage. The willingness to believe that those extremely ambitious profit targets are possible with low risk and the eagerness of sellers to take advantage of this fact sets up the perfect stage for our current expert advisor market. As they say around here, hunger meets the desire to eat.

Is there a solution ? Sadly I cannot think about even one. It is extremely easier to sell these worthless systems than to develop systems which are made for trading. Expert advisor sellers don't give a damn about long term profitability as long as they can show some profitability (sometimes even none) to sell some victim their toxic product. After that they will have their profit and they will be able to ditch their useless system or simply redo all the marketing and start all over again (which is what they often do).

Sure, there is no way in which anyone can guarantee profits in forex trading but if these sellers were really after systems which aimed at long term profitability they would do everything possible to ensure that the experts have as much evidence as possible to backup their claims. I for example develop my systems with profitability in mind (because I live from their trading) so even though my systems are much less attractive compared with the average commercial EA, I am able to say that I have as much evidence as possible about their profitability and I am confident in their ability to tackle and survive to future market conditions. Even though I cannot guarantee that my systems will always be profitable I ensure that I have done my best so that they have the highest possible like hood of doing so.

People will often find with surprise that trading long term profitable systems is actually not easy and that a lot of psychological pressure and testing of confidence comes to play. It is obvious that if automated trading was a straight forward, easy way towards riches, everybody would be doing it and everybody would be rich. This is not the case, not because profitable trading with automated trading system is impossible, but because it is much HARDER than what EA sellers want you to believe.

This is the reason why I decided NOT to sell experts but I decided to sell an education, because this is what I believe is the KEY to long term profits in automated trading, if all it took was to set and forget a system, many people would already be rich. If you want to learn more about automated trading systems and truly gain an education in expert advisor analysis and development from what I have learned in this field 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, April 15, 2010

Forex Expert Advisors : Forex Dynasty an Unbiased Review

Today I will be revieweing another new expert advisor which came out during last week. This new trading system, called Forex Dynasty, promises to deliver very large profits in a very small amount of time. As with all my other reviews I will first go through the expert's evidence and I will compare it to the claims made by the author to see if the forex dynasty system has enough proof to validate the claims provided. After analyzing this evidence and its reliability I will then analyze the trading system's tactics to evaluate its like hood of long term profitability and finally, after all this analysis, I will be able to give you my opinion about whether or not the forex dynasty trading system is or is not worth buying and testing.

The forex dynasty website greets us with what seems to be a misleading and meaningless claim of being able to make more than 100K in under 20 minutes. First of all - as I have said several times - saying that you can make X profit without mentioning the risks involved or the capital needed is absolutely pointless. Sure, a system can make 100K with a 1 million dollar investment in under 20 minutes with a moderate (yet high) account risk, I can assure you that. However saying that a 10,000 USD account is able to make more than 100K in 20 minutes is simply VERY misleading, sure, it could be possible under very volatile conditions and an EXTREME risk but achieving such a feat would be a one-time success based on luck rather than an achievement based on sound mechanical trading. So, the claim made simply doesn't say anything, it doesn't mention risk or initial capital, it is simply worthless.

Moving on we see that the evidence presented to backup the system's profitability is limited to a single backtesting statement which gives us a LOT of evidence about this trading system's tactics. First of all, we can see that the system trades the EUR/CHF on the 30 minutes chart. I have to say that the historical data for the EUR/CHF is not very reliable (diverging significantly from sources of reliable tick data like Dukascopy or Oanda) and I am inclined to think that data before the year 2006 is actually pretty much useless so there is a very limited usability for a 10 year backtest. Moreover, backtesting on the EUR/CHF seems to generate extremely profitable results with an astounding frequency, without these results ever being reproducible in live trading. I have to say that the profits made on the backtests are not realistic and a simple consequence of backtesting faults inherent to the use of the 30 minute charts, the EUR/CHF and probably the experts trading technique.

