Watukushay No.5 and JPY crosses : First Encouraging Results

When I coded Watukushay No.5 my idea was to build a universal breakout system that could be used to exploit a wide array of market inefficiencies in the foreign exchange market. After discovering 10 year profitable backtesting settings for 6 different currency pairs it seemed that this system was able to achieve this goal with similar profitability and good profit to draw down ratios on all of these different instruments. However it then became clear that the system was missing to conquer one formidable enemy which has eluded me since I first started my ventures in long term profitable trading : the JPY crosses. Within this article I will share with you some of my first profitable results on a JPY cross using Watukushay No.5.

The JPY crosses are definitely hard to trade and to exploit mechanically and the reasons why this is the case are many. Perhaps the most important reason is the general lack of liquidity of these instruments which causes wild swings and unpredictable behavior with some trading days having even 1000 pip rallies and some others having 1000 pip whipsaws. It becomes clear then that coming up with a trading technique using Watukushay No.5 to exploit their trading behavior would not be easy but since I always enjoy a good challenge I decided to give this a shot.

When I first started to try Watukushay No.5 on the EUR/JPY, it seemed that the EA would be unsuccessful in trading this pair. Settings that gave 10 year profitable results on other pairs were marginally profitable and an analysis of the backtests revealed promptly that the inefficiencies I was trying to exploit were very weak, if even existent at all. By analyzing the initial simulation results and trades I then realized that perhaps I needed to give this problem a fresh perspective, maybe the problem could be solved by changing focus. This is when I realized that eventhough short term or long term breakouts as those traded by the USD/CHF and NZD/USD respectively were not going to work on the EUR/JPY, it seemed that the strong whipsaws and changes in direction in the longer time frames could in fact be traded to achieve profitable results.

So the answer Watukushay No.5 gave to the EUR/JPY was quite clear, it is not trading in the direction but fading long term breakouts what might work for this currency pair. I then started to use long periods of breakout-box definition (hundreds of hours) and I started to test the limit function of the EA which reverts the pending order positions and their intent with breakouts towards the upside triggering short trades and breakouts towards the downside triggering long trades. The results started to look much better and an inefficiency that could be exploited with modest results started to arise from the dark.
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The above image shows you how this technique actually works for this pair. Long term period breakouts tend to signal reversals since - on this pair at least - strong moves towards one side seem to signal reversals while they rarely signal true trending periods. This shows us how different the behavior of this currency pair is when compared with the other pairs traded by Watukushay No.5, on other instruments the EA exploits breakouts that lead to trades that follow overall trend direction while on this currency pair an inefficiency which is almost opposite in nature appears to take place.

The ten year backtests shown below (Jan 2000 to Jan 2010) show us that the EA indeed manages to achieve long term profitable results for this currency pair. However the fact is that the average compounded yearly profit to maximum draw down ratio is almost 1:3 (so there is still a lot of improvement needed before we can add this to our portfolio). The important thing here is that we were able to achieve our first 10 year profitable settings for this pair and now that we know the nature of the inefficiencies we can exploit it will become much easier to find more profitable results for this and other currency pairs.
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In the end it seems that Waukushay No.5 is indeed a very powerful and universal breakout trading system that can be used for the finding of breakout based inefficiencies on a wide array of different currency pairs. With the JPY crosses we will hopefully be able to add the EUR/JPY and GBP/JPY to our current instrument portfolio for this EA. If you would like to learn more about Watukushay No.5 and its trading tactics and results in live and back testing please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to trading systems. I hope you enjoyed this article ! :o)

Watukushay No.5 : The Aussie and the Kiwi, More Encouraging Results

During this weekend I released the first official version of Watukushay No.5 coupled with all its 10 year backtesting data showing profitable results on 6 different currency pairs in Asirikuy. From my last post about this EA you might remember that Watukushay No.5 had been tested on the EUR/USD, GBP/USD, USD/JPY and USD/CHF, however at that time I hadn't completed my analysis on two other currency pairs that also show us great results with this strategy despite their overall lack of liquidity, the AUD/USD and the NZD/USD. On today's post I want to share with you some of the results of the EA on these currency pairs and how the EA is able to use a completely different trading technique to profit from the different trading mechanics of these two instruments.

As you may already know, Watukushay No.5 attempts to exploit breakout inefficiencies on the different currency pairs. On the 4 majors this is done by exploiting periods of low volatility when the currency pairs form significant ranges, entering breakouts when important moves develop within the following trading sessions. However, these trading tactics do not work well on the AUD/USD and NZD/USD, not only because they tend not to form areas of compact trading but due to the fact that this areas do not lead to successful or unsuccessful breakouts with any statistical significance. In the end if you try the same tactics as with the majors you will obtain slightly profitable results which are definitely not worth using in live trading.

