Monday, May 31, 2010

The Market Fights Back : Five Ways in Which the Market Protects Itself from Massive Mechanical Exploitation

When I started my journey in automated trading it was only a while before I asked myself a very important question : Why doesn't everyone live from automated trading if it is so profitable ? I bet many of you have asked yourselves the same question and you haven't found any answer that clearly tells you why every average Joe out there who knows about expert advisors isn't living from them. I used to have several long discussion with fellow traders and their usual answer - before I started living from these systems - was "they just don't work". Clearly simple, if the systems do not work, then nobody can live from them, end of story.

However, upon a closer inspection of how the successful systems I know work and their trading characteristics I have come to a set of conclusions that show us why - even if everybody knew them and traded them - only a few people could ever be succesful using them. On today's post I will discuss the five main ways the market protects itself from the massive exploitation of mechanical systems giving you an idea of what you are getting into if you want to achieve long term profits with expert advisors.

1. Profitable systems have long draw down periods. One of the things that I think makes the massive exploitation of long term profitable systems likely impossible is the fact that draw down periods of profitable systems are extremely long and very hard to endure for most people. If you don't understand what the system does and you have been in draw down for 300 days, then common sense would dictate you stop trading the system. When people trade something they don't understand they easily fall prey to fear while if they attempt to have "faith" on the system they will get their accounts wiped if the system stops working.

2. Worst historical draw downs always get worse. Another very important aspect is the fact that the market will show you a darker side of its face as time evolves. I have seen many people trade systems with high risk levels saying "in a 10 years backtest its maximum draw down was 60%, so I'll be fine". This is a big mistake. The worst performing point in the past does not forecast the worst point in the future. A system may go into a deeper draw down in the future and if your risk measurements don't take a deeper draw down into account the system's future regular profit/draw down oscillations will take you out.

3. Long term profitable systems are unattractive. People generally look for systems that show short term results, high profit rates and high recoveries from loses and therefore long term profitable systems simply fail to attract people. If you were selling these systems probably only a bunch of people would ever buy them and this is because their profit targets are not very high and their draw down periods are long and their draw downs deep. So in the end people are simply not attracted to these systems and prefer to trade much more dangerous systems.

4. They give back. I think that a very good reason why people don't like long term profitable systems is because they have a strong tendency to give back profits a significant amount of the time. The turtle trading system can have a 1800 pip profit and come out with a 200 pip loss. Most people will get angry, won't understand this and will run away from the system saying that it doesn't work. They simply do not understand the reason why this "giving back" happens and why it is done to preserve the probability to achieve a trading system's potential.

5. True understanding is needed. Due to all the above reasons, the chief protection of the market against the massive exploitation of mechanically tradable inefficiencies is the fact that a true understanding of the systems is necessary. If you set and forget you will fail due to the above reasons. You will probably get out on a predicted draw down cycle, modify the system eternally to try to make it "avoid giving back" or you may just attempt to trade the system on blind faith and wipe your account when the system has simply become too risky to be traded.

After I realized the truth behind all the above reasons, the design and trading of long term profitable systems became much easier. In the end the most important thing is to know exactly what the system is doing, why it is bound to work, how it works under varied market conditions and why and when the system is bound to make profitable trades. It is extremely important to know the long term statistical characteristics of the trading systems and to constantly evaluate the performance of the strategies against what you learn from previous live trading and simulations. In the end few people will be able to achieve the understanding needed to defeat the market at its own game. Hopefully you'll be one of them :o)

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

Sunday, May 30, 2010

Some Trading Advice : Trade What you See

It is incredible to see how many traders out there start calling different future price levels and saying that a certain currency pair will fall or rise in the long term and how another will not, etc. One of the first things that new forex traders are tempted to do is to issue forecasts of future price movements of currencies and act accordingly. On today's post I want to write about this practice and how the forecasting of currency pairs should be avoided if you wish to become successful in currency trading. Particularly I want to pinpoint the dangers and flaws of fundamental forecasting and how trading based entirely on price action - with the application of some sound trading principles - is in my mind the best way to achieve success either in manual trading or in the design of automated trading systems.

First of all, it is good to know what I refer to as forecasting. When a person says "The EUR/USD will be 1.60 in 2 years", that is what I call forecasting, an attempt to predict the future based on some evidence that holds no predictive power over such a wide range of possible outcomes. Predicting economic cycles, wide movements, bottoms, tops and similar unpredictable market outcomes are some of the fundamental reasons why new traders fail.

It is easy to understand why so many people fall victim to forecasting. We like to be right and forecasting a given price level that in the long term becomes true is very satisfying. For example, if you said in December 2009 that the EUR/USD would reach 1.3 next year, you would have made a very accurate forecast of what would have happened in the future. However there was no substantial evidence to guide you towards this conclusion and hitting the nail on the head with your prediction might have been a simple lucky guess. Of course, I can say that next year the EUR/USD will reach 1 or 1.5 and probably I would be right about one those forecasts due to the yearly volatility of this forex currency pair.

However what we have to understand here is that we cannot come up with conclusions outside of what is being showed by a certain currency pair's price action. I saw many people talking about the EUR/USD reaching a bottom around 1.32-33 when in fact there was no evidence to believe this to be true. Of course, in the end the people who make money are the people who play the market by two extremely simple principles. Take into account support and resistance levels and follow the trend.

Why would you be willing to go against a trend that is so crystal clear on the charts ? There is a reason why trends develop and taking trades against long term trends is suicidal most of the time. Reversals are quite rare and they take long periods of time to develop and for this reason they are not a good strategy to trade, it is much better to wait until a reversal happens and a new trend develops than attempting to enter the "beginning" of a new trend by guessing a reversal is in place. When you watch support and resistance levels not only are you able to accurately gauge the probabilities of price movements but you are also able to get into very good spots for long term trend following.

What you need to understand here as a trader is that you should read the information the market tells you and make an educated guess regarding price movement based on the simple assumption that trends will most of the time continue and support and resistance levels will shape price action. It is a matter of interpreting what the market is telling you and forming a high probability outcome based on these two simple market principles.

So in the future you should not try to forecast the price level of a currency in a few years or attempt to "call" the bottom or top of the current trend. You should focus on following price action relative to support and resistance levels and following trends, entering them on favorable positions based on your first analysis. Trading what you see on the charts instead of what you hear on the news or what you think will happen in the future is vital in order for you to achieve long term success in forex trading. Of course, the above technique is what has worked for me but other ways of analyzing price action and coming up with good probability reading may obviously be possible. Just remember : do not attempt to forecast, just follow your charts.

If you would like to learn how you can develop your own long term profitable strategies using forex 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 !

Saturday, May 29, 2010

The Atinalla Project - A Well Laid Out Plan For Long Term Capitalization in Forex Trading

With the development of seven different systems within Asirikuy, the testing of these system on live accounts and the development of adequate tools for draw down analysis. I have realized that it is time for us to start a well laid out plan in Asirikuy for long term capitalization. Up until now, since the performance of joint portfolios was not known there was no clear information of what a "good portfolio" would be and what money adding tactics would work best to ensure that our portfolios would have the best performance over long periods of time. However, after modifying the experts to work with an internal balance solution and analyzing their joint simulations, it is safe to say that we now have a very good idea of what seems to be possible using Asirikuy automated trading systems.