Looking upon the trading tactic used by the EA we realize that the forex dynasty system has an unfavorable 4:1 risk to reward ratio, meaning that you need to win 4 times to make up for a single loss. This seems to be quite common for EUR/CHF systems and in general for systems which generate an equity curve similar to this one in backtesting. As always, you simply CANNOT believe the backtesting results presented by commercial EA sellers because there are simply too many things which can be done to aritificailly generate very profitable tests, evenmore, some of these problems may be present without knowledge of the EA creator, programmer, since sometimes these programmers are not very knowledgeable regarding metatrader backtester limiations and they are merely eager to get a profitable equity curve.

One good thing I can say about the forex dynasty trading system is that there seems to be an honest effort to present demo trading results verified through myfxbook. Although FAR from ideal (since a live account is always mandatory), the fact that the currently losing results are not being removed points that the creator is willing to be honest - if only to a small extent - with his or her audience. The forward test is currently too short but my best guess is that the large difference between demo/back testing results will be shown clearly within the next few months.

Now what I absolutely HATE about this website is that the creator of the system is lying the whole time. The story is - in itself - the way in which the author hangs him or herself and shows his or her dishonesty. The creator points out that with this very system he or she was able to gather a 17K profit from the market. Why in the world does this person NOT show live tests with these results ? Moreover, why didn't this person take 100 USD from this 17K and fund a live account to test the EA ? Obviously this story about the origins and initial trading of forex dynasty is simply an unecessary lie to increase the hype around the system. If it was true, then why not show all the evidence which would naturally arise from the story ?

Overall, I can say that the forex dynasty trading system currently lacks evidence for long term profitability and its claims are therefore not proven. The backtest shown is not validated by live trading evidence and the only forward testing evidence presented is a demo and not a live test. For all this reasons I consider the forex dynasty trading system NOT worth buying and testing since there is simply NO reliable proof of profitability. If the author provides a 2-3 month live test coupled with a back test of this same period to gauge back/live testing consistency, I'll be glad to redo this review.

If you would like to learn more about what I have learned in automated trading and how you too -through effort and knowledge- can arrive at long term profitable trading using 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 !

Wednesday, April 14, 2010

Forex Expert Advisors : Forex Cash Rocket an Unbiased Review

Yesterday I received a message on my website's chat asking me to review another new automated trading system which has just been released. This system, called forex cash rocket, will the subject of today's post. As always I will first look at the expert's website and the evidence provided and see if this evidence is in-line with the author's claims. After this I will analyze the evidence and statements made thoroughly in order to evaluate the like hood of long term profitability and the trading tactics of the system being sold. With all this information in mind I will then be able to give you my honest opinion about whether or not this trading system is worth buying and testing. Is the forex cash rocket capable of demonstrating the high profit levels mentioned on its website ? Keep on reading to find out.

The forex cash robot website is pretty simple, there are not a lot of claims of profitability or a lot of trading evidence but the only information shown about the expert's performance seems to be a "live testing statement" which covers the period from January to March 2010. However there are many problems with the information shown. First of all, there is no investor access verification available so it becomes obvious that the statement shown could be a simple forgery uploaded to a metatrader 4 publishing website or it could just be a result of demo testing and NOT from live testing with real money. The second and worst issue is the fact that the statement has not been updated since March the 22nd something which suggests that the system has gone through a draw down period or has wiped a very large portion of the previously achieved profits.

Talking about the system's trading tactic it doesn't seem to use any obviously unsound techniques such as martingale systems, grid trading, etc. Its risk to reward ratio is also pretty much in line with a regular trading system and its overall risk seems to be quite in line with a moderate risk expectancy. However, there are many things which we don't know since the system lacks any evidence on long term performance. Why isn't there a 10 year backtesting statement included ? Why don't the people at forex cash rocket provide us with evidence to evaluate risk and long term performance ? There are two possible answers to this questions, 1) backtesting results cannot be obtained or 2) backtesting results over a long period show that the system cannot withstand changes in market conditions. Since there is a video where a visual backtest seems to be being shown I am inclined to think that the second statement is the answer to the question.

Many people will get excited at the 3 months of "live results" and they won't realize that a) almost any strategy can get 3 months of profitable results b) there is NO evidence which shows that this is indeed a live statement c) the statement has not been updated for almost a month d) there are no backtesting results to measure risk or compare with live tests.

