Saturday, July 31, 2010

Restructuring a Little Bit : New Ebook Update Coming Soon !! :o)

A few weeks ago I talked to you about a pending ebook update I had from almost January and the fact that I wanted to have a new ebook version ready for release to cover some recent developments and ideas which are not covered within the previous versions of the ebook. I have given it a lot of thought and think I have finally figured out what I want from the ebook, the place it will have, what the update will include and when this update will be released. On today's post I want to share with you my views about the ebook and the update, especially about what this update will include and what I want to achieve with it.

Certainly the ebook has always been an important part of this website and Asirikuy since it features all the basic knowledge I believe someone who wants to be successful with automated trading systems should have. The ebook has covered important aspects of automated trading such as the psychology of using mechanical systems, realistic profit and draw down expectations and accurate analysis of trading systems. I believe that this is exactly what the ebook is about, taking the role of the first training part of anyone interested in automated trading solutions.

Thinking about the ebook this way - as an introductory tool - has meant that certain things I wanted to add do not make a lot of sense while others become very important. For example, the development of Kutichiy, Teyacanani and Watukushay No.5 - which is fully detailed in videos available in Asirikuy - is not worth adding within the ebook since the basics of development are well explained in-text for Watukushay No.1 and No.2. However other things such as an introduction to portfolios, draw down analysis and mathematical expectancy do become very important pieces of knowledge any person new to automated trading must have.

Since the ebook will only be offered through an Asirikuy membership I have decided to make it a very good introductory piece to the whole website and the contents available within it so the new sections will focus on introducing new members to important concepts such as the ones mentioned before. I will also make sure I add significant interactions between the ebook and the website such that new members can quickly find and watch videos that compliment or finish the explanation of certain ebook sections. For example, the section on the God's Gift ATR will include information about which videos to watch to understand the entry and exit logic mechanisms for this system.

Sections on new Watukushay systems will not be added, mainly because those experts' coding, logic and development are explained in detail within certain Asirikuy videos so adding text versions of those explanations would seem redundant taking into account all the content currently available within Asirikuy.

However a free ebook will also be released with this new ebook update. This free ebook will contain - as I have mentioned before - a compilation of many of my blogposts detailing some of the basic knowledge people who are very new to automated trading should have as well as a lot of content regarding tips and advice to achieve long term profitability using automated trading. I hope this ebook will become the chief "must read" for people interested in automated trading in the future.

I have set myself August 15th as a deadline for these new updates and contributions so you should expect the release of all this content on or before this date. I would also like to tell you that since a lot of new content, live accounts, etc, have been added to Asirikuy within the past 6 months, there will be a slight price increase (don't worry, only a few dollars :o)) so if you want to get the current price levels I advice you join before the update. Current customers don't have to worry since they will be able to keep their current subscription rates :o). Also previous ebook customers will be able to get the new ebook update although they won't be able to access the videos unless they join Asirikuy (which they will be able to join at the monthly subscription rate without the initial higher payment).

Do you have any opinions, suggestions, ideas, etc you would like to share with me before these updates are released ? Please leave a comment below !

If you would like to learn more about the current ebook and my website 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, July 30, 2010

Watukushay No.5 : An Excellent System Ready for Release

After a few months of testing and development I am glad to announce that the first release candidate for Watukushay No.5 is ready to be traded. Some days ago I talked about the first beta release and how I wanted to explore community based development before releasing the EA and after some limited success with this idea I have found enough profitable results for this system as to release the EA to all Asirikuy members. The release candidate of Watukushay No.5 will be ready for live trading featuring adequate error handling and functional decomposition with high-quality code that will allow us to have reliable and well-executed live trading results. During the next few paragraphs I want to share with you the importance of Watukushay No.5's achievements, a little bit about what I was able to achieve with this system and what it represents to the Asirikuy community.

As I mentioned on the previous post about this expert's beta, Watukushay No.5 is a universal daily breakout system that is able to enter the market on a wide variety of circumstances adapting itself to the inherent characteristics of each different daily breakout it enters. Watukushay No.5 therefore belong to the same family as the turtle trading system and Kutichiy, aiming to profit from directional movements by entering the market after a given price value is broken towards the same side. However, Watukushay No.5 also includes a "fade mechanism" which also allows it to trade against breakouts and increases its flexibility to be profitable on currency pairs where fading certain movements is more profitable than trading the breakouts.

When I released the beta I had found the first EUR/USD profitable settings and I had some preliminary results for other currency pairs. Right now I am proud to say that I have reached profitable settings for this EA on the EUR/USD, USD/CHF, USD/JPY and GBP/USD. This is important since we only have a few systems that are able to trade the 4 majors and Watukushay No.5 will be able to introduce a lot of diversification power through its results on different currency pairs. Adding to this is the fact that the most profitable results (achieving a higher than 2:1 average compounded yearly profit to maximum draw down ratio) belong to the USD/CHF currency pair and NOT to the EUR/USD, giving us the power to diversify greatly against other trading systems like Teyacanani and Watukushay No.2 which achieve excellent results on this currency pair.
Perhaps one of the most important things about this EA is its ability to constitute a viable portfolio on its own. The above image shows you the equity curve with yearly balance restarts (meaning that the internal balance of each instance is reset to the general account balance every 12 months) for Watukushay No.5 when trading the 4 majors at the same time. during the past 10 years. The portfolio of this EA achieves an average compounded yearly profit of 44% coupled with a maximum draw down level of 16% an excellent result only achievable up until now with a few other portfolios.

Despite the fact that all instances trade the same system it seems that maximum draw down periods do not tend to overlap since the different currency pairs are able to exploit their particular breakout inefficiency only under select market conditions that rotate amongst them. This in turn allows the different instances to hedge their draw down periods and achieve the above mentioned results which show this to be the case. Below you can also see the monthly profit chart for the portfolio obtained with 10 year backtests and a 1 year balance restarting technique. The system shows a high population of profitable months with a good number of highly profitable months that ensure the portfolio's draw down remains under control. It is also worth mentioning that Watukushay No.5 was developed with all Watukushay Project principles in mind. The system was therefore developed with great care so that reliable simulations could be achieved.
In summary, Watukushay No.5 is a great addition to Asirikuy featuring profitable results with similar draw down and profit targets on the 4 majors, a milestone achievement for Asirikuy portfolio system development. The system also showed excellent portfolio results, reason why its contributions to our long term profitability are bound to be important. Right now I have opened a poll within the Asirikuy community forum to choose a name for this EA and when the name is ready I will release the system's live trading version coupled with at least 2 account for live testing within Asirikuy.

If you would like to learn more about my journey in system development and how you too can develop your own 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, July 29, 2010

The Dangerous Illusions of Short Term Profits in Forex Trading : An Obstacle Towards Long Term Success

Perhaps one of the most important aspects of currency trading - in my opinion - is the focus in realistic and accurate long term profit and draw down objectives. Nonetheless, through the past several years I have observed that people almost never focus on long term investment and - more often than not - their decisions are based on short term and meaningless results that give them extremely little information about the real trading characteristics of the system they are using. On today's article I want to discuss with you why most people have short term focus, why it is so dangerous to have one and why this is one of the chief reasons why most people will never reach the goal of living from either manual or automated forex trading.

The truth is that in the beginning people want results and they want them as quickly as possible. Since people who are new to currency trading crave for fast results they often choose and run systems that have showed very high profitability during small periods of time. Part of this is the reason why Martingales and scalpers are so successful with new and less experienced forex traders, they show people fast evolving equity curves with little draw down that seem to answer the prayers of people looking forward to making a living from currency trading.