Today I am very proud to announce another milestone in the development of Asirikuy, the start of the Atinalla project. This word which - you guessed right - comes from the Quechua language of ancient Bolivian, Colombian and Peruvian natives simply means "possible". I want to be absolutely clear in that what I am about to release does sound too good to be true and in order to be absolutely honest I will tell you that I cannot guarantee that we will obtain the results given below. What I can guarantee is that we will have clear profit, draw down and worst-case scenario targets and even though this may be experimental, it may prove a reality over time if the analysis is correct.

The objective of the Atinalla project is simple. I want to get a dedicated trader from an initial investment of 1000 USD to a five figure yearly income in 10 to 15 years by using purely mechanical trading systems. To do this I have paired up different Asirikuy systems - which up until now have back/live testing consistency - and I have designed a strict yearly money addition protocol of 1200 USD and a way of trading the systems that ensures maximum profitability.

I have also realized that with my particular choice of systems, the actual continuous compounding effect is detrimental to yearly profits as favoring the previously most profitable systems appears not to be the best tactic. I suspect that this is probably due to the fact that expert advisors have years of high profitability followed by much less profitable periods and having all experts always start the year with the same capital offers a much better effect in the long term. By resetting the initial balance of the systems each year to make them all trade the same initial capital (plus any yearly additions) will make the systems achieve much higher profit targets in combination. This is evident when you look at the yearly profit and draw down targets shown below.
Since this includes separate backtests for each system for each year, it can be safe to say that the "starting point" of the portfolio is not extremely relevant to draw down targets. The maximum draw down achieved by the above portfolio during the 10 year period is roughly 18% and the profit target of the portfolio is in average 65% after ten years. The standard deviation of the profit percentage is huge (32%) showing that if yearly profitability in the long term follows a normal distribution (of course, this is an assumption but the current data suggests it) we may go from 161% to -31% years in the very long term. However the standard deviation for draw downs is much lower and this analysis suggests that yearly draw downs may go from 1% to 25% in the long term. The year 2010 - which has not ended yet - was not taken into account for the average profit and draw down analysis. The maximum days of draw down have an average of 99 but the standard deviation - which is quite large - suggests that we may have a maximum yearly draw down period near 230 days in the future.
A graph of the above mentioned yearly profit and draw down figures shows what appears to be a great trading portfolio achieving profit over all years during the past 10 years and having extremely moderate draw downs consequence of the hedging character of the different strategies. Of course, there are some years in which the temporary draw down comes near the experts' yearly profit but in the end all years end up with higher profits when compared with draw downs.
One of the most interesting things I thought I would do was to calculate the 2010 results for this portfolio using current Asirikuy live trading data. Using the systems included in the portfolio (with some live accounts having fortunately the same risk level, making them adequate for comparison) and adding their results together I could get a profit of 35%. However, one of the experts used on the portfolio has only been trading since April so this profit figure - which neglects a very important January and February profit shown in backtesting - is below what should have been achieved for this year. This shows not only that the live portfolio is in line with the backtests for the year (backtests do not include May, reason why live testing shows about 10% more profit) but that the experts do have synergy when traded together.

What we have with Atinalla is a clear target and a clear way to achieve it based on sound evidence. The systems will be traded in a portfolio, resetting the initial balance each year (to the final yearly capital plus addition for all systems) and doing a 1200 USD addition starting with a 1000 USD initial investment. We will expect a maximum draw down of 18% and our worst case scenario will be a 36% draw down level. We have a projected average profit level of 65% after ten years but we will expect anything from -31% to 161%. The important thing here is NOT to look at the profit values but at the draw down targets, we have absolutely clear, well designed worst-case scenario levels which will trigger our "stop trading" signal if they are reached. So if anyone trading this portfolio reaches a 36% draw down, no more trading will be done since the systems have become to risky to continue trading.

Of course, Asirikuy members will find a page this Sunday including all Atinalla testing information as well as the settings required to run each expert advisor and a video explaining how I did all the tests, how to load the experts on your account, etc. Doing this analysis to come up with the first Atinalla portfolio took a long time but many other portfolios will certainly come as time evolves and new good combinations become apparent. We will also open up the Atinalla challenge for people willing to start trading the above portfolio with a commitment to stick with it from 2 to 10 years on a VPS.

Will Atinalla provide people with financial freedom ? Will it be able to achieve a five figure income for someone after 10-15 years ? Will we reach the worst-case scenario ? Will people endure the harsh draw down periods and low profitability years ? All these questions will be answered within the next ten years within Asirikuy :o) If you would like to learn more about my trading systems and how you too can build expert advisors 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 !

Friday, May 28, 2010

Uneven Strategies : Working with Different Profitabilities in Portfolio Building - Part Two

Yesterday I started to discuss the effect of running a portfolio with systems that have very uneven performance. I used the GBP/USD and EUR/USD instances to exemplify this case and show you exactly what the effect of running systems with very different profitabilities is along a very wide range of years. However once post was not enough to discuss all the effects of running such uneven strategies and several questions still remained. On today's post I will finish my discussion on this matter, answering the remaining matters as clearly as I can. I will attempt to discuss the effect of different starting times in running a portfolio and how this affects the global profitability and risk/draw down targets of a portfolio built upon the join venture of uneven strategies.

On part one of this post I was able to show you how running a portfolio of two long term profitable systems has an overall profitable effect regardless of the global differences in profitability. I showed you how the GBP/USD and EUR/USD instances contributed somewhat equal profit/draw down percentage in the beginning of the account and how the contributing power of the GBP/USD instance grew smaller as trading progressed. Of course, this means that the portfolio starting time may prove decisive as different startup periods may lend themselves to different contributions of the separate systems. Some very important questions start to come out as a consequence of this matter. Will the account face higher risk targets if the account is started right before the worst draw down of the worst performing strategy ? Will long term draw down targets be an underestimation of the potential draw down ?

In order to answer these questions I looked at an account started right before a very significant draw down period of the GBP/USD instance which started in mid 2009. I ran a test from January 2009 until May 2010 and compared the results obtained for the 10 year portfolio for these same months. The first thing we can take into account is the draw down figures of both tests. The maximum draw down in 2009 of the 10 year test was near 9% while the maximum draw down for the test from 2009 to 2010 is 28%. It is however worth noting that this 28% is inline with the maximum historical draw down of the 10 year portfolio which is 30%. Looking at the equity curves of both systems displaying percentage gains and looking at monthly performance gives us a better idea of what is going on.
As you can see, the 10 year portfolio has already diminished the participation of the GBP/USD instance significantly while the 1 year and a half test still has both experts contributing roughly the same since they haven't had a chance to compound profits significantly. The result is that the strong draw down period on the GBP/USD eliminates a lot of the profit of the EUR/USD instance but the profit made by the later is enough to hedge the loses made by the GBP/USD account and put the overall portfolio in a profitable point.

I have to say that a careful analysis of similar periods - in which an account is started right before the worst draw down case of the worst performing instance - reveals that this is exactly when the maximum draw down portfolio levels are reached. In this case, a level of about 28% was reached which is close to the expected maximum historical draw down of the ten year portfolio (starting in 2000) at 30%. Running different initial periods were the account is started right before a GBP/USD instance unfavorable period shows us that draw down between 20-30% show almost all the time. However, the EUR/USD instance is always able to hedge this draw down and get the account to the other side.

As we saw on part number one of this article, the overall larger compounding effect of the EUR/USD instance ends up eliminating most contributions of the GBP/USD instance as it fails to perform up to the same level. Interestingly, this shows that the startup point does not increase risk but the 10 year maximum draw down appears to be the draw down combinatorial "upper-limit" that determines the draw down attained when experts are started within an unfavorable period. The 10 year estimation therefore becomes a valid estimate of future draw down limits and doubling it provides and accurate worst-case scenario.