Upon my analysis of these two instruments it became clear that I needed to think the problem from another perspective if I was going to find any profitable results for this EA on these two pairs. This meant going back to a meticulous analysis of the currency pairs and the way in which the medium and long term trends develop within them. After spending a few days working on this I finally realized that the key was to rely on breakouts of more volatile sessions but aiming at much higher take profit and stop loss targets. The idea was that this large breakouts do allow us to predict long term trend direction with a good statistical edge in the long term.

Backtesting results were indeed very encouraging showing me that my analysis had been right. When you exploit this different and larger breakouts on the AUD/USD and the NZD/USD, you obtain some very profitable results which are achieved as the EA is able to follow long term trends through the periodical entering of this large session breakouts. The effect resembles the accumulation technique used by the turtle trading system, allowing us to follow a trend and greatly profit from its long term direction. Below you can see a picture of how this trading works on the NZD/USD, notice how the EA got a lot of profit from a developing trend.
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The 10 year backtesting results also give us great results for both of these currency pairs. We arrive at results which have average compounded yearly profit to maximum draw down targets better than Watukushay FE and the same as Teyacanani on the EUR/USD in the case of the NZD/USD. Surprisingly, the best trading results for this EA have been found on the NZD/USD, showing us the robustness of this strategy as a portfolio solution. The EA shows us its robustness and its ability to exploit two completely different market inefficiencies based on the same trading mechanics but aiming for entirely different things.
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Later today 3 live accounts with real money will be added to Asirikuy to start the testing of the system on the USD/CHF, NZD/USD and a full portfolio setup. Hopefully within the next year we will be able to gather some very useful information about its trading system, its tactics and its ability to tackle changing market conditions. The ability of this EA to adapt to each particular market situation and its very large set of adaptive parameters will probably lead it to succeed in this quest against market changes.

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

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.
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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.
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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 !

Introducing Watukushay No.5 Beta : A Universal Daily Breakout System

If you have been following my blog for a while you might be aware of the Watukushay project, an initiative which gathers my efforts around the well-documented development of likely long term profitable systems. The last EA of this series was Teyacanani and today I am happy to introduce the next member of this family of what I think are well-crafted, sound trading systems with reliable simulations and very good possibilities of achieving long term profitability in forex trading. On today's post I am going to talk to you about Watukushay No.5, its first achievements and what makes the release of this EA different from the others as its development from now on will be done in conjunction with the Asirikuy community :o). I will first share with you the main aspects of the expert's trading character as well as the first results on the EUR/USD and the great potential I think this EA holds.

To tell you the truth, it was not easy to come up with a release candidate for Watukushay No.5. I have been developing and evaluating systems none stop and - as a matter of fact - this has led to the finding of some very interesting trading techniques which have shown likely long term profitable results in 10 year backtests with acceptable trading characteristics. I have shared with you some of these developments such as the Bollinger Band strategy I wrote a blog post about a few weeks ago.

However I didn't feel any of these tactics were suitable for Watukushay No.5 since none of them had the multiple instrument potential I wanted for the next Asirikuy trading system. With the achievements of Teyacanani in mind, I decided that I wanted to create a system that could achieve good trading characteristics on several currency pairs and which had enough flexibility to exploit various types of inefficiencies with a simple change of settings. After a lot of searching and a lot of evaluation (and a fortunate email from an Asirikuy member who reminded me of some previous work) I have found a trading method that will be the core of Watukushay No.5.

This new Asirikuy EA is a daily breakout system that looks for trading opportunities everyday based on certain price ranges or "boxes" that may develop. The expert advisor looks at a specific period of time and sets pending orders if the characteristics of the ranging periods are adequate. As Kutichiy (Watukushay No.3), this EA uses an entirely adaptive technique which fits all the characteristics of the EA as multiples of the assigned range. It is interesting to see how many inefficiencies can be found through the trading of breakouts of consolidation periods and how these consolidation periods turn out many times to be non-conventional. The image below shows you a sample of a favorable trade of Watukushay No.5.
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I have worked a lot on this EA and I have already found several long term exploitable inefficiencies based on such breakouts. Trading on the EUR/USD, this EA is able to achieve results as good as those of Watukushay No.2, however the great thing about this EA is not its mere ability to profit from this currency pair but its more "universal" character. With the flexibility to change the breakout character, the characteristics of the box, the take profit, buffer and the actual trading or "fading" of the breakouts Watukushay No.5 is fit to trade a broad range of possible inefficiencies on several different instruments. Since this breakout system is very different and much more flexible than Kutichiy its potential for portfolio trading is MUCH higher.