Overall I have to say that due to the lack of backtesting evidence to measure and validate adaptability against changes in market conditions and long term profitability, the lack of investor access verification on the "live test" and the fact that this test was stopped abruptly without any specific reason I consider the forex cash rocket trading system NOT worth buying and testing. The evidence needed to change this review is quite simple, I just need the author to provide a 10 year backtest coupled with the investor access information of the live account and live-updated result of this same account to confirm that this was just not a case of "it started to lose, therefore we ended the live test". As you see, there is a huge lack of information which leaves BIG doubts about the system's profitability.

If you would like to leanr more about automated trading and how you too can design your own trading systems to become profitable in forex automated trading using realistic profit/risk targets 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, April 13, 2010

Forex Expert Advisors : Forex Overdrive an Unbiased Review

After doing my weekly research into the realm of recently released trading systems I found a new expert advisor called Forex Over Drive. On today's post I will talk about this seemingly new trading system, in particular I will review this expert advisor based on the evidence of profitability provided on its website comparing it with the claims made by the authors. In virtue of this evidence I will also do my best to evaluate part of the trading system's trading techniques and their like hood of achieving long term profitability. The Forex Over Drive expert advisor claims to be able to make a 150% profit every month, can it live up to its claims ? Is there enough evidence for the authors to say this ? Will this EA be worth buying and testing ? We'll find out within the next few paragraphs.

I have to start this review by saying that the Forex Over Drive expert advisor seems to aim for higher profit targets than most of the other trading system you see on the market. However, the evidence which is found on the website to backup this claims is - not surprisingly - incomplete, misleading and inaccurate. The people at Forex Over Drive mention that they put their trading system to the test through a whole year but what they show us after mentioning this is a mere backtesting result. Worse than this is the fact that the backtesting result shown has been obviously edited to remove key information which would have helped us evaluate the validity of the simulations (although live testing is the only true validation) , for example, the time frame and dates used have been edited out leaving us with the doubt of which time frame the EA is using and what period the simulation tackled. Does the simulation cover one week, one year, one month ? Does the expert trade on the 15 minute, daily, weekly charts ? This information is key since simulations on lower time frames (particularly lower than 30 minutes) are bound to be inaccurate due to the smaller number of reference points per bar and higher importance of one minute interpolation errors.

Then they show us a "statement" which is presented in the form of a "live test" showing us the results of the system. Truth be told, what they show us is nothing more than an html table, there is no way to know if this information is actually taken from a live test or a simple reorganization of the results obtained in a backtest. Again, EA sellers have been known for forging live tests and placing them on their websites and ONLY third party investor-access verified results are worthy of being trusted. Why in the world would you avoid such verification if your results were legit ? The answer is obvious.

When we analyze the trading technique used by the system thing do not improve one bit. The EA has a risk to reward ratio of about 30:1 with a Stop Loss size of about 300 for a Take Profit of about 10 pips. Moreover, the small value of the TP and the large differences between SL and TP will make the appearence and importance of one minute interpolation errors vital. Add to this that the TP is only about 4 to 5 times the spread and you will find that the EA probably suffers a lot from broker dependency and spread widenining/requote related issues which will make its evaluation extremely hard.

To sum it up, the Forex Over Drive trading system lacks any reliable evidence of long term profitability with what seems like a strong willingness to hide information. The authors of this trading system - if they are serious about it - should post 10 year backtesting statements on their websites along with at least 3 months of live testing results showing how spread widening , requotes affect the EA and how this - coupled with one minute interpolation errors - could probably lead to a huge back/live testing inconsistency. Again, remember that the burden of proof is ON the authors of a trading system NOT on our live accounts.

Due to this huge lack of any reliable evidence (lack of 10 year backtests and live/back testing consistency analysis with investor-access verified live tests) I consider this trading system NOT worth buying and testing. If you would like to learn more about reliable automated trading and how you too can learn how to design and code your own long term profitable system to succeed 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 !

Monday, April 12, 2010

Messing with an Expert Advisor... Five Reasons Why you Should NOT Intervene

One of the things I have found most common regarding new traders and the way in which they approach mechanical trading systems is that they are very likely to intervene with the trading of an expert advisor for a large variety of reasons. People justify intervention in many ways : "I knew the news would be positive/negative", "the market was too volatile", "I knew it would come back", etc. The truth my dear readers is that these are mere excuses which arise from insecurity and lack of confidence. There is no way in which someone can know beforehand how the market will behave and intervention is - truth be told - a non mechanical modification of a trading system's performance which may lead to very bad consequences in the long term.

