Thursday, May 6, 2010

Forex Expert Advisors : Forex Photon, an Unbiased Review

Today another new automated trading system called Forex Photon has seen the light. Within this post I will look at this expert's website and I will review its evidence. At first I will analyze the reliability and quality of the evidence provided and I will then see if this evidence is able to backup the author's claims. After doing this I will then do a careful analysis of the trading tactics according to the evidence and I will tell you my opinion about the expert's potential of achieving long term profitability and whether or not this trading system is worth buying and testing. Is the Forex Photon trading system reliable ? Does it have a good like hood of being long term profitable ? I will try to answer these and more questions during the following few paragraphs.

The home page of the forex photon website makes some pretty strong claims about this trading system's profitability. The creators of the system claims the Forex Photon expert advisor to have very low draw down, profitability under any market condition and a very high winning rate, things which are easy to claim but actually very difficult to proof in the long term. They also state that they do "no marketing and no B.S" something which they do seem to try to carry out through the whole page.

When we look at the actual evidence of profitability available we see some very interesting things. We have 10 year backtesting results divided by years for several currency pairs, something which is interesting and actually worth congratulating the Forex Photon team for as they seem to be willing to do everything they can to prove their system's profitability. Nonetheless, this evidence show us some very interesting facts about the system like a risk to reward ratio close to 5:1. It is very interesting to say that systems which have unfavorable risk to reward ratios tend to be sensitive to a decrease in the winning percentage as they need a very high winning ratio to remain break-even or only slightly profitable. The fact that the average closing profit of the system is in the order of 5-6 pips points out that one minute interpolation errors are bound to be very important and the fact that the backtests are done on a 5 minute timeframe does not help either since the small number of reference points makes the highest real achievable modeling quality on this time frame only 50%.

In my experience systems like this usually have a great overestimation of the number of profitable trades and real trading usually shows periods of consecutive or nearly-consecutive loses which end up taking all the system's profitability. Also the fact that the TP is actually so small will make execution variables such as re-quotes, slippage and spread widening vital to evaluate true profitability.

However, the people at Forex Photon seem to know this and they also put up a myfxbook account showing us the "live" performance of Forex Photon. However, it is very worth noting that the live account shown does NOT have its investor access verified, pointing that the statement shown could be manipulated. I urge the people at Forex Photon to get their investor access verified to eliminate this possible doubt. Sadly, since multiple currencies are being used, a back/live testing consistency analysis is not directly possible from the "live" trading data shown. The winning rate on this "live" account seem to be above 83% but the testing period is just too small and simply not statistically relevant in order to think that the system could be long term profitable. A test of about 6 months would be needed in order to compare the trading system with backtesting results and see if the errors within the backtest account for all the experts profitability or if the expert can still remain profitable within live execution.

In the end - eventhough the intentions of the people at Forex Photon seem to be good - the trading system simply cannot prove yet that it has a high like hood of being long term profitable. The backtesting statements of this system, due to the very low timeframe, low TP and high risk to reward ratio are highly unreliable and only tests on live accounts over LONG periods of time can show if this system has or does not have true pontential. Since a high like hood of long term profitability cannot be proven yet, I consider this system not worth buying or testing, since simply there is no reason to believe that very large risks are not being taken as there could - and probably is - a large underestimation of loses in the long term on the backtests. If 6 month - 1 year investor access verified live tests which are directly comparable with backtests are provided then this evaluation could be done and we could accurately determine the actual extent of these problems.

If you would like to learn more about the design of long term profitable systems and how you too can make your own systems that can adapt to changes in market conditions and have a high like hood of withstanding the test of time 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 !

10 comments:

vidhya said...

I am an owner of Forex Photon and I partially disagree with you. Looks like you are trying to upsell your ebook just be saying other systems are not good. Lol. Who said that scalpers do not provide long term profits? Haven't you heard the success of FAP Turbo? The 5:1 risk reward ratio does matter when the Take Profit and Stoploss is high. For 5 pips take profit, the stop loss would just be 25 pips, and for the market relexation you would need atleast 25 pips to take the profit. The live results shown are real. Dont you see the losses that had happened during April. If the Forex Photon team would like to manipulate, they wouldnt have shown the losses at all. RESULTS will speak. we will see it.... I am proud owner of Forex Photon

Daniel said...