In the case of systems with very different performance levels, the use of a continuous portfolio in which the most profitable systems take lead seems to be a good solution. However it is still easy to wonder if there is any other better way. Is there a better way when systems have similar profit levels ? Is there a way of examining portfolios in which we can be absolutely sure that the importance of the startup point is not critical ? How can we trade a portfolio in such a way that a very clear draw down limit is attained ? Answering all these questions and studying portfolios in depth has led me to the development of a series of portfolio guidelines and investment rules that I will talk about on tomorrow's post and that will be discussed in depth this Sunday on an Asirikuy video... Stay tuned for the release of the Atinalla project.

If you would like to learn more about my journey in automated trading and how you too can develop a portfolio of likely long term profitable 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 !

Thursday, May 27, 2010

Uneven Strategies : Working with Different Profitabilities in Portfolio Building - Part One

One of the first questions I asked myself when I begun the development of portfolios within Asirikuy was : What if the profitabiliy of the trading systems used is very different ? What will happen if one system is much more profitable than the other one in the long term ? I started to wonder if the most unprofitable system would just drain out the profitability of the best one or if things would improve with time as the systems traded together. Today I will be writing the first part of a two part post which will talk about my finding around portfolio trading of uneven systems and the effect of doing these types of pair-ups in the overall draw down and profitability of a given portfolio.

In order to pair two uneven systems I needed to find two likely long term profitable systems that traded with similar frequency but which had significant differences in profitability that would become larger in the long term. The most suitable system I found was Watukushay No.2 which trades on both the EUR/USD and the GBP/USD. Although both instances are bound to be long term profitable, the EUR/USD instance achieves higher profitabilities in simulation due to the higher presence of the inefficiency exploited by Watukushay No.2 on this currency pair. By pairing up both systems I would be able to see the overall effect in long term portfolio trading allowing me to see if one system would be able to drain the other one or if - despite their differences in profitability - they would achieve a joint effort towards more profitable territory.

To make things even more interesting I decided to increase the Risk used on these tests to 5 also extending the backtests to include 2010 months up until May first. The results - shown below - let us see the big difference in profitability between the EUR/USD and GBP/USD instances of Watukushay No.2 as compounding effects become more pronounced. The contribution of the less profitable GBP/USD instance becomes less significant as time goes by and the EUR/USD instance starts to take a very important place within the portfolio. In the year 2009-2010, most of the position sizes taken are the responsability of the EUR/USD instance while the GBP/USD instance contributes about 5-10% of the trading volume. It is extremely interesting here to note that -in the long term - a portfolio setup eliminates unprofitable strategies by itself, since less account percentage is allocated as the instances fail to accurately perform, effectively protecting the account from the less perfoming strategies.
However what happens during the whole ten year period ? What happens with the overall losing period length, maximum draw down, etc ? For the Risk 5 tests, the maximum draw down period length and the maximum draw down values for the EUR/USD instance were 658 days and 26.96% while for the GBP/USD instance they were 1026 and 59.41%. However, the portfolio achieves a wonderful effect and achieves - within the ten year period - to reduce the maximum draw down period to 433 days and the maximum draw down to 30.66% just a little bit higher than the EUR/USD instance and much lower than the GBP/USD instance.
It is also very interesing to evaluate the yearly profits of the portfolio (shown above) which allow us to see how the EUR/USD instance takes over as times goes by. Of particular importance is the year 2002 in which Watukushay No.2 achieves its highest profit on the EUR/USD (note that high risks exaggerate these effects), leaving behind the GBP/USD instance in terms of equity gains. As time evolves even further we note how the EUR/USD instance keeps growing the account and the contribution of the GBP/USD instance becomes very small. In the end, the profitability of the GBP/USD instance achieves a minor increase in average yearly profitability for the account, from 41 to 42% showing that the addition of this instance, eventhough much less profitable did add up to draw down period reduction and increases in profitability in the long term.

Of course, there are still several questions unanswered which will be addressed on the next part, released tomorrow. For example, what happens if we decide to start to trade a portfolio like this just before the worst draw down period of the worst performing system ? Will this expose us to higher risk ? Is the long term risk indicative of the highest possible draw down even when different starting periods are taken into account ? Tomorrow I will try to answer these questions as I continue to research the depths of the world of portfolio trading and combinations of Asirikuy systems.

From today's post we can definitely conclude that the best idea is to combine trading systems with similar profit targets, however if one of the systems does start to fail it is very probable that its trading contribution will be slowly eliminated by the account growth caused by the other systems. This is very powerful in the sense that the portfolio self-manages the profitability of trading strategies and automatically rewards systems that perform better and punishes systems that perform worse.

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

Forex Expert Advisors : Pro Forex Robot, an Unbiased Review

This article will feature the last of this month's released robots discussing the Pro Forex robot automated trading system. I saved this EA specially for last since there is some very special evidence about the dishonesty and unethical behavior of this seller. However I will leave this for the last bits of the review. First of all - and most importantly - I will evaluate the trading evidence provided by the author and whether or not this evidence is able to backup the author's claims of profitability. I will then go through the evidence to analyze the Pro Forex Robot trading technique and at last I will give you my opinion about whether or not this expert advisor is worth buying and testing. Can you flip a coin and pull a winner at least one of six times ? We'll see if the website is able to proof that the EA can do this.

When you look at the evidence of profitability provided by the author immediately two things come to mind. Backtesting and Martingale. This trading system's only evidence of profitability are 3 year backtesting statements using a martingale trading tactic. I have to state here several of the problems of this evidence starting from the fact that backtests from EA sellers cannot be trusted due to the easy way in which they can be manipulated to introduce either curve-fitting or pre-engineered results through hindsight (yes, we've seen experts coded to trade certain ways for certain years). The fact that the backtesting is limited to 3 years also points out to a dangerous path around curve fitting. Why not backtest this system for the past 10 years ? If it is supposed to be so profitable, then what is the problem ?

The answers to this question does come easily. The only reason why sellers limit their backtests is because their previous results show unprofitability, wipeouts, etc. Otherwise there wouldn't simply be a reason to do so. Now, the fact that this guy relies on a Maringale trading technique is also pretty scary. Many folks out there trade with Martingales and eventually lose their accounts, Martingales do not work and they will never be able to be consistent in the long term because of their unlimited market exposure. Eventually there will be several consecutive loses. What is the probability of flipping a coin and getting seven times the same face ? exactly 0.0078 or 7 in every thousand, which in trading means - it will happen - sooner than you think. If you think you can get away with doubling your account and then quit and do this profitably even if your account gets wiped you are wrong. The fact that there is no statistical tie between sets of consecutive loses makes even several consecutive wipeouts likely so beware, Martingales do not work. (I have also written several posts about this if you are interested)

Now the funniest part about this EA has to be this guy - Ron Carter - a trader with 28 years of experience in trading who, by the way, turned out to be an online actor by the name of Steve. I laughed out loud when I heard a guy at the donnaforex forum calling this guy out and showing evidence that he wasn't the guy he claimed to be. They immediately removed all the evidence but he kept it and showed it there. You can have access to this here. I am amazed at all the lying that goes on here. You tell people that you are a successful trader selling a system when in reality you are an actor ? Come on ! The real guy behind this is probably a shadowy marketer who hired a programmer who doesn't have the slightest idea nor he/she cares about long term profitability or the well fare of their customers. Shame on you Pro Forex Robot people !