The main problem here is the focus on profits most new traders have while their focus on draw down is extremely limited. New traders often believe that a few months of profitable results mean that the system will be able to reproduce those results infinitely or at least for long enough as to get them a huge amount of profit to ease all their financial worries. When an experienced trader looks into most of these short term results he or she sees a system with a huge market exposure, unsound trading tactics and lack of proper long term analysis that shows the system's reactions under varied market conditions.

In the end what happens is that these new traders neglect to see that they are looking at a short term profitable cycle and that in the long term the risk level they are using will inevitably lead them to a total loss of their trading funds. It is - if you ask me - a matter of having vision and thinking about loses in the long term. The first question I ask myself when I intend to use a new trading system is : What are my loses (draw down periods) going to be in the LONG term (5-10 years) ? Almost all new traders fail to ask this question while they get overly excited about some short term live results which can range from a few months to a year of trading.

What I have seen after this - time after time - is that the EA goes into a draw down cycle and some traders get wipeouts while others freak out and stop trading the system. Traders then start to believe that "automated trading doesn't work" and that "all systems fail as the market changes" while in reality what happens is that they do not understand or know how to evaluate trading systems and how to focus on long term draw down and profitability to truly achieve long term success. What happens is simply that there are no short cuts in forex trading and completely understanding the automated trading systems you are using is vital to succeed with them in the long term.

My advice for you is therefore simple, do not focus on short term results and always understand the inherent characteristics of the trading system you are using. Always know the long term (5-10 year) draw down and profit targets and always understand the depths and lengths of the draw down periods you will encounter. Also have a strong focus on the reliability of the simulations since you can be greatly overestimating profitability and underestimating draw down if your system does not lend itself to accurate simulations. For this reason I always stick to systems that can be reliably simulated which give me accurate draw down and profit targets that allow me to know what I am trading, be confident and know exactly when my systems would have become too risky to be traded.

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

Wednesday, July 28, 2010

Weird Arbitrage Opportunities in Currency Trading : The USD/COP Case

Have you ever dreamed about making money with absolutely no risk of loss in the currency trading market ? Did you think that such opportunities did not exist ? Contrary to most people's belief in the fact that there are absolutely no arbitrage opportunities in currency trading I have personally observed the contrary for perhaps the past ten years in a very weird occurrence that seems to be absolutely particular to the USD/COP currency pair. The COP - or Colombian peso - is the main currency unit of the Colombian government and some extremely weird arbitrage opportunities are presented within Colombia to make substantial profit from USD or EUR exchanges. On today's post I will share with you this very strange case and why it leads to a rare inefficiency which doesn't seem to be present anywhere else.

The USD/COP is what many would call a "strange" currency pair. The pair's spread is usually around 0.1-0.2% of the pair's value and daily fluctuations can go from 2 to 10% of the exchange rate. This sometimes crazy volatility makes trading this pair hard (for anything but long term trading) but it also makes local Colombian currency exchange houses maintain some exchange rates away from the real interbank FX rate when very large fluctuations occur to avoid having strong monetary loses.

What happens here is that a great arbitrage opportunity is created that is actually quite strange. For example in early 2009 the USD/COP went from 1800 to nearly 2600 in a matter of a few months and the local exchange houses kept their exchange rate near 2000-2100 due to the fact that raising the rate to 2600 would cause them loses due to their previous peso reserves against the USD. Since most currency houses lack proper diversification and protection measures they need to eliminate their own loses by keeping exchange rates artificially low (although the time period this lasts is limited).

The opportunity arises since you can go to a currency house, exchange COP for USD at an exchange rate of 2100 then you need to physically take your money to the US (yes, you need to travel) then deposit it into a US bank and withdraw it through a wire transfer to Colombia at the FX rate of 2600. If you think this would have been impossible due to some reason, the fact is that I know several friends and traders who actually did the trip and managed to get 20% profits in a matter of days. I even had a friend who did the trip three times and made a 60% return over his initial "investment". Of course, the arbitrage opportunity is limited by the fact that you can only take 10K USD in cash out of the country legally per trip but it does give you the chance to get some risk-free profit from currency exchanges.

The reasons why this bold inefficiency exists are many but probably both the above exposed lack of proper protection from strong currency moves and the general injection of money from the drug industry into currency exchange houses could make this arbitrage opportunity both a consequence of money laundering and inefficient handling. The fact that a very small percentage of the population has US or EU visas and bank accounts in the US and EU needed to finish the transaction could also explain why this is not exploited to the point where the market is made efficient.

Of course the fact that exploiting such an inefficiency could also be supporting the drug industry has made me refrain from ever taking part in this game but certainly there is an arbitrage opportunity that I know many have taken advantage of to get massive profits when these small windows of opportunity arise every 2-5 years. Definitely a weird occurrence that is worth noting and discussing. If you have any opinions please feel free to leave a comment below :o)

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

Tuesday, July 27, 2010

The Lindencourt Free Daily Forex System : an In-depth Look

A fellow trader emailed me a few days ago asking me if I had ever used the Lindencourt daily trading system which he considered was a very good idea based on the daily time frame that could be used by those people interested in gaining profitability in the long run without dedicating too much time to forex trading. As the strategy was made freely available by the Lindencourt people, my friend was excited about it and asI like strategies that attempt to exploit long term trading opportunities I decided to give this system a shot and see if it was actually worth using in live trading. On today's post I will share with you my journey in the evaluation and use of this system and what conclusions I have drawn from this seemingly simple trading tactic.

First of all, my friend was very excited about the system but he had no answer to any of my questions about the system's fundamental characteristics. What is the system's average risk to reward ratio ? What is the average compounded yearly profit ? What is the maximum draw down ? My friend couldn't answer any of these questions something which made me believe that the analysis the people at Lindencourt did of this system was nothing but superficial and that the long term quality or viability of this system was yet to be proved. I find it amazing how people can trade systems which have trading characteristics they ignore, I could never trade any system without doing a very serious analysis beforehand to see if a) it is long term profitable and b) it has adequate risk and profit targets.

Since the system is absolutely mechanical and clear rules are defined to enter and exit positions I decided that I would code this system into an EA to easily evaluate its 10 year trading performance on a few instruments. I was especially careful to get ALL the logic right and to code everything EXACTLY as it was explained on their website. The first results (shown below, Jun 2000 to Jun 2010 on the EUR/USD) allow us to see that even though the system is indeed profitable during the past 10 years the average compounded yearly profit to maximum draw down ratio is abysmal, almost worse than 1:15. The system therefore will grant you profit in the long term on the EUR/USD but you will have to weather extreme draw down periods that will not be worth the profit you will be getting in the end.
Then when we analyze other currency pairs things turn out to be even worse with most not being long term profitable at all and the few that are having very bad average compounded yearly profit to maximum draw down ratios. For example, the GBP/USD results shown below allow us to see how the system inevitably fails during most of the time only achieving new equity highs a few times during the past 10 years.
It is however particularly interesting to note here that this system has some very profitable periods that may make people tend to think that the underlying logic is very good at capturing daily trending movements. Some profitable runs in almost every year show that the system does have very profitable moments which are sadly followed by draw down periods that almost wipe all the previously achieved success.