Within this post I want to talk to all of you who like to "mess" with your automated trading systems to tell you the reasons why I know that intervention with an expert advisor is almost guaranteed to be detrimental in the long term (at least with long term profitable systems). After you read this post I want you to reflect upon your trading and address the issues you have regarding the systems you are currently using so that you can truly use them successfuly in the long run. So here are my top 5 reasons why you should NEVER meddle with your automated trading system.

1. If it isn't broken, don't fix it. This very simple saying applies to automated trading as it does to taking apart a perfectly good electronic device. If you have analyzed your trading system and you know it has adaptive capabilities and it can survive a different array of market conditions then why in the world are you intervening ? What you are doing is changing the overall performance of your system to something which is non-mechanical and not evaluated, you are in fact taking something good and making it something unrecognizable.

2. You cannot predict the future. If you think about it, you don't know where the market will be heading and you have less statistical justification to intervene than what your EA has to do whatever it is doing. If an EA has been profitable in months of live trading and 10 years of backtesting then it "knows" the market better than you do. Could you have taken successful trades for the past 10 years with an overall statistical advantage ? The expert advisor did and you are now trampling all over it like you have an edge it doesn't.

3. Your not thinking about the long term. The reasons you are modifying the trading system is because you fail to evaluate the big picture, you intervene on one or another trade merely because currently you are unable to handle a loss, you are desperate to capture some profit (you hate giving back), etc. You simply LACK confidence on what your mechanical system is trying to do and you are just damaging its mechanical edge by introducing "what you think is best" when actually what you are doing is taking an emotional non-mechanical decision which will be damaging to the system in the long term. This decision may seem rational to you but it is outside the mechanical rules and it should NOT be taken.

4. If improvements can be made, then code them. If you feel that there is something the EA is doing wrong then code the improvement in a mechanical fashion and see if it is translated into an overall improvement in profitability. You will find out that many of your "interventions" are detrimental in the long term. For example, some people are very uncomfortable when systems give back profit and they quickly jump to suggest a trailing stop. Then when the trailing stop is implemented you see that overall you take more profit but you miss some profitable runs which accounted for a good portion of the system's profitability. You need to have statistically powerful reasons to introduce modifications the "I feel like it", "I think" way of modifying trading does NOT work in the long term.

5. The market's alluring short term compensation. People usually justify intervention by saying "it has worked for me in the past" and the truth is that in a long term profitable system intervention may reward you a very substantial amount of the time. So you will be happy to intervene 75% of the time or even more. However, the truth is that sooner or later your meddling will have dire consequences for the strategy. You will someday intervene and forfeit a profitable trade which accounted for a large amount of the yearly gains, etc. I can guarantee that you will regret intervention in the long term.

Again, the truth is that intervention is nothing but the manifestation of the emotions that are generated when you lack confidence. If you trust a system and the way it handles the market then you simply let it do its thing. If you think it can be improved then you do a rigurous historical and statistical analysis of hundreds of trades and introduce modifications within the code. By intervening with an expert advisor you are simply destroying its trading tactic and making it be something different which is non-mechanical and has uncertain results in the long term, taking away all the validity of simulations, previous live trading, etc.

My advice is then pretty simple, analyse a few hundred trades, analyze the logic, know when the system is bound to lose trades, when it wins, how it wins, how it loses and learn to be comfortable with the historically seen periods of loses and profits. Most people are simply lazy and don't want to do this and they pay for this laziness with an overall lack of confidence, uncertainty and by intervening with systems and changing their long term behavior and profitability. It is difficult not to intervene and it takes years of practice and experience to be able to restrain one's self, for some people these words will be enough, for others it will take the messing up of a strategy and the arrival at an unprofitable scenario to learn the lesson.

If you would like to learn more about what I have learned regarding automated trading and how you too can educate yourselves to achieve a higher like hood of long term profitability 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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