Perhaps the largest difference between the release of Watukushay No.5 and the rest of the Watukushay expert advisors is that I released this EA at a somewhat early stage of development. My objective with this is to encourage the participation of the Asirikuy community so that new inefficiencies on other currency pairs can be found and a large scale analysis and coarse optimization of the trading system on many currency pairs can be done. Watukushay No.5 is not yet ready for live trading but it is still within what I would like to call an "Asirikuy community Beta" in which I hope members on the website can team to analyze the EA and use it to find trading tactics to trade a wide variety of currency pairs. (below a EUR/USD backtest from Jan 2000 to Jan 2010)
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The great thing about the EA is that it can be fit to test extremely different tactics on many different currency pairs, it can be used to trade Asian session breakouts on the GBP/USD or it can be used to fade breakouts of the European session on the EUR/CHF, etc. The trading system has incredible flexibility and it has the possibility to take profit from a large variety of market situations that may show to constitute long term inefficiencies. Of course, I also expect we can add some additional closing mechanisms if our analysis within the next few months demonstrates that such additions would prove to be improvements to the expert's logic.

Right now I have great expectations for this EA which has already shown its potential to achieve good profit and draw down targets on a few currency pairs. Will we be able to join as a community and evaluate and examine this trading system ? Will new and exciting ways of trading daily breakouts arise from the forum ? Right now the results of this trading system already point to its future outcome as a strong Asirikuy system and certainly I believe that the Asirikuy community forum approach will only make it better.

As for the name... We will be making a poll in the forum and we will name it when the first live account comes out :o)

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

Watukushay FE - An Intra Instrument Experiment - Part No.2

On yesterday's post we talked about Watukushay FE and the first essays to test the intra-instrument compatibility of this trading system. We arrived at some good results which showed that Watukushay FE did achieve long term profitability on all of these instruments while the yearly compounded profit to maximum draw down ratio was always much lower than for the EUR/USD. Since I left yesterday's post with some questions regarding the optimization and modification of Watukushay FE to improve results on these currency pairs today I will dedicate this post to the answering of these questions. I will talk to you about the optimizations I have done on the Watukushay FE system on different currency pairs, what their results have been and what they tell us about the inefficiency exploited by Watukushay FE and its potential to be used on several different instruments, effectively diversifying the usage of this trading strategy.

Many of you may be thinking that the results shared yesterday point to the fact that just a few coarse optimizations would lead us to a gigantic improvement in performance which would leave us with a multi-currency Watukushay FE system, something which is very reasonable to assume given the fact that systems usually improve significantly with only moderate optimization. However what reality shows us is somewhat different. The Watukushay FE trading system fails to improve significantly on almost all trading instruments despite coarse or even finer optimization which attempt to fine-tune the system's variables to each currency pair.

For example, the GBP/USD and USD/CHF achieve compunded yearly profit to maximum draw down ratios of about 1:5 and the usage of even fine grid optimizations is not able to bring this down to a 1:3 level. When we examine the trading characteristics of this system on these pairs we see that the overall market inefficiency exploited by the EA disappears for significant periods of time in which the instruments consolidate or experience wide ranges that are not at all favorable for Watukushay FE. It becomes obvious that the system is simply not able to cut loses short on these currency pairs with its present logic. However a few ideas have come to my mind to "adapt" Watukushay FE to the trading mechanics of these pairs and improve its trading characteristics, something which I will probably leave for a future post.

Perhaps the most important achievement of Watukushay FE comes when you analyze its results on the AUD/USD and USD/CAD instruments. With only very coarse optimizations on these currency pairs we are able to obtain marked improvements that show us that -for example- in the case of the AUD/USD only a modification of the RSI period grants a significant improvement of the compounded yearly profit to maximum draw down ratio from 1:5 to almost 2:1 in a ten year run. This shows that the modification of only one variable is enough to fit a system to another currency pair when the overall inefficiency has a similar presence than in the initial instrument it was designed for. Below you can see the backtesting results for the AUD/USD before an after an RSI period change, leaving all other variables -including SL and TP - intact.
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The USD/CAD also improves its results incredibly only after small RSI period changes but results are improved much more significantly after the TP and SL are optimized in a coarse manner changing the risk to reward ratio of the SL and TP to almost 1:2, this in turn changes the compounded average yearly return to maximum draw down ratio to a little bit more than 1:1 from a previous value - before optimization- of nearly 1:4. The images below show you how the overall results for this currency pair also change as a function of this very limited optimization which is most likely not going to introduce any curve fitting into the system due to its coarse nature and the overall adaptive character of the trading system.
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After doing this analysis of Watukushay FE it is also worth noting that the optimization of this EA are heavily populated by profitable results showing you that future deviations from optimal values are not going to drastically change the risk and profit characteristics of this trading system. We have also learned that when the inefficiency is present to a good extent only minor optimizations are needed to greatly increase performance while very fine and extensive runs -when the inefficiency is absent a significant amount of time- bring us only marginal improvement to pre-optimization results.

From the above results it seems that Watukushay FE will be exploring Canada and Australia soon enough :o) Probably during the next few weeks I will release EA modifications and set files on the experts website so that people can start doing their own evaluations and tests on these currency pairs. A couple of live accounts to test these new pairs will also be added. Right now I am also exploring logic modifications to trade on the GBP/USD and USD/CHF, results I will be sharing with you once they are ready. It seems that Watukushay FE likes more instruments than what I originally thought :o)

If you would like to learn more about Watukushay FE and how you too can build your own long term profitable system 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 !