Hello Vidhya,

Thank you very much for your comment :o) I understand your opinion and your arguments but they do not contradict what I have said. I have a strong opinion regarding why scalpers cannot be long term profitable (something which is discussed on several posts) which is based on the fact that short term market behavior cannot have long term exploitable market inefficiencies. Regarding FAP turbo, it has been out for 3 years now and I haven't seen a single 3 year investor access verified live test to say that it is long term profitable. Long term, as defined in this site, implies periods of several years of profitable trading.

My problem is more in line with the fact that reliable evidence for long term profitability is not provided. The backtests are not useful in the sense that for small TP values interpolation errors are very significant and these errors are increased when a large risk to reward ratio is used because the TP is far more affected than the SL.

Regarding the live testing results, I am not saying that they are altered but I am saying that the lack of investor access certainly makes this a possibility. The fact that loses are shown does not mean that the statement is real. Obviously anyone would be suspicious of a system with no loses while the elimination of some wouldn't be so apparent to anyone.

I understand why your comment seems angry and I didn't mean to offend you by pointing out my opinion so I apologize if I did so. The post reflects my analysis of the evidence provided and inherent weakneses of this trading system. I believe that in order to purchase a system the evidence provided must be rock solid with back/live testing consistency analysis, 10 year backtests and investor access verified live tests. Show me any system that has this and I will absolutely recommend it and use it myself.

Regarding upselling, I just provide a link for my ebook at the end but I have given some positive reviews for systems which do fulfill a good part of my criteria for long term profitability so it is not true that I do this for marketing. The truth is that the evidence is simply not reliable and sufficient for forex photon and that is a fact. I have also released a free likely long term profitable system called Watukushay FE (you can get it at watukushayfe.blogspot.com) to show my intent to truly help the retail forex trader.

However as I tell you I am happy to redo any review and recommend any system which fulfills a reliable criteria for long term profitability. Provide the evidence and I will do whatever corrections are necessary :o) However while the evidence I will not recommend something that doesn't have the highest possible likehood of being long term profitable.

Anyway, I would like to thank you again for your comment :o) Your opinion is indeed welcome and I always encourage the discussion of my posts. As I tell you, I answer to the evidence provided and when reliable evidence is given I will do the pertitent modifications. When you have the necessary investor access verified live tests and a back/live testing consistency analysis for a 6 month period. I will be very glad to redo this review :o) Meanwhile, my opinion stands.

I wish you the best in your endevours in forex automated trading :o)

Best Regards,

Daniel

vidhya said...

Im back again!!!! :D.

No, its not offending and please do not apologize, its your website and you are providing your opinion.

Coming back to the topic. Do you mean there are not people who have not been profitable by using scalpers? I strongly disagree! I have been trading great for almost 2 1/2 years of success.

Anyway you have been sticking to your point about investor access being verified. I will send an email straight away to their support and lets see what they have to reply. I will paste the entire thing here!!!!!

Thanks
Vidhya

Daniel said...

Hello Vidhya,

Thank you for another comment :o) Once they verify the validity of their account through myfxbook I will rewrite part of the review to include that. If you could also ask them to post a backtest of this exact same period then a live/back testing consistency analysis (although not too long) could be done.

As anyone I am happy to find profitable systems but I am very inflexible when it comes to their proof. Profits and high like hood of long term profitability must be proved through back, live and back/live testing consistency.

Regarding scalping profitability, I would love to see a profitable mechanical scalping system which does give long term profitability so if you have a 2-3 year investor access verified live account it would be great to see it. However as long as I don't see evidence of this being the case I will not reconsider my positions surrounding mechanical scalpers. You can read my post about the 10 reasons why I think scalping mechanical systems cannot be long term profitable here : http://fxreviews.blogspot.com/2010/03/ten-reason-why-using-scalping-systems.html.