The problems with these system are several, a general lack of adaptability and the use of a 100 period EMA to determine trend direction are a few. In the daily time frame the daily 100 EMA is not a great trend direction indicator since price will tend to go towards it a lot of the time, periods in which the EA takes a lot of loses. Another problem of this system are the huge amount of crosses on the Stochastic Oscillator with an 8,3,3 configuration that often lead the system to repetitive whipsaws that cause large loses of equity when the system is trading over the EMA or under a strong consolidation period. Some of these problems are shown below on the GBP/USD ten year backtest.
In the end I believe that the people at Lindencourt only did a very superficial analysis of this trading system that didn't cover a wide arrange of market conditions or a statistically meaningful period of time, if they had done so they would have noticed the poor trading characteristics of this system and the inherent problems with what it attempts to do. This shows - yet again - that having adequate long term profit and draw down targets is an absolute must for the successful trading of any given strategy or system. It is impossible for anyone to trade a system if they do not know its potential for long term profitability, its average compounded yearly profit and the length and depth of draw down periods. Trading a system just because a set of 10-20 trades is profitable or because the logic "looks good" is a big mistake that often contributes to people not achieving their long term profit targets.

The evidence clearly shows that the Lindencourt daily system has some serious flaws and that a strong development effort would be needed to improve the average compounded yearly profit to maximum draw down ratios. However the people of Lindencourt deserve some congratulations for sharing their daily system for free so that adequate analysis over its logic can be done :o).

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

Monday, July 26, 2010

Why There is No Universal System : Differences Between Currency Pairs

Can we build a system that trades successfully on all forex currency pairs ? This has often been a question of the automated trading system world that simply asks if there is a universal inefficiency, an inefficiency that is so common that it can be found an exploited on all different currency pairs. Up until now, the answer to this question has been a resounding and unequivocal NO. To the best of my knowledge no system has ever been developed to work on all currency pairs despite the claims of many system sellers who tell you that you can use their systems on all of them. But why has it been impossible to build such a system ? Why does trading all currency pairs seems like such a big challenge ? The answer lies within the very fabric of the market and the way in which the different currency pairs trade and react. Within the following paragraphs I will explain to you some of the basic aspects of these currency pair differences and why it makes the creation of any universal system extremely hard if not impossible.

You may have been told that inefficiencies in the market arise due to crowd behavior- which is a human characteristic- and that all currency pairs in forex show it to some degree. When you hear this it becomes easy to think that if a system "really works" then it is bound to work on absolutely all the instruments available in the currency market. After all, every instrument is bought and sold by humans and this would make them inherently inefficient.

Certainly if all instruments traded with the exact same number of people and with the exact same objectives we would be able to easily find a universal inefficiency but the matter of fact is that this is not the case. The first dramatic difference between instruments is the number of participants and the inherent liquidity of each currency pair. Some pairs like the EUR/USD are very liquid while others like the GBP/CHF don't have 1/10th of the liquidity of the former so their price action is dramatically different and the inefficiencies within it become dramatically different. The less people who trade a given pair, the more efficient it becomes since crowd behavior becomes less pronounced and individual decisions start to play important roles.

Then we have other differences that also make the movements of currency pairs different. For example if you are trading the USD/JPY and there is a negative trade balance against Japan then there will be a given fixed amount of money each month that will pull the USD against the JPY just merely because of business transactions that have nothing to do with speculation. The volume of these transactions is very significant and the time in which they are processed and their magnitude will have an impact on the way in which a pair moves.

Many other factors such as central bank intervention and even cultural differences play an important role in the way in which a pair moves when compared to another and all of these factors help to explain why the finding of universal inefficiencies is so hard. However when you look at higher time frames (daily and beyond) there seems to be some coherence and this is the reason why some systems that target month or year long trends manage to exploit the same inefficiency on several different currency pairs. However the success of these systems along the whole portfolio is never total and more often than not there are very strong differences between the profitability of different currency pairs and several pairs where the systems simply do not work.

So will we ever find a global and total inefficiency ? I would have to say that probably no, but if there is a chance it will take a lot more liquidity on all instruments and a lot more market participants to make this the case. Certainly in the future if the market volume on the illiquid currency pairs increases enough we might be able to have - even though not a truly universal system - at least systems that will have better success along different currency pairs.

If you would like to learn more about system development and how you too can build your own 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 !

Sunday, July 25, 2010

Why Catastrophic Losses in Forex are Always Possible : A Look at the Forex Worst-Case Scenario

It is very common for people new to forex trading to consider that forex trading can be traded with little or no risk when adequate precautions are taken into account. However these people often miss to understand that the forex market is a high-risk playground for many reasons beyond the thousands of rookies who wipe their accounts everyday. Trading in general is considered high risk because there is always the possibility to have a total account loss, regardless of the use of a stop loss or other mechanisms that may act as a way to protect you from the market. On today's post I will be talking to you about the worst-case forex scenario and why having an open position exposes you to an account wipe-out regardless of your protection mechanism and your money management. However you will see that such a scenario is - although possible - extremely unlikely.

The first thing we are told when we start our trading journey is that the stop loss is our way of protecting our equity from further loses. You start to think - Well, if price moves against me it won't matter because I will never lose more than the SL - and for the bast majority of cases you are in fact right, a stop loss will protect your account from further losses since when price reaches the SL your order will be automatically exit. However you also have to realize that the SL is NOT a fail-safe mechanism and that there are particular occurrences when the placement of an SL will not guarantee the accurate exit of your position.

Why wouldn't an SL work ? The fact is that a Stop Loss order merely tells your broker to exit at the first price that is equal to or worse than the value of the Stop Loss. This means that your broker is only able to execute the SL order on an existing price level which is generally not a problem since the forex market is for most purposes gap free. However if price decides to gap beyond your SL your broker will make you exit your position at the first available price worse than your SL which in some cases can be very far away.

The most common occurrence of this happening is when you leave trades opened through the weekend since this is where gaps are predicted to happen, however more often than not you will find that systems actually benefit from trading on Friday, even if you take into account "worse than expected" Stop Loss cases as additional loses (the seemingly "irrational fear" of over the week trading is something I will discuss later). However the absolute worst case is when gaps develop during the trading week due to very surprising news announcements. For example, an NFP release a few years ago made the GBP/USD gap a whole 200 pips during Friday. If you had been trading at the wrong side of the trade with an SL you could have probably experienced a slippage of 200-300 pips which could have caused a margin call if your risk management was actually very poor.

If you believe that you can avoid this by not trading important news then you are also wrong since black swan evens (rare unpredictable news or events like September 11 or a surprising rate hike during an emergency meeting) can also cause such gaps that will wipe your account. So the answer is clearly that whenever you have an open position, no matter what your SL is, there is always a certain gap that can develop that could potentially wipe you out.

The best way to protect yourself from this worst-case scenarios is to have several accounts and to use trading systems that aim to capture large movements. It would take a gap of more than 1000-2000 pips to wipe an account that risks 1% with a 100% ATR stop loss or a similar large value, such gaps have never happened and - even though possible - chances are that if they ever do they will signal an extreme and fast change in world wide conditions which - if adequate diversification is used - would allow you to exit with only a partial loss of your capital (just losing those accounts which have positions opened against the gap).

Many people would rather avoid the news and the weekends but in my experience and after careful evaluation this has had a negative effect on the performance of my trading systems almost all the time, even when taking into account "worse than expected" SL values. In the end news and over the week trading contributes some good signals in the long term that eventually lead to a loss of profitability when they are removed. So do not look at filters as answers, since this is the wrong way of approaching the situation but build systems that take into account these rare market occurrences so that in the long term their statistical meaning will not be very large.

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

Saturday, July 24, 2010

Trading a Martingale Based on Backtests : A VERY Dangerous Road

During the past few months I have sadly seen a great increase in the number of Martingale systems flowing around on the internet and their use by new and inexperienced traders. I have also seen some people testing and using Martingale systems with great hope and some with what seem to be some very good results. Many of these people who use Martingales or systems with progressive money management seem to rely on backtesting results to test their theories and sometimes they claim that a 10 year backtest in which no wipeouts happen is "good enough" to consider a Martingale worth running on a live account since it is inherently "safe". Within the next few paragraphs you will see why this way of approaching Martingale trading is terribly dangerous and why people approaching trading in this manner are bound - sooner or later - to wipe out accounts and face the truth about progressive money management, in the end it never works.