Of course, due to the large lack of evidence, the willingful limiting of the backtests, the total lack of any investor-access verified live trading evidence or any type of back/live testing consistency proof added to the use of an unsound Martingale tactic I consider the Pro Forex Robot NOT worth buying and testing. It is also worth noting that this reveals the overall marketing hype that these sellers use to take customers in - almost harmless when systems do work - but absolutely devastating when they don't. When people are new and vulnerable in this field it is very easy for these wolf-like marketers to prey on them very efficiently by making all these fake actors and videos inspire confidence when in reality all that there is is a very lacking system with very little and unreliable proof of profitability. By the way, the US trading institute doesn't exist ;o).

If you would like to learn more about automated trading systems and how you too can build your own reliable likely long term profitable systems based on adaptive and sound money management 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 !

Forex Expert Advisors : Forex Money Train, an Unbiased Review

One of the latest expert advisors released is this system called Forex Money Train. This system claims to give people the ability to get significant profits from the forex market and achieve financial freedom in a short period of time. The system claims large sums of profit like 20-30K per trade and promises traders to win with a 90% of profitable trades. On today's review I will examine the Forex Money Trade expert advisor, I will go through all the evidence presented on the system's website and I will take a look at the system's trading tactic. In the end I will put together all the available evidence and I will tell you if the system is able to backup its claims of profitability and if it is or it is not - in my opinion - worth buying and testing.

The Forex Money Train website starts like many other automated trading sites with promises of financial freedom, high winning percentages and market adaptability. However, when it comes to show trading evidence of these claims, the Forex Money Train not only falls short, but actually fails to deliver any reliable evidence of profitability.

The first and only evidence shown on the website is a snapshot of two "live trading" account which are both old, short and unverified. It is incredible that an EA seller expects to be able to sell a system with statements that are more than 6 months old, less than one month long, abruptly stopped and absolutely unverified. What information do you get from this testing evidence ? What I see is a system that was briefly tested on what probably was a demo account and then stopped as soon as some big unprofitable results started to show. The statements shown are a complete joke with less than a week of trading length and no continued updating.

Besides the fact that the statements shown are short and old, they are also unverified. Since there is absolutely no investor access information we cannot tell if the statements are indeed real or if they are manipulated, created from nothing or simply the consequence of trading on a demo account. For any serious EA seller, the absolute verification of the live trading statements is absolutely VITAL to ensure that the system has a high like hood of long term profitability.

On top of this lack of reliable live or demo testing evidence we also have that the backtesting results of the system are not presented. Why isn't any backtesting shown ? When EA sellers do not show any backtesting statements, it becomes obvious that their expert advisor is not able to perform accurately under a wide variety of different market conditions. When this unwillingness to show backtests is coupled with a total absence of live-updated live investor-access verified accounts then we are talking about a seller than simply wants to sell his EA without having to give any serious proof of long term profitability.

The so called "proof" of trades is also a mere joke. It is very easy to hand-pick trades of any strategy to make it appear as the best strategy ever when in reality it loses equity in the long term. Due to the complete lack of ANY reliable evidence, the old, short and unverified live tests and the total lack of backtests, I consider this trading system NOT worth buying and testing. If the seller wants me to change my review he should provide 10 year backtests and 6 months of investor-access live results coupled with 6 months of backtesting statements of this same period to show consistency. Until then, the Forex Money Train falls into the pile along with the thousands of experts that are now part of the overhyped EA graveyard.

If you would like to gain an education around automated trading and truly understand how to develop and use long term profitable systems please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Forex Expert Advisors : The Forex Revolution, an Unbiased Review

Today its the turn of yet another of the recently released trading systems called "forex revolution". The forex revolution is however not only about systems but about the creation of a community around expert advisor development centered around the experts developed by the revolution's programmers. On today's post I will write my review about the forex revolution, I will go through the community's/expert's website and talk to you about the trading evidence available and if this evidence is able to backup their claims of profitability. I will also evaluate the currently available results and comment on the soundness of the trading strategy used and finally I will tell you whether or not - in my opinon - this system(s) is worth buying and testing.

It is a little bit difficult to write a review about a project such as the forex revolution. Since the idea of this website is to build a community about system development, new systems and evidence may arise in the future which I may not take into account within this review. If there is some new evidence available when you read this that is not mentioned here please leave a comment and I will go again to the website and modify the review accordingly.

However right now the forex revolution only has one trading system named REVOBOT1 which they claim to be a non-scalper that trades the EUR/USD, USD/JPY and GBP/USD. The backtesting results of this trading system are not very impressive since they are oddly limited to the past three years and have a 3:1 risk to reward ratio, meaning that three winning trades are needed to recover from each loss. As you may know, backtesting statements from EA sellers cannot be trusted because they are easily manipulated and changed and therefore live testing results are a must to judge the quality of a trading system. In particular, live/back testing consistency of at least a 6 month period is needed to validate any backtesting results.

When it comes to live testing results, the forex revolution is a disappointment. The only evidence of live trading on the website is a statement which although seemingly live updating, lacks any investor access verification meaning that this might be a demo account and not a live trading account. For the moment results for this trading system on this unverified account are very short and therefore a comparison with a backtest of the same period is not useful. From an evidence verification perspective, the forex revolution fails to give any reliable evidence of long term profitability for their REVOBOT1 system. Besides, they mention several times that they made profit with the system (for example "we all made 24% more the next week" (shown below)) so why don't they show investor-access verified access to these accounts that allegedly made those profits ? I think you can answer this question.
When it comes to the community approach of the forex revolution, I cannot tell you from the outside how good it is or if it has any effectiveness in improving trading systems. However, from the point of view of an experienced person in automated trading, I can tell you that community efforts - when not guided correctly - almost always end up with a bunch of short term modifications that are not based on statistically relevant information that end up taking the systems to a point where there is an obsession with short term draw downs and a fast implementation of unsound trading tactics. I do hope that the forex revolution achieves a better fate if this is really their objective.

Right now I can tell you that the forex revolution with its current expert called REVOBOT1 does not have enough evidence to say that the system is likely long term profitable. The system has very limited backtests (why don't they show 10 year tests ?) and extremely limited and unverified live tests that do not allow us to draw conclusions about the system's profitability. For this reason I consider the forex revolution not worth joining and REVOBOT1 not worth buying and testing. If they are truly serious about the development of their systems then they should add 10 year profitable backtests, 6 months of investor-access verified live testing results and then compare live and backtesting results to prove consistency. They should also add their current live testing results to myfxbook to confirm that the account is a live and not a demo trading account. Once they introduce this necessary changes I will be happy to change my review to reflect the new evidence. Meanwhile, the forex revolution seems to offer yet another expert with very limited and unreliable evidence of profitability. Remember that I am always happy to give systems positive reviews as long as they have the above mentioned evidence which is absolutely VITAL to say that any system has a high like hood of being long term profitable.

If you would like to know more about how you can create your own automated trading systems to achieve realistic profit and draw down 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 !

Forex Expert Advisors : 4x Cash Compounder, an Unbiased Review

One of the most recently released trading systems is the 4x Cash Compounder expert advisor. On today's post I will write a review about this system which will first analyze the evidence provided by the authors and then compare this evidence with the claims made on the website to see if the 4x Cash Compounder can actually prove its claims of profitability. After analyzing if the EA does have enough evidence to backup its claims I will analyze the soundness of the trading tactic used by the system and give you my opinion about whether or not this trading system is worth buying and testing.