Watukushay FE - An Intra Instrument Experiment - Part No.1

One of the best things about the new metatrader 5 platform - as I mentioned on a previous post - is the extreme quickness in which backtesting and optimizations can be done. It is remarkable how I can now do a 200 run optimization in less than an hour while previously it took more than 5 or 6 hours and even 24-48 for certain trading systems. After porting Watukushay FE and enjoying this very fast simulations capability I decided that it was time to try a multi-instrument approach for this freely available trading system. Certainly I had donde some experiments before on the USD/CHF and the GBP/USD but I had never been able to try as many combinations and settings as I wanted to due to the inherent slowness of MQL4 based backtesting. On today and tomorrow's post I want to show you some of the results of my studies on several currency pairs for Watukushay FE and how these results show us a very wide and unique perspective about the Watukushay FE trading system. For those of you who do not know anything about Watukushay FE it is a freely available trading system I coded available at http://watukushayfe.blogspot.com.

It is important to note here that I coded Watukushay FE based solely on my observations of the RSI and trend behavior on the EUR/USD and I had never thought about making this expert trade on other instruments when I first designed and implemented its logic. It is a fallacy that a "good system" should work on "all" currency pairs as it tackles a "vital aspect of market psychology" since different pairs have different trading makeups and volumes which make their particular price action very different. Pairs that people may regard as similar such as the EUR/USD and the USD/CHF are in fact tremendously different with many systems that work on the EUR/USD failing to work on the USD/CHF and vice versa. Some of the reasons why this happens include bank intervention, liquidity, volume, trade deficit difference, etc.

However it is always interesting to look at the performance of systems on other currency pairs since it brings a hint about the differences between instruments, showing us why a system may work on one and not on another. Understanding and knowing the true nature of these differences allows us to develop systems that are "adapted" to each different currency pair's trading nature. An analysis of these differences also allows us to change the design of a system- particularly its exit logic- to better exploit inefficiencies found in a particular instrument.

The first think I did with Watukushay FE was to run the "standard" settings derived from very coarse optimizations on the EUR/USD on the GBP/USD, USD/CHF, AUD/USD and USD/CAD (10 year backtests on Metatrader 5). The results are indeed good -as shown in the graphs below- in the sense that the system is profitable in the long term on all of these currency pairs, however it is important to say here that profitability is much lower than on the EUR/USD with most of these pairs reaching only a compounded yearly profit to maximum draw down ratio of 1:3 to 1:5. This shows us that the system tackles a market inefficiency that is present to a certain extent on all these currency pairs but unfavorable conditions are much more frequent than on the EUR/USD.
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It is evident when comparing the different equity curves that the smoothest of them is the EUR/USD which - of course - achieves the best results. We see that Watukushay FE has smooth periods of profit on most of these instruments but unprofitable periods are simply very destructive for the other pairs while they are only mild for the EUR/USD. Even tough the equity curves seem to show us that all instruments could be traded profitably the potential reward for instruments other than the EUR/USD is simply not enough to compensate for the risk taken. The deeper draw down periods also make Watukushay FE on other currency pairs far more difficult to trade also limiting risk escalation to a great extent.

However it is clear that some very interesting questions arise. Is it possible to do coarse optimizations on other pairs to find more EUR/USD-like results ? It is possible to implement small modification to the logic that improve the trading technique significantly ? Are there any other instruments worth trading for Watukushay FE besides the EUR/USD ? I will tray to address some of these questions on tomorrow's post. If you would like to learn more about Watukushay FE and all the Watukushay Project experts 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 !

Introducing Watukushay No.3 - Kutichiy, a Very Simple Likely Long Term Profitable Weekly Breakout Technique

Through the past few years I have developed several different expert advisors based on breakout techniques. However all these systems I produced relied on breakouts of long periods of time which yielded a small number of trades per year due to the infrequency of such breakouts. The development of systems that aimed to profit from breakouts of lower periods of time has always been an interesting idea to me and the development of the GBP/JPY breakout system using a lot of complicated filters (which limited the trades excesively) was a first step in the process towards a weekly breakout system which could be long term profitable.

I realized after some analysis that the reason why most weekly breakout systems available out there are not successful is mainly because of their lack of adaptability against changing market conditions. If you look into any forum and search for breakout systems you will find many expert advisors which are not long term profitable due to the fact that they use fixed SL, TP and lot size values which does not allow the system to adapt to changes in market volatility, eventually rendering the system unprofitable.

Then it occured to me that perhaps it was possible to develop a long term profitable system based on short term breakouts if the parameters of such breakouts were adapted each week against changing market conditions. Each week would have its own custom criteria fitted to each week's particular volatility and this would most likely yield improved results over the non-adaptive formula used by most programmers out there. After a significant amount of research I was able to come up with a long term profitable weekly breakout system which is explained in detail in the current version of Currency Trader Magazine (February 2010), you can download the magazine for free and read the article here.