The argument here seems to be pretty simple. You know that Martingale systems are dangerous but if you can get a 10 year backtests that shows no wipeouts it means that you are safe, right ? If during such a long trading period and such a varied array of market conditions your system survives then everything should be Okay. The truth is that there a few VERY large pitfalls to this approach.

The first problem with the backtesting of Martingale systems is that there is an inherent error in every backtesting result which can be explained in technical aspects of both the backtesting mechanism and the market itself. A 10 year backtest only gives you an approximation of the results during the past 10 years because - in reality - things like spread widening, requotes, broker differences and the absence of one minute interpolation would have made the results different to some extent.

In the case of Martingale and progressive money management systems the problem is that a very small error in the backtests can make the whole difference between wipeout and survival. Imagine that you have a Martingale system that wipes an account with 7 consecutive loses and the account achieves a maximum of 5 in a 10 year backtest. Now if the system only had 2 additional consecutive loses on any of those losing periods the account would have been wiped. While an addition of 2 consecutive loses to a given trading period for a trading system designed on sound principles is minimal, the effect on a Martingale or progressive money management system is bound to be devastating.

In the end the limitations of simulations make the "certainty of safeness" of any Martingale system a lie since the actual errors and limitations of the simulations are not only important but actually most likely determinant towards the evaluation of systems that are so sensitive to small increases in the number of consecutive loses. In reality, all trading systems are bound to be facing anything between one to three times the number of consecutive loses they have given in historical testing and this makes progressive money management systems always reach wipeouts in real trading.

To sum it up, using Martingales based on backtesting is a VERY dangerous thing to do due to the limitations of the simulations. In the end, ALL martingales are bound to wipe their accounts in the long term. This is a statistical certainty which does not change, no matter what short term results show or what simulations may appear to be telling you. It comes back to the old saying, there are bold and old traders but there are no old bold traders.

If you would like to learn more about the development of trading systems and how you too can design and trade your own systems based on sound money management techniques 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, July 23, 2010

Five Automated Trading Myths : Clearing Up Some General Misconceptions

In general I feel a little bit sad when I read every new expert advisor website because I know from experience that most of the things they say about automated trading are simply lies. I think that people believe these sellers due to their desire to find an easy and quick way to build riches but in the end when doing so they only achieve further frustration and financial loss. I feel that after having some years of experience with automated trading - particularly with the metatrader platform - I can now point out some of the "general myths" surrounding automated trading systems (both good and bad) and what I have found out to be the truth behind them and the actual reality behind all the hype or misinformation.

Within the next few paragraphs I will talk to you about what I consider to be the most prominent five myths that have surfaced in automated trading, what is true about them and what is totally false. I will do my best to be bluntly honest in the hopes that my efforts will help those of you who are looking for answers realize what the actual reality behind automated trading - from someone who works at it full time - actually is. So get ready and keep on reading to see what this five BIG automated trading myths actually are.

Myth One. You can be profitable with automated trading even if you don't know anything about forex trading. This is a very common thing EA sellers say and it is the main reason why most people approach automated trading. You feel you don't have enough time or knowledge and you want to trade like a pro so you simply load the EA and it will make you rich ? right ? The truth is that it won't because understanding what the system does is vital for your success. If you don't know the system how will you know if it has become too risky ? How will you know if it uses a sound trading strategy ? How will you know that it is likely to work for the next 10 years and not the next 10 days only ?

Myth Two. There is no emotion in automated trading. This is absolutely false since YOU are deciding if the trading system runs or gets stopped, as a matter of fact automated trading is FILLED with emotions because you are a human and you are making the decision of whether or not to run the strategy. When the strategy goes into draw down you will have emotions of fear and when it goes into profit you will experience greed. There IS A LOT of emotions and psychology in automated trading and ignoring that is a sure path towards failure. Learning to understand these emotions and dealing with draw down and profit periods rationally through analysis and understanding of systems is therefore VITAL for success.

Myth Three. Automated trading systems always stop working as the market changes. This is one of the most common myths amongst those people who have had some experience with automated trading systems and saw that they made some profit and then went into draw down. This myth is in fact a consequence of a general lack of understanding about trading systems and the cycles they go through. I have shown during the past few years (certain long term trading systems like the turtle trading system have shown through the past 3 decades) that a system can keep on working if it adapts to the markets as they change through some simple criteria. So in reality many system will in fact "stop working" as the market changes (they will become extremely risky) but others have shown that through the use of simple adaptive criteria they can survive a WIDE variety of market conditions.

Myth Four. Automated trading system do not work. Again, this is generally a myth that has been put up by those people who have failed to achieve success with algorithmic trading systems. Usually these are people who have gone out, bought commercial experts, expected holy grails and got a load of account-wiping and unsound trading systems that got them nowhere. Automated trading systems do work and the fact that I have been able to achieve a living from them proves this point. It is not that these systems do not work, it is that adequate analysis, expectations and knowledge are necessary to create them and use them properly to achieve long term success. The use of sound techniques, strong reliable evaluation and general long term outlook are vital to achieve success.

Myth Five. If automated trading worked, everybody would be doing it. This is generally one of the first things people who are unfamiliar with the whole world of automated trading ask me. If what you do is simply execute some code into a computer then why couldn't the whole world do this to achieve profitability ? The answer lies in the fact that automated trading systems that are likely to be long term profitable are EXTREMELY difficult to trade. You would think that this is not so bad but in reality only few people can have the confidence and understanding to deal with the draw down periods (which are often long and deep) inherent to the actual trading systems that do make an eventual profit. Donchian channel systems have been out there for 40+ years and have proven to succeed under extremely varied conditions, yet few people ever use them because of the above mentioned reasons.

In the end automated trading is no different than manual trading. It is not a shortcut and it is not an easy way to do things, nonetheless it is also not an impossible thing to do to be profitable. Automated trading - as manual trading - is psychologically demanding, requires extensive knowledge about what you are doing and allows you to achieve realistic profit targets when you do things the right way. Sadly succeeding in automated trading is not something most people can do and the reasons are mainly within the above five myths. Most people simply tackle this as an effortless way to get rich and they do not want to do the actual effort to get a profit and a "down to earth" perspective about what can and cannot be done in trading.

Hopefully some traders in the end realize that it is not easy but that it is doable and they are willing to do the effort and go through the learning process necessary to get there. If you would like to learn more about educating yourself around automated trading and how you too can build systems around sound trading techniques that are likely to be long term profitable please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Thursday, July 22, 2010

The Greatest Advantage of Automated Trading, at Least for Me !

It is true that my posts regarding automated trading are generally focused towards the negative aspects of this way of trading and explaining why it is bound to be harder to achieve than simple manual profitable trading. However, there are a few advantages inherent to automated trading that have made it my operational way of choice and the generator of the majority of my current income level. Within the next few paragraphs I will be explaining to you one of the main reasons why I decided to use automated instead of manual trading systems to succeed in forex trading, especially why this is so beneficial for my trading style and personality. I will also tell you why this quality is also a double edged sword and why it does NOT mean that you can just "set and forget" trading systems.

Yes, we have all heard the many "benefits" inherent to automated trading. Most EA sellers just tell you that you can make money while you sleep, trade like a professional without knowing anything and simply enjoy the profits using the forex market like some sort of ATM machine. The truth is VERY far away from this and automated trading is simply not what they tell you it is. In reality automated trading is harder to achieve than manual profitable trading and it is as challenging and demanding from a psychological point of view.