In the beginning of the website we have very common - yet rarely proven - claim. The website clearly states "A Robot that Works !". Is this actually true ? Does the 4x Cash Compounder has enough evidence to say that it will provide you with profits for a long time into the future ? The website says that the EA works day in and day out, month in and month out. Could all this be true ?

And then, reality kicks in. What evidence do the people at 4x Cash Compounder give us ? Almost nothing. The author of this EA only gives a very limited five month backtest on his website that reveals several problems with this trading system's stratedy. First of all, the backtest is done on 5 minute charts, which has an inherently lower modeling quality and second, the tests are limited only to the past 5 months. Morevoer - and most dangerous - this expert uses a Martingale trading technique which puts large chunks of your account balance at risk as the number of loses continues to grow, effectively taking you towards a wipeout in the future.

Why is the backtesting limited to 5 months ? Watching the trading tactic of this system it becomes evident that this expert may fail bluntly with a long enough backtest. Looking at a 5 month period you can already see the spikes of volume inherent to Martingale trading and looking at further testing periods is only bound to increase the problem. Why in the world would a company choose to give 5 months of simulations instead of 10, 20 or 100 ? The answer is obviously simple, this trading system is most likely a time bomb that is bound to wipe your account eventually. All martingales eventually fail and this one wouldn't be the exception.

Then we have the next obvious problem which is the lack of live testing evidence. If the creators of the 4x cash compounder are so sure about its profitability then why in the world don't they show live investor-access verified accounts with the trading resutls of their own EA ? Why aren't there any live results at all ? Everytime you see an EA seller that does not show investor-access verified results you are looking at a seller who simply doesn't trust his money with his product. Why would you trust your money if the guy who created the software doesn't even mind ?

Overall the 4x Cash Compounder is nothing but another overhyped trading system with very limited evidence and an obvious will to hide additional evidence that could prove the expert to be unprofitable. For this reason, the lack of complete backtests and any live testing results plus, because of the use of a very risky Martingale technique, this system is -in my opinion- absolutely NOT worth buying and testing. In order for me to even consider rewriting this review the owner would need to provide 10 year backtests, eliminate the Martingale progression and provide a 6 month investor-access verified live test coupled with a backtest of this same period to prove consistency. In the meantime... Another piece of worthless hype goes to the EA trash can.

If you would like to learn more about automated trading and how you too can code your own systems with reliable profit and 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 !

Forex Expert Advisors : Forex Ironman, an Unbiased Review

Continuing with the reviewing of automated trading systems that were recently released today I will be writing about a new trading system called Forex Ironman. This expert advisor claims to make a 308% profit in less than 17 months with minimal risk to your trading account. On today's reviewI will analyze the evidence provided by the author of this EA and I will tell you if this evidence is enough to backup the expert advisor's claims of profitability. After this I will also go through the expert's trading evidence and tell you my opinion about the expert's trading tactic and its potential for long term profitability. Finally I will end this review by telling you my opinion about whether or not the Forex Ironman is worth buying and testing.

The Forex Ironman starts its website with some very bold claims of profitability as well as an obvious and unethical breach of Marvel Copyright. I understand that it is a good marketing technique to use a currently "fashionable" name to sell a product but in doing so and using imagery which reminds you of the movie the author is in fact in infringement of copyright laws (at least in the US).

However lets go back to what we care about. The authors of the Forex Ironman then attempt to show us what they call "evidence of profitability", what we have here is a set of backtesting results, partial cuts from backtesting statements and pictures of hand-picked trades which may or may not be a real part of the backtesting results. In reality we have seen many times how expert advisor sellers include pictures of trades that would have been actually never taken by the system just to make it look more profitable or with a better risk to reward ratio.

The backtesting evidence of the Forex Ironman is very limited, with 2 years of backtesting results at most showing us that a very good chunk of backtesting that could have been done from 2000-2008 was avoided for some reason. Why do you think an EA seller would avoid showing some backtesting results ? The absence of backtesting periods usually means that the system under performed under those market conditions or that the data was curve-fitted to show excellent results during the past few years of trading. This means that the system is inherently flawd and has no adaptation to changes in market conditions. Additionally the complete lack of any live testing evidence points to the fact that the creators of this trading system don't trust it enough to use it themselves. Why isn't there an investor-access verified live testing statement ?

The fact is that the Forex Ironman just shows us backtesting results which are probably curve-fitted and unreliable (plus a very unsound 10:1 risk to reward ratio). If the expert was able to adapt to changes in market conditions and succeed under varied markets then the sellers wouldn't have had any problem to show us 10 year backtests and live trading results. It is very important to note here that the absence of live trading results points to the fact that this expert is probably not going to perform in the same way as it does in backtesting. Again, if their system was so good, why wouldn't they test it first ?

Overall the Forex Ironman is just another attempt of the people at Next Generation to sell an overhyped system that lacks any reliable evidence of long term profitability. Backtests can be easily curve fitted and manipulated and therefore live/back testing consistency is always needed to prove the profitability of any trading system. If this people really care about their customers they should show 10 years of backtesting results with an investor-access verified live account. Meanwhile, due to the obvious lack of evidence and what seems to be intentional limitation and fitting of backtesting results, I consider this trading system NOT worth buying and testing. Remember that the burden of proof is always on the EA seller NOT on your live accounts !

If you would like to know more about automated trading and how you too can design reliable systems that can 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 !

Forex Expert Advisors : Forex Massacre, an Unbiased Review

Today we are going to take a look at a system that was developed allegedely by a seven figure forex trader. This trading system- named Forex Massacre- claims to be able to do several interesting things like making more than 20K every month or thousands of dollars per trade. Today I am going to go through this system's website analyzing the evidence provided by the author and judging if this evidence is enough to backup the author's claims. After carefully analyzing the whole website I will try to analyze the expert's trading tactic giving you my opinion about the system's like hood of being long term profitable and whether or not this system is worth buying and testing.

I can say with total confidence that this forex masscre system seems to be a total insult to customer intelligence. The website talks a lot about the benefits of the system, huge monthly profits, no need for previous knowledge about forex trading, more than 90% winning rate up to date but the system never shows any proof of profitability. It is certainly like these marketers are not even trying anymore. Why in the world would someone buy a trading system based on a few pictures ? The fact is taht any of those screenshots of "trades" could have been draw by anyone with photoshop (even paint) and a metatrader 4 platform. These screenshots of trades do not tell as anything as even if they were actually real they are hand picked and do not say a thing about the long term profitability of this trading system.

What does the website of forex massacre actually tell us ? Absolutely nothing ! The website is a whole venture of hype coupled with a few - probably hand drawn - pictures of trades that may or may not be in line with the reality of the way in which this system trades the market. I think that it takes a lot of nerve and dishonesty to sell a system that does not have the slightest evidence of profitability. Where are the backtests ? Where are the live tests ? If this system is so profitable, then why doesn't the owner show us a 6 month live investor-verified account on a myfxbook link to proof its profitability ?

Sadly I think you guessed right. Probably the creator has never tested this system live and backtesting statements just show a losing system that does not even do well in simulations, otherwise they would have at least placed some backtesting statements on the site. In the end this trading system has absolutely no evidence of profitability (not even evidence of its trading method or tactic) and therefore it is NOT worth buying and testing. In fact, this system is even insulting as it makes you go through 3 pages of reading without showing you any valuable information. I only have two words for this system... Next please !

If you liked this review and you would like to know more about trading system reliability and how you too can determine if a system has potential for 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 !