However I still knew that more improvements could be made over the trading technique exposed in the magazine and after some tweaking of the initial setup explained on the article I was able to greatly increase the profitability of the trading system on several currency pairs. Below I show you the backtesting equity curve for the EUR/USD in testing from Jan 01 2000 to Jan 01 2010. A 10 year test of the trading system.
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The fact that the system seems to struggle in 2009 is a mere consequence of the fact that lot sizes traded are much bigger than in 2003-2004. A very similar draw down period occured within those years as you see on the graph.

This new trading system which is the third development in the series of Watukushay expert advisors is called Kutichiy which is a Quechua word which translates most accurately as "answer". I named it like this because Kutichiy is the answer I was looking for regarding short term breakout systems. This expert advisor adds another weapon to our portfolio for long term profitability. The expert advisor is already being tested in a live account and the expert advisor plus all backtesting statements and an introductory video explaining its use and logic are available within the member's section in asirikuy.

Of course, as part of the Watukushay project an ebook section about this system will be developed within the next few weeks. If you would like to know more about watukushay expert advisors and the watukushay project 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 !

A New Day for Watukushay FE... A Free Likely Long Term Profitable EA

On December 2009 I released a free expert advisor to provide my fellow traders with a likely long term profitable alternative from commercial expert advisors. My idea was to give everyone out there the chance to be long term profitable in automated trading by using a system which was built upon sound trading principles which they could use without having to pay a single dime. I named this system Watukushay For Everyone. Another objective of developing this EA was to document the whole development process and make it available within my Watukushay project, reason why the EA has the name of the project as part of its name. A month after its release and after a lot of work and research on the trading logic of Watukushay FE today I can say that I have achieved an improvement of the experts original setup in such a way that makes it, in my mind, one of the best free expert advisors available on the internet today.

I released Watukushay FE on December 25th with what I believed was a good profit to risk profile. The EA was able to make (according to simulations) approximately a 20% yearly profit with a 40% maximum draw down using an approximate risk of 5% per trade on the EUR/USD one hour chart. The only thing that I certainly did not like very much about the Watukushay FE expert advisor was the fact that the equity curve seemed to be overly centered over the years 2007 and 2008. The EA was able to adequately preserve capital on 2000-2007 with a very low profitability and then the profitability skyrocketed as we reached the years 2007-2008 something which made me believe that the EA may be in some way "curve fitted" to the "crisis type" market behavior which was characterized by very clear trends on very high volatility.

I however published the EA because I believed that the EA was able to adequately preserve capital on unfavorable market conditions so if it was indeed curve fitted to 2007-2008 market conditions then the EA would not be as profitable until a similar period arrived but it would also be able to preserve capital like it did between 2004-2007 on unfavorable market conditions (for the EA).

Nontheless, I am sort of a perfectionist and I knew that there was a lot more potential to the logic of watukushay FE. I had already done a careful analysis of the mathematics of the RSI indicator to develop the expert advisor but I knew that there was something else I could do to improve profitability. Then I realized that I had tied some variables on the expert together such that they depended on each other and tied the exit and entry criteria together. I decided to make the variables independent and redo all my analysis and coarse optimization process for the expert advisor. The results - which have been described in great detail on the ebook update released yesterday - show you how the Watukushay FE trading system was developed, analyzed and improved.

What came out of this process was an incredibly improved version of Watukushay FE. The new version is able to achieve an average yearly profit of 36% (calculated over initial equity) over 10 years with a maximum draw down of about 16% for a Risk 5 setting. The EA also achieves new equity highs every year, removing my fears of curve-fitting for the previous released version. As you see on the backtesting image shown below, Watukushay FE now has a much better risk/profit profile with a much higher quality equity curve (backtesting showed for Risk=1). Also note that Watukushay FE is still as hard to trade as all other long term profitable systems with draw down/break even periods that can last for several months.
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If you would like to trade watukushay FE on your live account, feel free to leave a comment here or on the Watukushay FE website (watukushayfe.blogspot.com) and join the 2 year live testing challenge of the EA ! Challenge yourself to achieve long term profitability :o). If you would like to learn more about the coding of Watukushay FE and how I designed, programmed and improved its profitability or if you would like to learn about other Watukushay experts I have programmed and how they too are likely long term profitable systems please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Watukushay No.2 Goes British... Profitable Results on Another Pair :o)

Many of you may have heard or had access to the Watukushay No.2 expert advisor. For those of you who haven't heard anything, Watukushay No.2, also reffered to as WA2 is an experted advisor programmed by me as part of the Watukushay EA development Project. This expert advisor is unique in the sense that it does not use ANY indicators to get its entry or exit signals (besides the ATR for volatility adjustments).WA2 works entirely based on self-adaptive candlestick patterns which evolve with the market. Such an approach has made Watukushay No.2 reach very high profit targets with adequate risk expectations. For the past two weeks, Watukushay No.2 has been tested on several live accounts with very good results.