What is the difference then ? What are the TRUE advantages of automated trading ? In reality automated trading has a lot of pitfalls but it also has some great advantages that made me decide to go with it instead of regular full time manual trading when starting to build my forex trading career.

Truth be told, the fact that you are able to watch the markets 24/7 and "not miss any trades" or do a "ton of analysis in a millisecond" were not the things that made me choose this way of trading over manual execution. Even though you may think that this is actually better the fact is that you can use manual trading systems that require only a few minutes every day to achieve the same profitability levels as a regular long term profitable automated trading system. I know traders who trade daily charts and don't spend much time "working" and achieve the same profit targets as me so the fact that you can just have an ever-watchful eye is not a true reason to choose automated over manual trading since being on a constant lookout for trading opportunities is not necessary nor does it warranty more success in trading.

The most important reason that drove me to use automated instead of manual trading systems was simply that - from a psychological point of view - I am better able to control my short term emotions when I do not have to take the actual trades of the systems I am using. I am very good at dealing with draw down periods since I always have a strong analysis and long term perspective but having to take trades from a strategy that has been losing for a given period of time manually is just psychologically hard for me to do. As a trader, I quickly noticed that draw down periods when trading manually made me change my strategy and this led to long term loses and deviations from my projected profit and draw down targets.

Automated trading is a blessing in the sense that it offers me the ability to have a long term plan and stick to its guidelines even if I am not actually personally executing each position the system goes into. Of course this does NOT mean that automated trading is emotionless and those of you who assume this to be the case will be making a BIG mistake. Automated trading attacks your psychology a LOT but from a different perspective. If you don't understand the system you are using you will not be successful because you will not know if you should or shouldn't stop using a given trading system when a draw down period happens, you will constantly wonder if it has stopped working and you will NOT be able to achieve long term profitability.

Even though automated trading is very demanding emotionally, it is demanding in a way which I am more comfortable with. I am very meticulous about the analysis and understanding of my trading systems and I have built what I think is a very good capacity to draw plans around automated trading systems and stick to them. Manual trading is demanding for me in a way that I cannot handle very well, reason why automated trading became the perfect answer for my question about success in forex trading.

So for me not having to personally suffer through each trade of my systems is great since I am better able to handle the great psychological pressure that is exerted by automated trading systems in other ways. However what you have to realize here is that whatever you choose -manual or automated trading -, it will be challenging and believing that automated trading will be a "breeze" simply because you don't have to watch and take every trade is going to be a FATAL mistake. In the end it comes down to having a well laid out plan, a GREAT understanding of your trading strategy and the will to execute your plan exactly as you have laid it out.

If you would like to learn more about the psychology of automated trading, the building of systems and how you can trade with confidence with a likely long term profitable system YOU build 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 !

Wednesday, July 21, 2010

The Animal Kingdom of Traders : Where are you in the Food Chain ?

Last week while I was playing with a little hamster it came to my mind that there are several different levels of experience and development in forex trading that are much alike the positions of animals within the food chain. I gave this a little bit more thought and I came up with a small classification system that uses several animal figures to point out the main characteristics of the different phases a person goes through when starting a long term journey in forex trading. I realized that each different stage has its strengths and weaknesses and that evolving towards the next one is merely a matter of overcoming the problems that arise due to the nature of each particular phase. On today's post I want to share with you my "animal kingdom" classification system in which I attempted to give a "scale" of evolution within forex trading. Where are you on this "animal kingdom"? Keep reading to find out !

I have never seen any "trader evolution" classification system that shows you what traders generally go through and what the general process looks like, for this reason I believe my "animal kingdom" system has value as it will allow you to see where you are within the "food chain" and it may also give you hints on what you should do to evolve towards the next level. It is also worth mentioning that I considered both traders far less and far more experienced than me in building this scheme and even though I consider I have advanced significantly, I still have a lot of way to go to reach the top. I will now tell you how I classified the different stages of trader development and what makes up each one.

Level 1, the rabbit. I thought I would start my classification level with rabbits since they are near the bottom of the real food chain. People who are in the rabbit stage of trading have just heard of trading or they have very limited trading experience. If you have never had a live account, you don't understand how to calculate risk and you don't know what a contract size is you are probably in the "rabbit stage" of trader development.
Level 2, the hamster. These furry and cute little animals are extremely curious and eager to explore although this sometimes may put them in harms way. People within the hamster stage of trader development have little knowledge and they believe very unsound profit targets (like a sustained 100% average yearly return or higher) are possible with very low risk. Hamsters already have their first live account but they don't have any trading system or methodology, they are playing the field and looking for a system or strategy to use.
Level 3, the guinea pig. If you have had a live account for a few weeks and you have traded demo for quite a bit you are probably within the guinea pig phase. I called it this way because traders in this stage get into strategies that are absolutely unsound and bound to wipe their accounts. Guinea pig traders start to get scalpers, martingales, grid systems, etc in the search for a system that achieves the unrealistic returns they hope for. Traders within this phase generally end up wiping accounts or they switch continuously from system to system hoping that "the right one" will eventually come.
Level 4, the ferret. If a trader survives the above stage in which unsound trading strategies are the norm, he or she may realize that the real profit lies around the application of sound trading principles with strong money management over the long term. Even though a trader within the ferret phase may still not be profitable, the inherent realization that there is now a path to follow makes this stage very important. If you have started a live account to trade a strategy with sound trading principles with a long term trade perspective then you probably belong here. (if you still think those "wild 10000%" profits are possible then you are still on level 3) :o).
Level 5, the dog. Traders who have done a year of live trading who have got some profitable results with controlled risks and sound trading tactics have now started their journey into profitable territory, they are now predators in the food chain. A trader in the dog phase now understands that draw downs are a part of profitable trading but there still may have some issues dealing with the psychological aspects of trading.
Level 6, the lion. If a trader has been able to achieve more than a year of profitable trading with any system and also more than a year of profitable trading with a system of his or her own personal design then he or she enters the lion stage. Within this period not only does the trader know what realistic profit and draw down targets are but he or she knows enough about how the market works and the exploitation of inefficiencies to make up his or her own systems based on this knowledge.
Level 6, the tiger. After three years of profitable live trading tiger traders now have a very good grasp about the market and how to systematically exploit inefficiencies in the long term. Tiger traders no longer concern themselves with unrealistic expectations of any sort but they now have long term risk and profit projection based on their own trading. Traders within the tiger phase have a domain over draw down periods and they can trade with almost no emotional ties. Getting to be a tiger is extremely difficult and a position reserved only for the very small percentage that can actually get through the first 4 levels.
Level 7, the elephant. After ten years of profitable trading an elephant trader is now what could be considered a full mentor or "guru" in the field of trading. Traders who have reached this point have a very good grasp of market action, they can effectively build and design trading systems and they have trading systems that have been in place for years achieving profits through the systematical exploitation of inefficiencies. Elephant traders have seen the good and the bad times and it is very likely that they will be able to trade their systems through a large variety of circumstances.

Of course, my classification system is not absolutely dogmatic and I just considered it a fun exercise to better gauge where we are relative to the progress scale in forex trading and what things we may want to do to evolve towards the most desirable "elephant position". Evidently you may agree or disagree with the classification given but this are in general the stages I consider people go through when dealing with trading. Sadly few people will ever become "ferrets" and even fewer will ever be "elephants", however if you are a "rabbit", "hamster" or "guinea pig" you can always work, learn and do the effort to move up in the food chain and stop being the meal for the "higher predators" in the forex market :o).