Forex Expert Advisors : Forex Kinetics (FX-Kits), an Unbiased Review

This review will begin a series of posts about the most recently released expert advisor. On this post I want to talk to you about an expert advisor released by a trader named Daniel Su, who appears to be from Singapore. As almost all forex robots, the forex kinetics (FX-Kit) system claims to be capable of generating consistent returns under varied market conditions with absolutely no intervention from the expert's user. On today's review I will go through the expert's website, analyzing the author's claims and evidence and I will tell you if - according to my opinion - this trading system is worth buying and testing.

The first sentence on this website already started to bother me as I read the word "guaranteed", expert advisor sellers must be clear in that no profits can be guaranteed and that past performance never guarantees future results. An effort can always be made to ensure that trading systemswill have the pwoer to adapt to changes in market conditions but, since no one knows the future, saying that certain profit or consistency is guaranteed is nothing more than an unethical marketing tactic (which is not surprisingly used).

As with most trading systems, the website goes on and on about the trading system's ability to adapt to changes in market conditions and its unique features which allow it to remain hidden from brokers and trade differently - yet efficiently - for all of its users. The system claims that it is able to change its entries between different traders such that trades would never be the same (I wonder how you can match performance then ?).

When it comes to trading evidence, I have to say that this system falls short by a very long shot. The evidence shown of "live testing" is not investor access verified and - on top of that - trading has stopped on all accounts a few months back. How can you buy any trading system that just shows you a few months worth of trading evidence ? Why in the world would you risk your own hard-earned money if not even the tester is willing to load his expert advisor on his account and place some investor-access information ? I think that the author of the forex kinetics (FX-Kit) trading system should place investor access information or myfxbook account links if he wishes to present reliable live testing evidence. What we have right now could simply be a small profitable period after which the account was wiped or it could simply be a made up statement with a made up graph. Even if the results are indeed real, we cannot know if they were run on demo or live accounts due to the lack of investor information.

There is also a very suspicious lack of backtesting information which is almost always shown on expert advisor selling websites. Why doesn't the owner show us a 10 year backtest if his system is able to adapt to changes in market conditions ? If this backtesting information cannot be shown then how are we supposed to know if the claims are real ? Should people risk money on an untested system that has no prove of profitability or reliability across different market conditions ?

In the end, the overall lack of any realiable evidence makes the claims made by the author lack any susbtantial support and therefore this trading system called forex kinetics (FX-Kit) is absolutely NOT worth buying and testing. If the author wishes to provide reliable proof of profitability then live investor-access verified myfxbook links should be provided coupled with 10 years of backtesting results. I always write these suggestions with the hope that sellers will just run the tests and show me the evidence in an honest fashion but I have to say that - up until now - this has never actually been the case.

If you have liked this review and you would like to learn more about automated trading and how you too can learn how to design and use your own systems based on reliable 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 !

Wednesday, May 26, 2010

An Important Decision...No More Reviews on the Front Page

Through the past several months of everyday posting, I have realized that my Asirikuy visitors are divided between two specific types. There are some people who are quite new to automated trading and find my website through search engines and those who have been following my website for a while and read it almost everyday. By talking to people and analyzing their browsing habits on both sides I have reached an important decision for my blog. From now on I will not be posting any reviews on the front page. On today's post I will be explaining the reasons behind this decision and I will also explain the consequences I think it will have related to both types of website visitors.

If you have been a frequent visitor of Reviewing Everything Forex, then perhaps you have already seen that most of the commercial systems out there are not worth buying and testing for me. In the end, reviews start to get very boring and they seem to repeat the same story over and over and over again. I have been accussed of upselling my own products (because that would certainly make me a millionaire :o) - sarcastic note) and even of bashing every system without any consideration.

Those of you who have been Asirikuy members or readers for a while know that I am a very rational person and that I only review the evidence I see. As a matter of fact, I almost never say that a system is unprofitable but what I say with exhausting repetition is that systems do not have enough evidence to be considered profitable. In the end, if commercial sellers want to prove their point, they should just provide reliable evidence. Nothing more ! I am not asking for 30 years of live testing, I merely ask for 10 years of backtesting with 6 months of live/back testing consistency analysis. But what a difficult thing this is to provide when your system is actually not reliable :o) (my own attempt at drawing a cartoon shown below)
I however consider reviewing an important part of this site since getting people away from commercial experts that simply cannot backup their claims of profitability is a vital aspect of my social job in automated trading. Even if people never buy one of my products, the fact that they didn't fall prey to any one of this unethical affiliate sellers or scammers out there is valuable enough for me as a personal achievement.

In the end I have seen that people who find my reviews of commercial systems do so through search engines while they often never find them through forum links or direct access. Publishing reviews on the first page therefore only has the effect of boring my faithful readers (who aren't that interested in commercial system reviews) and driving very little traffic from non-search engine sources. For this reason I have decided that reviews from now on will be published within the website but they will never show on the front page. Everyday there will be a fresh article about automated or forex trading and any of you interested on a system's review can search it through the label drop-down list on the left hand-side menu or simply google fxreviews and the name of the expert advisor to have it show up. I think that in the long term this solution would satisfy both my long-term readers and the new forex traders looking for some insights about the latest forex product.

What do you think about this decision ? Do you agree, disagree ? Any input will be highly appreciated ! Of course, if you would like to learn more about my work and would like to support me without any upselling pressure 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, May 25, 2010

Asirikuy Portfolios : Increasing Profits Without Increasing Draw Downs

One of the objectives of Asirikuy is the development of portfolios to trade with high profitability and diminished risk levels. For the past year, the systems tested within Asirikuy and the previously available newsletter had never been traded together due to the fact that the effect of trading them within a single account had not been measured. For this reason it was very difficult to know if trading the experts together would have a positive effect in the overall risk level and the building of portfolios had been postponed until we had enough live trading evidence about Asirikuy systems. During the past few months - and thanks to the contributions of several Asirikuy members who provided several analysis tools - I have analyzed different combinations of Asirikuy trading systems and the way in which they affect each other's trading during the long term. I would have to say that the results have been excellent to say the least. Within this post I want to share with you my analysis about an Asirikuy portfolio and how the combination of the different systems allows us to reach a great increase in profit with only slight increases in risk.

To begin my journey in portfolio building with Asirikuy systems I first tried simple combinations of all the systems to see what overall improvements I could achieve within their performance. I will show you today the effect of building a 3 system portfolio from Watukushay No.2, Teyacanani and Watukushay FE which are perhaps some of the most popular systems within Asirikuy. These systems all have a high like hood of long term profitability with 10 year profitable results and a good possibility of being live/back testing consistent. In fact, both Watukushay No.2 and FE have been trading for almost 6 months with consistent results with simulations. Since Teyacanani only has about one month of live trading, consistency cannot be evaluated yet but preliminary results look good.

What was the effect of combining these systems ? I have to say that I was impressed by the synergy I got when I joined these trading systems within a portfolio. By using their 10 year - Risk 1 - backtesting results and combining them using the tools developed by two Asirikuy members I was able to easily analyze the results from these three different systems combined. This is inline with what you would get by running the three within a single account since their internal balance mechanism ensures that they only take into account their own profits and loses when calculating their balance. Below you can see the equity curve for this 10 year combined analysis of their results in simulations.
After ten years of trading the systems achieve - by working together - an equity gain of about 309% which is equivalent to a yearly compounded profit level of around 19% (see year by year analysis later on). Perhaps the most impressive aspect is not this but the fact that the maximum draw down level of this portfolio combination was very low, at only 5.15%. Not only is the draw down small but it is actually smaller than the draw down level of almost all the systems used. Watukushay No.2 has a maximum draw down of 5.2%, Teyacanani above 6% and Watukushay FE just above 3% showing that the systems are indeed able to reduce draw down to a lower level. Profitability was greatly increased - since the effect of profitability is additive- while draw downs were globally diminished. The overall consequence is the achievement of a yearly profit to maximum draw down ratio of 19:5.15 or 3.68, a wonderful number for any trading system.