Up until now the EA has only been traded on the EUR/USD (pair for which I designed it) because other pairs have different candlestick pattern characteristics which Watukushay No.2 was not able to deal with. What was so different about the candlestick patterns of the other pairs ? That is difficult to say. I'm going to talk about the differences with the GBP/USD pair which is the next pair for which I wanted Watukushay No.2 to be profitable on

The GBP/USD is a more volatile pair than the EUR/USD. It only takes a second to note when you take a look at the settings of Watukushay No.2 for the EUR/USD run on the GBP/USD pair that many positions taken end up in loses as the pair quickly reverses from a continuation candlestick pattern. Besides, the closing logics also seem to be pretty off. More often than not, reversal candlestick patterns fail to trigger closes (because they are not detected appropiately) and overall profitability is greatly reduced and draw down levels are increased. This is the particular reason why I never released settings for the GBP/USD, the EA is simply not well adapted to trading conditions on the pair.
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Then I suddenly saw things clear as day. I reanalyzed about 100 trades of the EA (made on backtesting) on the GBP/USD and I found out that the pair changed in character far quicker than the EUR/USD and the problem was not that the patterns were not there or that they did not lead to profitable trades. The problem was merely that the pair changes too much and this reduced profitability tremendously. The adaptations made by the EA of the candlestick patterns "lagged" the market significantly. The solution for those of you familiar with the WA2 code may now appear obvious. It was a simple matter of reducing the ATR adaptability code to lower the number of periods and voilá, I had an equity curve similar to that of the EUR/USD. It surprised me that this simple change made the EA adapt to the new pair in such a good way. The fact is that when you make adaptation quicker the EA is more "in-tune" with the swings of the pair and its changes in "character".

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Further analysis and changing of the closing criteria to adapt against the different characteristics of candles on the GBP/USD relative to the EUR/USD led to the backtesting graph shown above (backtesting from Jan 01 2000 to Jan 01 2010). The GBP/USD settings still have a little to envy their EUR/USD counterparts with about a 7% average yearly profit achievable for each 10% maximum draw down one wishes to risk. This shows that the adaptation criteria is vital for changes between different currency pairs since the actual description of the patterns seems to actually address an inherent characteristic of the market, since candlestick behavior is a very good indicator of market sentiment and direction. Is this change translatable into other pairs such as the USD/JPY and the USD/CHF ? We'll see within the next month !

Newsletter subscribers will find the settings and backtests on the FTP where the experts are located while ebook subscribers will find an ebook update containing that same information (settings will be uploaded on Saturday). If you would like to learn more about Watukushay No.2 and how exactly it was designed and programmed from scratch please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Merry Christmas ! ... Releasing Watukushay FE (For Everyone)

Before starting today's post I would like to tell all my readers, customers and newsletter subscriber...

!! Merry Christmas !!

As you know, today I am going to release the Watukushay FE expert advisor which is my personal attempt to code a freely available long term profitable system anyone, anywhere can get their hands on and analyze, trade and use for their own long term profitability goals. As I explained before, the idea is to create a free access, supported expert advisor which can be traded on the metatrader 4 platform and achieve profits in the long term.

In order to achieve this I decided to use an RSI based expert advisor with ATR adjusted money management which can adapt to changes in market conditions, preserve capital on unfavorable markets, and generate decent returns under the adequate market conditions. This EA has been programmed with my best intentions in mind with the hope that at least a few people will have the confidence needed to trade this system and achieve profits in the long run. The system can achieve realistic profits with realistic risks.

As part of my support for this system I will start to trade it from tomorrow on a live account which will be added to my public myfxbook portfolio. I have also made the expert's backtests available and the expert file as an executable (ex4). Anyone of you who wants the source is free to leave a comment with an email (please explain what you would like to do or implement on the source for the record) and I will send you the expert's code.

Where can you download this piece of code ? I have created a website at http://watukushayfe.blogspot.com in which you can find a lot of material describing the expert's logic and trading as well as a link to the FTP where you can download the expert plus all the testing statements. This EA is my Christmas gift to all my fellow traders, totally free and in the process of being traded live by me for at least the next 2 years. This EA will also be ported to mql5 once the platform goes out of beta testing.

If you would like to learn more about what the Watukushay project is about as well as how the Watukushay experts were designed, tested and programmed please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

The Watukushay For Everyone... My Gift For Christmas :-)

After a little bit more than 5 months of having started the Watukushay EA project I decided to end the year with the release of a little surprise which I decided to call the Watukushay FE automated trading system. As all of you may know, the Watukushay project aims to develop long term profitable expert advisors with the recording of the whole development process within my automated trading ebook. Through this process as well as through the writing of my newsletter and the making of the newsletter videos I have learned a whole lot about expert advisor programming and the making of long term profitable, reliable trading systems.