Where do you think you are in the above scale ? are you already a predator ? do you think another level should be added ? Feel free to leave a comment to discuss my "animal kingdom" classification system :o) If you would like to learn more about my journey in trading and how you can get a true education about the development of likely long term profitable systems please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Tuesday, July 20, 2010

Becoming Successful in Forex When There is NO Time : Tips for the Family Guy with a Full Time Job - Part No.2

On yesterday's post we talked about the disadvantages people have when they attempt to become full time forex traders or even simply successful traders when they have full time jobs and families that take up substantial amounts of their time. Near the end of the post I pointed out that patience and a long term look are bound to be absolutely important to the success of a person in this situation and I also said that exploiting strengths and reducing weaknesses was also an important part of this journey. On today's post I will elaborate on the more practical aspects of this advice and I will lay out a plan that you - as a person with a full time job and family - can follow to become successful in forex trading in the long term.

Many of you may be asking how I came up with such a plan if I don't have a full time job nor a few kids to make my life a lot more complicated. The truth is that even though this is not the case my advantage is that I know what has to be done to become a successful trader even if I did not do it from the above mentioned situation. This has allowed me to extrapolate what I learned to device a plan for people in such a situation. Of course, I would not bother to tell you this plan if I had not put it into practice before, something I have been doing for a while with a friend who has a wife, two kids and a full time job. For the past year this friend has been executing my plan to the letter and his results have been very good - a positive evolution towards a long term profitable trading outcome. Certainly he is not even close to quitting his day job but he made profit this year and did not wipe his account (a true achievement for having such a small amount of time !).

What was the plan he followed ? When he asked me to help him become a successful trader I told him about all the disadvantages I talked about in yesterday's post and I said to him that he had to approach trading in a very particular way to achieve success. Since I knew he had no clue about what he needed to do I laid out a plan for him so that he could go towards long term success in trading with under 5 hours of work each week. This is what I advised him to do :

Forget about short term trading, to trade one hour charts you need to stay at least 5-8 hours a day in front of your computer, to trade even smaller time frames you need even more time. If you attempt to trade short term charts when you get home tired at night you will definitely only get frustrated and lose.

Learning is the top priority, understanding what you are doing is the most important part of trading success. I told him to dedicate 2 hours each week to go through learning material and through its application. I encourage him to read classical book in currency trading and technical analysis and to actually PUT that knowledge in practice over visual backtests of at least 5 years of data. Often people read a lot but they fail to apply the concepts and knowledge they acquire.

Daily trading systems, perhaps one of the most important things I told him to do was to start trading daily systems and STICK with them. I encourage him to do evaluations of several different daily systems and to stick to those that had profitable long term results. He ended up trading a very simple MA cross based system on the EUR/USD. One pair, one decision each day, efficient, trend following trading.

Keep a journal. I told him that keeping a detailed journal of his trades was VITAL. Since the system traded once every few weeks it was actually quite easy to do this and visual backtesting analysis of his systems became CLEAR.

Learn to program. I said that evaluation is a significant part of success and that coding was an important thing to speed up evaluation. I insisted that he spent one "learning session" every month to learn how to code on mql4. The result was that after a few months he was able to start coding and backtesting his simple daily trading strategies.

Profits, for now, do not matter. When you start trading everything seems to be about the profits. I told him that profits are the reward for learning and that the first thing you wanted to do was learn and then profits would come. I advised him to just trade the systems he designed and evaluated without concerning himself with "last trade was a winner or a loser" or "I have lost all the trades".

So to sum it up, what you need to do is to approach trading in a way that exploits your strengths (your willingness to become a successful trader) and diminishes your weaknesses (lack of time). Putting a very strong emphasis on education and focusing on the evaluation and trading of daily strategies seems to be the best way for people who have "very busy lives" to start to become successful traders. Certainly it will take a few years to get there but the road is much easier, much clearer and much more rewarding than attempting to trade at a play field where you will most likely lose. By using systems that require little baby sitting and just a few quick minutes of analysis my friend was able to go from not trading at all to becoming at least a person in a clear path towards long term profitability in forex trading.

I hope that the above article has been helpful to all of you who are facing this situation of wanting to become successful trades with little time to do so :o) If you would like to learn more about automated trading systems and how they can be used to achieve profits in trading through understanding and sound design 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, July 19, 2010

Becoming Successful in Forex When There is NO Time : Tips for the Family Guy with a Full Time Job - Part No.1

From my perspective it has been absolutely clear for the past several years that being successful in forex trading is a matter of effort, dedication, patience and endurance, it has been hard for me but I have been able to achieve most of my goals in this aggressive and unforgiving market. However one of the things I often do not consider is that most people who want to become successful traders make this decision at a point in their lives where they have almost no time at all to trade. Sure, it wasn't as hard for me to do this since I took this decision when I had a lot of time and I was able to make the change from university graduate to full time forex trader with almost no break. However many of the people who want to become successful traders already have families and full time jobs. On today and tomorrow's posts I will talk about the problems of having no time, why this probably will lead to failure and how you can implement some ideas and tips to "change the balance" and achieve success when time is a very scarce commodity.

Okay, so you are a full time worker with a family, a few kids and a ton of responsibilities that are -obviously - more important than forex trading. For you trading is probably a hobby and something you do on your free time because you like it but certainly you would like to become a full time trader or have a retirement fund sometime in the future. To tell you the truth, you are at an absolutely horrible disadvantage when compared with almost all other market players since you probably trade late at nights when you are tired and you have your mind worried with another million things, you are probably trading out of emotion most of the time and - truth be told - you are paving your way towards a few account wipe outs and disappointment as you are not tackling the problem in the right way.

Sure, you are thinking automated trading systems are the answer since a robot can trade while you work or do other things with your family. However the simple truth is that you are as likely to fail with automated trading systems as you are with manual systems if you do not dedicate time to educate yourself and to truly understand how they work. I have highlighted on several previous posts why people are generally not capable of trading long term profitable systems and you will certainly fail to do this if you just want to use them in a "set and forget" fashion.

The truth is that you are in one of the worst possible positions and succeeding in forex trading either through automated or manual systems will be a lot harder for you than what it is for others out there. For example, you are competing with a lot of people who do this for a living and with people who have a ton more time to devote to trading (retired people for example) on top of this you have the problem of having the pressure to be efficient with your money and probably your partner will question your investments in this "doubtful endeavor" instead of some more traditional investments or some other expenses.

What you need to do right now is to shift the balance in your favor so that you can decrease your weakness and increase your strengths. It will be extremely important for you to be patient and for you to realize that success will NOT come from night to day but it will probably take years before you are able to achieve good results. For a person in your position it is very important to understand that approaching trading in a different fashion than the one shown by most commercial EA or system sellers out there is not only important but crucial to your long term success.

Now that we have learned what puts people in these situation in such a disadvantage we can start to look at how this can be fixed and how it is actually possible for full time workers with families to become successful forex traders. On tomorrow's post I will talk to you about a well laid out plan and some tips you can use so that you can start to get your act together and evolve towards a path of long term success in forex automated trading.

