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

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

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

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

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

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

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

Will Atinalla provide people with financial freedom ? Will it be able to achieve a five figure income for someone after 10-15 years ? Will we reach the worst-case scenario ? Will people endure the harsh draw down periods and low profitability years ? All these questions will be answered within the next ten years within Asirikuy :o) If you would like to learn more about my trading systems and how you too can build expert advisors based on sound trading tactics please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Asirikuy Portfolios : Increasing Profits Without Increasing Draw Downs

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

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

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

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

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

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

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