Anyway, thank you very much again for your comment :o) I am glad that you are willing to gather evidence from the forex photon people. If you get the investor access verification and the backtesting of that same period to draw the comparison I will definitely redo my review to include that evidence :o).

Best Regards,

Daniel

vidhya said...

Hi,

Forex Photon team seems to be very responsive.

This is the reply I have got

"Hi Vidhya

We see that you would like to know if the Forex Photon results are real or not. Since there were several other requests for the same, we have done the verification and now all the trades are verified in myfxbook. Thank you very much.

Happy Trading

Forex Photon Team"

What next!!!!?

Thanks
Vidhya

Daniel said...

Hello Vidhya,

Thank you for your post :o) That is great ! Now that we know that the trades are indeed real the only thing needed to confirm a high probability of long term profitability is back/live testing consistency. If they can post on their website a backtest of the same period of time as the live test it will be great. I would like to wait till this is done so that I can rewrite the review with everything in mind. Bear in mind that this analysis is VITAL to validate the backtests, otherwise all you have is a short term profitability period which does not say too much about long term performance.

If the system is back/live testing consistent forex photon will be worth recommending. Thanks again for your posts and your effort to help with the gathering of evidence,

Best Regards,

Daniel

vidhya said...

Hi,

I dont think its possible to compare the live results with the backtest for the same period here. Since for LIVE there are 4 pairs running and you cannot be running a consolidated backtest for 4 pairs. I believe you will agree with this. Writing review seems to be easier....... :)

Daniel said...

Hi Vidhya,

Thanks again for your comment :o) At least it would be necessary to have separate backtests for all the pairs for the same period and compare the results.

Please understand that it is not possible for me to recommend a system if backtests are not validates since this is the way in which we know the system has long term profitability. A few months worth of live testing could be profitable/unprofitable for any systems so it is vital to know if the system is able to adapt and survive under varied market conditions through years of testing.

Without the validation of the backtests through a consistency analysis with live tests this system merely has short term profitable results. It could be that the system is going through a temporary profit cycle that will then turn into heavy draw down, something which is very common with systems with such unfavorable risk to reward ratios.

Again, a live/backtesting consistency analysis is VITAL since it allows us to know that the system has a high like hood of surviving to changes in market conditions, without that, the system is simply - in my opinion - not worth buying and testing.

Once they post backtest for the same period of time on their website I will rewrite the review. Meanwhile, there is simply not enough evidence to consider the system LONG term profitable. Thank you very much again for your comments :o)

Best Regards,

Daniel

Vinni said...

Nobody's asking to rewrite your review. From your commetns I can clearly say your point on proving the long term profitability is simply wrong. What are you going to verify by the same period of bactest and LIVE results, and how will you compare it with just 1 pair from backtesting?. This sounds not feasible at all. We will see what those LIVE results produce!!!

End of Story!!!! :)

Daniel said...

Hello Vinni,

Thank you for your comment :o) I would combine all the backtests of the different pairs to show if the same trades as in the live test were taken. If the same trades where taken then the backtest would be validated and we would be able to trust the results of the EA from 2000. This means that we could know if the EA is able to adapt to changes in market conditions, etc. It would take at least FIVE years of live testing to have a statistically significant period of live testing to know if the EA is able to adapt to changing market conditions. Of course, after a 5 year period of live testing we will know for sure but having back/live testing consistency makes the process easier :o)

By the way, this approach is actually based on statistics and achieving as much proof as possible of a high like hood of long term profitability. I am NOT interested in experts that give merely short term results (I am interested in systems for the next 10-20 years) and having evidence for long term profitability is a MUST to know this. Either 10 year backtests with live tests to confirm consistency or at least a 5 year live test will do for me to consider anything worth buying and testing. This approach is based on many years of experience and research in automated trading.

Thanks again for your comment and opinion :o)

Best Regards,

Daniel

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