If you would like to learn more about my personal journey in automated trading and how you too can educate yourself around automated trading systems and how to succeed with them 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, July 18, 2010

Leaving For the Caribbean my First Forex Trading Paid Vacation :o)

This is a very special day for me since later today I will be leaving for my first fully forex-paid vacation (tomorrow is my birthday so I will be spending it there, yey !!). This is a very important achievement for me in the sense that it is a sign that my goal of "trading for a living" has become a sustainable reality and after a long time of constant effort I can now spend a few days to relax and enjoy with my girlfriend along a wonderful Caribbean island beach. Today I wanted to take some time to tell you about what will happen while I am gone with Asirikuy and this website as well as sharing with you some of the details of my journey and where I will be heading.
I will be leaving from today till July the 23rd so those of you who are Asirikuy members should not worry about videos or newsletters since this week's material has already been uploaded and next week's will be when I come back (since I will come back on Friday I'll be able to get everything done by Sunday). However while I am gone I will be absolutely disconnected from the modern world so I won't be checking my email or even getting near a computer during that time so any questions, inquiries, etc will have to be delayed until I come back. However feel free to email me and I'll reply when I return. Of course this will also mean that all purchase links will be deactivated until I come back so if you were planning on signing up to Asirikuy or getting the ebook please wait till the 23rd to do so :o)

Regarding VPS, trading accounts, etc I have left everything in charge of a fellow trader I fully trust and hopefully there will be no problems whatsoever. However if there are any he will fix them as promptly as I would. It is probable that some Asirikuy live accounts will also stop updating through the week as the publisher sometimes gets stuck but I'll make sure I reset things when I come back on Friday so that we can have accurate values in myfxbook for next week's expert advisor analysis.

I have also written five posts in advance for the blog so those of you who visit daily will be able to benefit from 5 hopefully interesting articles during this week. Of course since I moderate comments personally to avoid spam you will have to wait until I come back for any of them to show up but feel free to comment anyway and I'll make sure I answer your questions and remarks upon my return.

Regarding where I am going, it is an island called San Andres, near the country of Nicaragua (images shown above). It has some of those white sand Caribbean beaches coupled with the warmth and hospitality that has always characterized people who live around this beautiful sea. I am definitely looking forward to some long sun bathing and some marathon eating sessions that will probably have me weighting a few pounds more when I come back. My girlfriend was a professional swimmer so certainly we will have some fun scuba diving and she will definitely have a blast humiliating me in swimming races :o)

Anyway, I'll be leaving and when I come back there will be a ton of things happening in Asirikuy and on this website. Before August 15th I will be releasing the next ebook update (which is almost a full remake) and the free ebook containing many of this blog's posts. So many exciting things will happen and hopefully I'll count on you - my faithful blog reader - to enjoy this journey with me :o)

Saturday, July 17, 2010

Getting the Right Mind Set : Distinguishing Between Expenses and Failures

Certainly when people start to get into forex trading every little trade that doesn't go their way seems like a gigantic failure. Definitely the reasons why this is the case are many but perhaps the most important one is that new traders do not have an approach to trading that lets them make the distinction between what is a failure and what is a normal trade that simply went wrong when everything was done "by the book". On today's post I will be talking about the distinction between trades that fail and trades that lose, I will define each one and I will attempt to give you some guidelines so that you can change your mindset and start approaching trading from a more business like perspective. Hopefully after reading this post you will apply this to your trading and you will find out that most of your so called "failures" are just business expenses while many of your profitable trades, are just failures.

Cataloging trades that go "wrong" and end up in losing territory as failures is easy because when we lose money we tend to feel like losers. It is therefore very normal to consider losing trades failures in the beginning. However after you have been trading for a while it becomes obvious that losing is an inherent part of long term profitable trading and that learning to catalogue losing trades differently is important to approach trading with the right mindset. In reality, when every trade is placed there is a natural probability that it may turn out to be a loser (the trade's market exposure) and therefore when you execute everything as planned and you lose, it is just a temporary consequence of your strategy.

When you approach trading like a business, this becomes a business expense and the trade become a triumph since you planned you trade and traded your plan. This in turn makes it easier to deal with losing trades since you approach them in a very non-emotional way, simply as some temporary events that will lead to some future profitability. Therefore losing trades that are a consequence of a well laid out plan with accurate long term profit and draw down targets are not failures, they are just part of your business model.
Failures - on the other hand - are all the trades you take that deviate from your business plan. When you intervene with your plan and make emotional changes to your trading methodology or system you are indeed failing at trading because you are moving away from your "business model". If you made a trade in which you took a decision that generated a lot of profit but that decision led to a road where the long term probability of success was unknown then you have failed because what you obtained was some profit out of some luck. Long term survival in forex trading is about having a plan and executing the plan to get to where you want to be, any deviations from the plan are failures since they lead you a road of unpredictability and uncertainty that will end up with failure.

In order to trade forex successfully I focus on trading as a business and on the trades taken by my systems as a business plan. Any losing trades that happen are merely "business expenses" and all of them are triumphs in the sense that they represent my confidence in the strategy and the business plan. I now understand that any action I take that may intervene with my strategies will deviate me from my long term profitability objective and this for me has become unacceptable since these changes constitute failures of what I want to achieve.

So in the end, loses are a natural part of trading and they will always be there. Dealing with loses is something which is naturally hard to do but you should be able to make the distinction and take loses that are part of a well laid out plan as business expenses while those trades that get you to uncharted territory should be regarded as failures. This mindset will get you on a track of long term thinking and understanding that will ultimately lead to long term profitable trading.

If you would like to learn more about automated trading systems and how you too could use them to succeed in forex trading by building your own systems with reliable trading tactics and accurate risk and profit targets please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Friday, July 16, 2010

Does Hedging (on the same currency pair) Really Exist ? A Look at Position Holding in Forex Trading

One of the things I consider the funniest about forex traders is that they seem to have a strong opposition against the removal of "hedging" from their trading capacity. However few of them do realize that the traditional hedging we have seen where you buy and sell a given currency pair at the same time is merely and illusion and that in reality it doesn't exist or -for that matter- make any real sense. On today's post I want to talk about the concept of hedging, why it simply doesn't exist in reality and why any strategy that uses this concept can be implemented without its use. After reading this post you will understand better that hedging a currency pair by having open long and short positions at the same time is not possible in the real market and you 'll see how you can actually understand what you are doing when you have this on your account and how it can be implemented within your strategy to have the exact same results without ever having more than one position opened per currency pair.

What is hedging after all ? In general it refers to the taking of opposite positions with a certain degree of correlation that offers some protection against side movements in the market. So for example going short EUR/USD and short USD/CHF is bound to guarantee some protection against variations in either currency pair since they are heavily and negatively correlated. However since the correlation is not 1 the actual effectiveness of this hedge depends on market conditions and - when correlation is temporarily lost - such hedges become extremely dangerous.

However, when people in the MT4 community refer to "hedging" they generally talk about having a long and short position opened at the same time on a currency pair. For example they open up a long on the EUR/USD at X price and then a short afterwards to cover up their loses or to "fix" some of the profit level they have achieved. Many traders who are not familiar with how the market works consider hedging absolutely vital for their success and the removal of this feature seems to be extremely unacceptable.

When we look close having a short and a long trade opened on the same pair is merely an illusion. What you are doing is buying and selling the same contract so if you were actually carrying out currency exchanges (of physical currency) you would have done the same exchange twice and ended up with what you started with (your ending net positioning is 0). It doesn't actually make sense if you think about it and the way it has been implemented in MT4 is practical in some ways but very misleading in others.

As a matter of fact, any hedging strategy can be implemented EXACTLY in the same way without ever having two positions opened in the market. For example if you bought USD/JPY at 85.54 then you want to enter a short position at 84.54 then exit the short and the long at 86.54 the same effect would be realized if you closed the long at 85.54 because closing the long is indeed what you would be doing in reality if you entered a short. The later point where you exit both the long and short is irrelevant since your net positioning from the open of the short is 0.