An interesting effect also comes when you consider the length of the maximum draw down periods. The maximum draw down length is also greatly reduced when compared with individual systems. For example, Watukushay No.2 has a maximum draw down length of 259 days, while the combined portfolio has a value of 216 days, showing a diminishment in the duration of the maximum draw down length. This means that not only does this portfolio achieve lower worst-case equity loses but the overall length of these losing periods is reduced.
It is also interesting to analyze the yearly and monthly performance of the portfolio to see how it compares with the Asirikuy systems by themselves, something which would show us the arrange of possibilities we could expect for our first year, month and subsequent years of trading this combined system portfolio. The results are shown on the images above and below.
The images above confirm that the portfolio is a great improvement when compared with the three systems traded by themselves. Overall, we do not get any losing years for the past 10 years and - even though the draw down of the worst losing months does increase - it does so in a much smaller proportion than the most profitable months. The profitability over the years also increases very significantly showing us that the effect of profits is indeed additive while the effect of combined draw downs is "hedging" in the sense that when any of the systems enters a draw down period some of the others are bound to enter profitable periods. The draw down periods of the systems never overlapped perfectly during the last ten years and only a few months of combined draw down are ever seen. As you see above, the largest losing month does not give us even half the profit of the most profitable month and profitable months are overall much more abundant than losing months.

The significance and analysis of this findings is tremedous. The building of these portfolios will allow us to reach higher profit targets with diminished risk and to have worst-case scenarios (double the projected maximum draw down) that are below our profit targets. This could mean that this same porftolio traded with a Risk = 3 would have an average yearly profit near 57% with a maximum draw down near 15.6% and a worst case scenario of about 32%. The use of portfolio trading will become our most important trading tool within Asirikuy and within the next few months several portfolio live accounts both owned by myself and challenge accounts will hopefully be added to Asirikuy.

I am also building a wealth development plan based on combinations of Asirikuy systems (including all systems and different currency pairs) that will be our final test of all these likely long term profitable systems. A plan with regular additions and a 1000 USD initial investment to get to a 5 figure yearly income within 10 years with a worst case scenario below 50% is what I currently have in mind. As you see I am very excited about these developments as the combination of long term profitable systems is proving to be much more than the simple sum of its parts. I hope you are excited as well so feel free to leave any comments, questions or opinions you may have :o).

If you would like to learn more about Asirikuy systems and to begin your journey towards long term profitability 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 !

Monday, May 24, 2010

Making Automated Trading Systems - 6 Tips for Successful System Design

One of the questions I get asked the most is how I come up with and design all my mechanical trading strategies. Several people have wondered how I device my simple criteria for systems and how such simple logic can indeed be successful under today's ever-changing market conditions. However, what fellow traders often don't realize is that my system design is based on some very simple principles anyone could follow to achieve success in automated trading. On today's post I want to give you - fellow traders and system designers - some tips about system design so that you too can benefit from my experience around this area of successful strategy production.

Within the next few paragraphs you will find some very practical tips to help you with you design successful automated trading systems. I am absolutely sure that these tips will help you overcome some of the most prominent obstacles in automated trading, avoiding the mistakes that condemn most people who embark on this journey to failure and frustration. So how can you improve your system design and come up with better and more likely successful strategies the next time you design an expert advisor ? Keep reading to find out !

1. Understand what your system will attempt to do. Most people who attempt system creation often don't understand what their system will be doing. It is not a matter of saying "it will be making money" or "it will follow an MA cross", it is a matter of understanding what the system will attempt to capture and why it has a fundamental reason to work. Having an idea of how the market works and how your strategy exploits an inefficiency of the market is vital for success.

2. Everything must make sense. I cannot tell you how many times I have come up with people who want me to help them program systems that have a ton of indicators they don't even understand. In order to be successful, absolutely every single thing you add must have a reason and the reasons must not be shallow, like "because it filters ranging markets", they have to be clear and mathematically precise. Something like "this indicators helps me detect when price has moved in X direction because the indicator's mathematical meaning shows Y about price..." is more like it.

3. Analyze and analyze deeply. Often traders will attempt to design a system based on a few weeks of forward or live testing or even on just a few months of "visual" backtesting. I can never stress enough that analyzing and testing systems on a statistically significant period is vital for success. I always analyze systems for at least 2-5 years of historical data before I even consider the coding of strategies. Not only does this analysis provide me with information about the system but it also helps me understand the underlying reasons why it does or doesn't work.

4. Do a mathematical expectancy analysis of the entry logic. When you are making a new trading system you always need to know if your expert has potential and what time frame and type of trade your system will be capturing. Doing a mathematical expectancy analysis is vital to get this information. This allows you to know for sure which time frame your system works best on and it gives you a good amount of information regarding the probable successful of your trading strategy.

5. Have simulation reliability in mind. When you are designing your trading system you need to do so with simulation reliability in mind. Being able to carry out reliable backtests is very important when evaluating trading strategies and taking into account this factor when you are programming your system is vital for success. If you program your system with simulation reliability as a main concern chances are that the results you will get will be much more reliable and consistent with live trading results.

6. Have adaptability in mind. Many traders decide to code their strategies with fixed exit target values (like fixed pip values of a TP and a SL) something which is bound to bring your systems to failure as different market conditions start to develop. Considering adaptability from the beginning and including adaptability within your mathematical expectancy analysis is important to guarantee the long term success and profitability of any trading system. If you look at systems that have been historically successful, most - if not all of them - use some for of adaptive exit.

I hope that the above tips help those of you interested in system design achieve better success in your quest towards the development of a useful trading strategy. Obviously there may be other aspects worth considering but this - in my experience - are the most important to know if you want to develop a successful trading strategy. Do you have any other useful tips or information you would like to leave ? Perhaps some personal experience ? Just leave a comment and we'll discuss it together :o)

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

Sunday, May 23, 2010

From Beginner to Successful Trader : How Long Does it Take ?

It is not a secret that most people who begin to search for and study forex trading have the goal of becoming indepedent and successful traders in the long term. However, reality is different in the sense that most people who start their journey in forex trading don't end up as successful traders but as frustrated and tired individuals who sacrificed an important amount of their savings trying to get a grip of forex trading. Is there a magic formula to success ? Is there a quicker or slower way to do things ? On today's article I want to write about this very important question that almost all new traders ask : How long does it take to get from being a new trader to a successful one.

It is not easy to be a successful forex trader (or a trader in general), it requires patience, concentration, time, energy, intelligence and most importantly, it requires a lot of dedication and perseverance. Most people fall for the promises of quick riches and "easy trading" from many online gurus which - truth be told - are most of the time marketers who have not become successful traders themselves. New traders start their journey with high expectations of large profits in small amounts of time something that inevitably ends up with frustration and sometimes even denial as traders find out that trading is not an easy task after acquiring some experience.
But how long does it take for new traders to become successful ? Adding my personal experience to that of several experienced traders I know I can tell you : it depends. First of all, what do we consider success ? If success is having two consecutive years of trading in which any net profit is achieved, then - from what I know from others and experienced myself - it usually takes from 4 to 10 years of trading experience to achieve this goal. If enough capital is available, traders will usually also achieve living from trading within this time period.