After going through an endless waiting list of worthless expert advisors out there to review and wondering why there are only a few reliable long term profitable commercial or free experts that have reliable evidence that accounts for their profitability I have decided to step up to the play and release a long term profitable expert advisor coming out of the Watukushay project that will be absolutely free for everyone and that will be supported by me. This EA, called Watukushay FE or Watukushay For Everyone is my attempt to code a simple, free, long term profitable trading system that any person new to the forex market can easily find online and trade with.

The Watukushay FE EA is long term profitable in back testing (which is done in an honest fashion taking into account only values of indicators and price of previously closed bars). As far as the logic goes the Watukushay FE uses traditional indicator trading and has a trading frequency that is similar to that of the other two Watukushay expert advisors. This EA will also be tested and commented as part of my newsletter subscription although this will be an exception in the sense that the statements of this EA will be available to everyone, as well as the expert itself. The EA source code will be available although the process that generated it will still be a part of the Watukushay project and therefore a part of my ebook.

The EA will be released at 1 a.m EST on December 25th as my Christmas gift to traders around the globe (Please remember that Watukushay No.2 plus the ebook update including its development will be released in Dec 15th). Anyone who will be interested in using or trading this system is welcome to check out all the backtesting statements, plus a small manual included in order to help people trade the EA which will be released at the same hour. I think I can say the same thing Richard Denis said when he created the turtle system. The system can be available out there, absolutely for free but only a handful of people who understand it will have the confidence to trade it profitably. Hopefully this will become the standard profitable free EA that everyone will be able to use as a way to generate long term profits in the forex market. It will be released with my best wishes and my sincere intentions to help all fellow traders out there :-).

If you would like to learn more about the Watukushay project and the Watukushay No.1 and No.2 (the launch of this EA plus the ebook update including this EA's development will be released on Dec.15th) experts please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Watukushay No2... Beyond My Expectations

A few days ago I wrote a post about the next EA in the Watukushay series. For those of you who have not heard about these expert advisors, the Watukushay project was an idea I had in order to develop and evaluate a series of different expert advisors with a careful documentation of the whole creation process. The idea is that people are able to see what the necessary steps are for the creation, programming and evaluation of a long term profitable trading system.

As I said on the last post, the Watukushay No.2 expert advisor is completely based on price action. I have just finished all the preliminary coding and evaluation and I have to say that this EA far surpassed my expectations. It took me a few weeks to find a way to build a profitable logic solely based on price action as candlestick patterns depend greatly on the context in which they occur and entering or exiting trades based on a single pattern proved to be a totally unreliable and unprofitable strategy. I tried at least 15 different candlestick pattern with non of them by themselves generating a reliable system.

Finally I realized that the problem was that my approach was too simplistics. I decided to apply the sound, logical trading advice we hear from our start in trading. I decided to only enter trades on a very popular candlestick continuation pattern (the three soldiers) and to exit a trade based on either an ATR adjusted TP or a series of candlestick reversal patterns, such as a hammer, morning star or engulfing candlesticks. As you would expect from such a sound trading approach, the results were overall profitable although there was still a lot of room for improvement.

This is when it came to my mind that I was defining candlestick pattern rigidly when in the market a hammer or a 3 soldier pattern was different in 2000, 2004, 2009, etc. Of course, the easiest solution was to adapt these patterns also towards market volatility. So what do you get ? You get a trading system that is absolutely adapted to the market, more than any other system I have ever coded. The EA adjusts the size of the candlestick patterns as well as the SL and TP based on market volatility and the EA is able to profit seaminglessly from Jan 2000 to Nov 2009. This EA has given one of the most beautiful equity curves I have seen. The EA uses a very wide TP (80% of the ATR) and a wide SL (100% of the ATR) and every identification of a candlestick pattern is done based on previous bar closes so it is safe to say that backtesting is reliable (although live testing will definitely confirm this) since there are no one minute interpolation errors and no hindsight whatsoever.

You can see on the backtest shown below the equity curve given by this EA. It is very smooth with every year reaching new equity highs. The EA has a very good risk projection with the maximum draw down being just 6% for each 10% average yearly profit one wishes to obtain. However this is in fact improved by the ATR lot size money management which when risk is increased achieves an incredible 100% average yearly profit with a maximum draw down of under 40%. The EA should also be pretty much broker independent as a few pip variations will not affect the overall candlestick patterns, however, brokers that have Sunday candles vs those that don't can show different results as the overall patterns may change. Up until now this have proven to be the best results for the EUR/USD, I run several tests on other currencies but it seems that the ATR values of the patterns change a lot depending on the instrument traded and therefore all the optimization needs to be redone for every currency pair traded.
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I am very pleased with this EA, this is the first EA I ever code that used absolutely no indicators (besides the ATR) that is actually more profitable and smooth in backtesting than the god's gift ATR. Of course, this EA would be tested live on my weekly newsletter and all its programming and evolution will be a new chapter on my ebook. This chapter will treat how candlestick patterns can be defined in code and how I came up with each pattern as I progressed through the programming of the EA. I am currently writing this chapter which should be out in mid December and should be around 30-60 pages long. If you are interested in the Watukushay No.2 EA please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Watukushay No.2, Trading with Candlestick Patterns

Many of you may be familiar with the Watukushay Project and how its goal is the development of long term profitable systems in which the whole development is carried out in a step by step fashion in order to help new and experienced traders better understand the process of automated trading system design and creation. The first expert from this project, the Watukushay No.1 EA was launched a few months ago. Its whole development was included as a pretty long section within the ebook that details the way in which the EA was programmed, the thought than went into its design and the way in which this expert advisor is meant to be traded, optimized, etc.