Case 1 ( Buy 85.54, Sell 84.54, Close both 86.54)

Long Result = 86.54-85.54 = 100 pip profit
Short Result = 84.54-86.54 = 200 pip loss

Net Result = 100 pip loss

Case 2 (Buy 85.54, Close 84.54)

Long Result = 85.54-84.54 = 100 pip loss

Net Result = 100 pip loss

So in summary it is now evident that the current "short and long hedging ability" in metatrader 4 is simply an illusion and that any strategy can be implemented which currently relies on this feature simply by taking into account the net positioning of the account. When shorts are entered they close longs and when longs are entered they close shorts. In the end this leads to the exact same effect as we would have had if we had simply opened all the short and long positions simultaneously since what matters is merely our net positioning in the market. This is the approach that really makes sense and falls in line with what would happen in a physicial currency exchange.

To sum it up, if you currently have a portfolio trading on the same instrument or if you are trading a system that opens longs and shorts on the same currency pair, don't worry about hedging as you can always implement your strategy using a net positioning approach, something we will all have to do once we move entirely towarsd metatrader 5.

If you would like to learn more about my journey in automated trading and how you too can code likely long term profitable systems using 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 !

Thursday, July 15, 2010

The Daily Time Frame : Five Reason to Love This Time Chart

I believe there is some sort of obsession right now in the forex trading community with the lower time frames. Perhaps it seems more profitable or glamorous to trade within the minutes and to get very small profitable trades with high lot sizes but the actual reality of the matter is that lower time frame systems with higher frequency trading often achieve the same degree of success that higher time frame strategies with much more effort and time requirements (plus a LOT more commission paid up in spread). I for one believe that the use of the higher time frames is unequivocally one of the best tools people have to become successful forex traders with low stress levels, I personally absolutely love the daily time frame for my long term trading strategies and it is in fact the lowest time frame I ever use when personally handling an account.

What is so great about the daily time frame ? What makes it such a great tool for anyone who wants to become a successful trader (using either manual or automated techniques) ? Within this article I will give you the five main reason why I absolutely love the daily time frame and why I believe that system development and use within it is an extremely educational and profitable endeavor most traders should - at least - try for a year or two.

Just a few minutes each day. One of the great things about daily charts is that - as the name implies - they only have one new bar each day. This allows you to easily execute any trading strategy with very little time since it only requires a few minutes to check the new bar and input the signals. You know the exact time when the bar is closed so it is a chart that allows you to execute strategies when you don't have or you don't want to spend a lot of time in front of charts.

As successful as the lower time frames. Systems on the daily charts can be as profitable as systems traded on much lower time frames and - as a matter of fact - many times the trading costs are much smaller due to the reduced trading time. It is a myth that shorter time frames are inherently more profitable, there are daily strategies and short time strategies that work great but strategies in the daily time frames usually aim for very high gains over long periods of time reason why they may take more time to show their true profitability levels.

Broker dependency is VERY small. After using a script to remove Sunday candles (if present) daily candles show very little variation between different brokers. This means that the results of your system will be similar between brokers and the broker will be able to do very little to alter the results of your strategy since any slippage, re-quotes, etc are bound to represent only an extremely small percentage of your average profitable trade.

Always trade with the trend. Daily time frames offer you the ability to always trade with the developing trend while smaller time frames may sometimes get to into trades that temporarily go against long term trend direction. This allows you to have more peace of mind since you know that the market is moving with you. It is also true that most successful traders and market movers also use the daily time frame to do their trading so since you are using and looking at what professionals are actually looking at your chances of success are increased.

Stress-free trading. Maybe not entirely but the daily time frames allow you to trade a system and not worry about how it is doing every second. When entering trades on higher time frames small movements are not very significant and therefore you can just set your trade and leave it with confidence that the possibility of something bad ruining it is small. Weekend gaps will most of the time not be a problem since your trading targets will always be very large and the small indecisive days and "blurry" short term charts will not be something you will need to concern yourself with.

Of course there are a few reasons why almost no new traders use daily charts particularly because of their desire to stay within the market a lot and their impatience to get profitable results. Certainly long term trading systems on daily charts are not so glamorous or fancy but they offer easy-to-evaluate trading setups and easy to understand logic that can be applied with confidence when adequate evaluation with profit and worst case scenario targets is achieved. With daily time frame systems this is especially important to do since these systems can usually have long and deep draw down periods that can last several years (alike some short term trading systems) but overall their profitability levels end up being similar to those of short term trading systems.

So in summary I believe that every trader should do at least a few years of trading with a daily time frame based systems at least in parallel with his regular trading activities (if they don't involve this already), just a few minutes everyday, sound robust trading techniques and long term results are some of the great reasons why the use of this time frame has paved the way towards the success of many new forex traders. Certainly you can be the next one :o).

If you would like to learn more about evaluating strategies by programming them into the MQL4 language to get accurate 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 !

Wednesday, July 14, 2010

Getting the Most out of Trading : Using a Forex Spread Rebate Service

When you want to get profit in a market where trading is hard and competition is extremely aggressive you need to take advantage of every tool you can use to reduce your trading costs. There is little you can do in forex trading but one of the most practical things almost anyone can do is to find a forex rebate service to reduce the cost of their trading a little bit. Even though this cost reduction does not make a system "more profitable" in any way it does allow us to reduce our trading costs to a significant degree something that may decrease the loses we get simply because of our net trading volume (spread costs). On today's post I will talk a little bit about this rebate services, why they exist, how they work and why you should definitely join one if you are expecting to trade the forex market for an extensive period of time.

When you are using a forex system to trade the market you will inevitable get in and out of the market with a certain frequency. Some systems will have a lower trading cost since they will trade only 20-40 times each year while others will have larger trading costs since they will trade frequently. Each one of these trades will have the spread (the difference between the price at which you buy and the price at which you sell) as their fixed trading cost plus any additional commissions if you are using an ECN broker.

The cost of trading in forex is indeed quite small and for most systems (except scalpers of course) the spread cost is not determinant to their profitability in the sense that it often constitutes less than 5% of their aimed profit or loss. For some systems the cost is even negligible as it is less than 0.5% of their exit target values. However anything we could do to reduce this cost should be done as having lower spreads will definitely contribute to decrease our costs and therefore it will make us "lose less money" to get into trades.

How do we do this ? In forex trading there has been a figure for some time (in the form of introductory brokers) which allows us to get some "cash back" as a "benefit" from joining through a given broker partner. The truth behind this is that the introductory broker gets some commission from the broker's spread (for example 0.5 pips) however there is no incentive for you to join through them instead of the original broker and for this reason they give you part of their earnings as a way to encourage you to join through them. In the end everybody wins, you get some part of the spread back and your introductory broker also gets a piece of the cake. There are several well known companies that provide this service but perhaps is the most reputable and well known rebate provider (I personally use them on several different brokers).
Usually what happens is that you are given a certain amount of each trade's spread back and this money is paid either directly to your trading account every month or more conveniently to your PayPal account. Having this money sent to your PayPal or alert-pay accounts is actually very good since it allows you to withdraw some money without paying any transfer fees from your broker. So in the end you are saving money in the form of trading costs and you are also saving withdrawal fees since you are getting some money directly into your PayPal account. Recently an Asirikuy member told me that this cash back deposits onto his account were perfect since they allowed him to pay for VPS costs every month without having to actually withdraw funds from the trading account, this is a perfect solution to pay for small additional trading costs (like a VPS) through the offset of spread expenses.

So as you see, even though this cash back services will not increase the profitability of your system in anyway they will allow you to offset the trading costs of a long term profitable system and obtain some money without any withdrawal fees directly onto your PayPal account. This money can then be used for other trading costs such as a VPS or it can be saved and added back yearly to your trading account. In the end, it is always a good idea to use a cash back service since any reduction in trading expenses is always welcome. Do you know any other good and reliable cash-back introductory brokers ? Feel free to leave a comment :o) !

If you would like to learn more about long term profitable systems and how you too can start building systems with a high like hood of long term success 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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