What determines fast success or slow success ? Definitely I think that a good answer would be : your ability to learn. Traders who take longer to achieve profitability are more stubborn and less systematic when evaluating their trading performance than people who take shorter periods of time. Usually people who are methodical, have fixed periods of time for trading each day and analyze their trading - either done through manual or automated systems - in a very analytical way are those who can achieve success in the smaller time.

It is also true that this does not come without pain, effort and financial loss. Average profitable traders would have spent around 20K in wiped live accounts and their forex education before they can say "I made a net profit last year". A large majority of the successful traders I know have also wiped their first live account clean during their first year of live trading experience. Those who haven't had close guidance and personal trading from an already successful trader showing how important it is to actually have advice from someone who is truly successful around this field.

I can tell you that - for me - this process took nearly 6 years. A time in which I wiped several live accounts - learned from my mistakes - and kept on going into my journey towards profitable forex trading. Now I can tell you that it was worth it but several thousands of times more diffcult than what peolpe wanted me to believe in the beginning. I had to discover my trading personality, understand the markets (something which is always in progress !) and learn to control my weakneses, which were evident after I started to analyze trades done by myself or my automated trading systems.

So in the end, what determines your success here - in forex trading - is not that different from what determines your success in life. You need to be consistent, analytical and willing to learn from your mistakes and the mistakes of others. If you would like to learn more about forex automated trading, the systems I use to trade and how you too can build your own likely long term profitable systems please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Saturday, May 22, 2010

Revisiting the Turtle Trading System - A Portfolio Performance Analysis

If you have been following my blog for a while then you may be aware of the fact that I have been interested in the development and trading of the Turtle trading system - developed by Richard Denis in the eighties - using automated trading systems. Through the past few years I have made several important developments which began with the simple implementation of systems No.1 and No.2 and the final implementation of the Ayotl trading system which is my fully automated - portfolio enabled - version of the turtle trading system which includes all correlation and trade limiation rules used by the original turtles. Within this post I want to talk to you about my latest analysis of the turtle trading strategy which includes a 10 year performance review of a combined portfolio trading several instruments.

When you analyze the performance of the turtle trading system for the past 10 years (jan 2000 to Jan 2010) on separate instruments things do not appear to look that good for most pairs. The EUR/USD is the only one that gives outstanding results while other pairs seem to struggle to make any profit or even to break even. However I have always been interested in the portfolio character of the turtle trading strategy and analyzing mixed performance along a basket of instruments becomes important to truly know how well positions taken on different pairs at different times affect the depth and extent of draw down cycles.

In what has appeared to be a portfolio centered week (certainly reading the past few posts you will know what I mean !) I decided that it would be great to show you some of the performance characteristics of a combined simulation of the turtle trading system No.2 on the EUR/USD, USD/CHF, GBP/USD, AUD/USD, NZD/USD and USD/JPY. I did not include any correlation or trade limiting rules and all instruments were traded with separate balances with each loss or profit made by an instance affecting exclusively its own position sizing. Using some scripts provided by Asirikuy members (thanks again for all your contributions by the way !) I was able to combine, reorganize and analyze all the backtests as if they were a single trading system. The results, which show us the potential of the Turtle Trading system, are shown below (small table shows largest draw down periods).
The combination of all these different currency pairs generates a portfolio which was able to achieve in simulations an average 21% compounded average yearly profit with a maximum draw down level of 29%. As it is expected, draw down period lengths for this system are large with the biggest draw down period lasting about 4 years from2004 to 2008. However, the inclusion of different currency pairs meant that the trading system was able to preserve equity and avoid further dips under unfavorable market conditions characterized by a lack of well defined rapidly developing trends.

In the end I have to say that these results are encouraging and they point out that the inclusion of the additional portfolio rules may be able to improve profitability even further. Overall the turtle trading system seems to continue to be a reliable and robust trading system which - despite pronounced draw down periods - always seems to be able to come through to the other side regardless of ever-changing market conditions. The fact that trends always eventually develop - as a consequence of crowd behavior - seems to mark the long term success of this trading strategy.

If you would like to learn more about the turtle trading system and how you too can trade Ayotl or learn how to code your own long term profitable 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 !

Friday, May 21, 2010

Strategy Diversification - Higher Profits... Higher Risks ?

If you look into the Asirikuy website, one of the main objectives around my development of automated trading systems is to develop experts we can use to makeup a successful porftolio of long term profitable trading systems. Most traders - new and experienced - believe intuitively that adding several strategies to a portfolio will diminish risk in the sense that the possibility to attain significant draw down levels will be reduced. However, through my experience and analysis of portfolio diversification I have found that - although portfolio trading is great - great care must be taken in both the makeup of the systems and the evaluation of the actual risk levels used to avoid catastrophic loses due to a "massive" portfolio failure. During this post I want to talk a little bit about the things you must take into account when designing a portfolio and how risk must be carefully studied to come up with a reasonable "worst case" scenario.

Why is portfolio trading great ? Well, we all know that having all our eggs in one basket is not so good. When we use a single trading strategy we are exposed to several problems which can be avoided when many different strategies are used. For example, we are not subject to the "hard hand" of the market as when one of our strategies is unable to profit from its set market inefficiencies another one will most likely be able to. So in the end what we get is a diminishment in our market exposure without a reduction in our profitability since - in the end- we will reach the same profit levels on all systems as if we had if we had run them by themselves. There is also a very positive psychological effect of running portfolios in the sense that "someone" will be winning and you will have something good to look at almost all the time. A shield you won't have if you have to endure the draw downs attained by a single trading system.
However, new traders generally take portfolio design too lightly. It is simply not a matter of putting all the systems you can within an account, put a very high risk level and hope for the best. No, it is not about that and that strategy usually leads to account wipeouts and other such problems. You need to make up your portfolio with a very clear plan and knowledge of what you will do when certain scenarios present themselves.

First of all, each separate system must have its OWN risk projections and its own worst case scenario (the point where the system has simply become to risky to continue trading). You need to know into how much draw down each system will go because each draw down will contribute to the overall loses of the account. Second - and most important - you need to calculate your portfolio risk accurately. To do this you need to calculate the sum of all the projected draw downs and have this as your worst-case portfolio scenario.

In the end each system will be able to reach twice its historically worst perfoming point (the worst case individual scenario) and the portfolio's worst scenario will be the addition of all the system's historical maximum risk levels. In the end, systems have a flexibility to reach higher than expected draw downs (which are likely going to happen in the future) and the portfolio will be able to reach larger than expected risk additions since its "worst point" is an addition of draw down. This in turn means that portfolios have a lower risk thresehold than the systems, mainly because they need to reduce risk through diversification -if this doesn't happen - the portfolio is simply not working.

In the end doing this analysis will ensure that you have CLEAR targets for your risk and clear "stops" in your account's loses (since you know when to stop individual systems or the whole portfolio). One of the most important things in trading is to have a plan and trading a portfolio with a previous risk analysis is VITAL for survival. Of course, making sure that each one of the systems used is long term profitable is also of extreme importance and something which will make the success of a trading portfolio much more likely. (for those of you who are Asirikuy members a video will be out this Sunday better explaining a lot about portfolio makeup and analysis).

If you would like to learn more about automated trading systems and how you too can build trading systems to achieve 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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