As soon as I ended up the development of this expert advisor I started to work on the next Watukushay EA, Watukushay No.2, which will be my second work for the project. Since the first expert was based on simple indicator trading with dynamically adjusted money management, I decided to base my second expert in a totally different approach. The second Watukushay expert will be based entirely on price action and will work on some very simple and successful candlestick patterns coupled with some simple trend following techniques.

The development of a system that will not be based on indicators will help traders see how to implement such a strategy and it will also serve as a way to illustrate how successful strategies can be programmed exclusively from price action. The money management used on this expert will also be different with no inclusion of the popular ATR adjustement technique I have been using in such an extensive manner during the past year. This new money management technique will also illustrate how there are different ways besides volatility indicators to adjust position as well as SL, TP or TL and it will also show how this can all be done with simple price action, with absolutely no need of any indicators.

Probably I will be finishing programming, testing and optimization sometime within the next two weeks but the inclusion of the whole development process on the ebook as well as the testing of the system on the newsletter will only probably start until early December when I finish the whole writing, editing and publishing process. I will give special care to the programming now so that everyone can have a very good understanding of how this candlestick pattern based expert was programmed and how I came by the trading strategy and optimized it to achieve the profitable results you may be hopefully looking at.

Those of you who are experienced in trading may be happy to know that I will be implementing the candlestick pattern with the highest probability of success, this turn out to be very simple, very studied candlestick patterns such as the hanging man, the hammer and the three soldiers. Of course, such knowledge of the probability of the candlestick pattern success did not come up from research of my own but from a careful review of the currently available literature. After reading several books about candlestick patterns with strong statistical analysis of the success rate of each pattern I kept less than five that proved to be the most likely to be successful in today's forex trading.

What will the profit targets be ? Will it be more profitable than the god's gift ATR or the Watukushay No.1 ? Stay tuned for more info on this ! If you would like to learn more about the Watukushay project, how you too can design and program your own profitable automated trading system or how you too can trade the free god's gift ATR successfully please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

The Watukushay EA Project - Tracing the Development of a Trading System

After 2 years of having this blog and listening to the requests and the needs of my customers, fellow traders and newsletter subscribers I decided to embark myself in a totally new EA development project. However, this EA will not be like all the other expert advisors I have occasionally developed for the past few years on this blog. This EA will be different.

Many of you may be familiarized with the god's gift ATR expert advisor which has shown extremely good reliability and stability against several market conditions. Trading this system for 7 months live now and trying to share it's use and trading techniques with the people who purchase my ebook or join my newsletter has actually made me aware of several important needs people have that are not being fulfilled. These needs are of course related with system development and is what I want to call, "the gap".

This gap is what makes it hard for a novice trader to become profitable in automated trading and is something I have tried to tackle for the past 2 years. Nonetheless, I realized a few days ago that I was missing something very important that could finally build a bridge across this gap and allow fellow novice traders to walk a road towards equity building for my fellow traders.

This is the reason why I have started the Watukushay EA project. I am actually developing a trading system from scratch, from watching the market to final product documenting every step along the process. My idea with this is that any trader will have an idea of what it takes to design, use and optimize a trading system to proftiably trade the forex market. I will go over everything starting from the mathematical meaning of the indicators, their pairing and how the system is programmed, then moved towards testing, optimized, live tested, how expectations change, how the system must be changed along the process, etc.

The Watukushay EA project will make an EA similar or better than the god's gift ATR system performance wise (hopefully) and it will bring traders the unvaluable knowledge of how to actually build a system that can trade consistenly in the long run. For those of you wondering why I used such a strange word instead of "forex railgun", "forex bomb", "forex ultraowningrobot" or some other senseless hyped bullocks, well, the reason is the meaning of the word Watukushay which is actually a word in Quechua (the language used by the Inca and related tribes in South America). The meaning of Watukushay is better translatated as a verb : to care for. That is precisely why I am making this expert advisor, not to amass great fortune but to help my fellow trades because I care for , I care how they do in the forex market.

The results of the whole project will be included on my ebook as a section meant to be an example of actual trading system development, testing, evaluation, optimization, etc. The final EA will also be tested as part of my weekly newsletter. I am very excited about this project and I hope I can complete it before December. (Make sure you leave your comments with your opinions about the project !)

If you would like to learn more about the god's gift ATR and how it can be traded as a stable profitable trading system please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed this article !