Predictable Volatility Really

It is intriguing to find that one of the most common ways in which expert advisor makers try to exploit the market for a profit is the use of "predictable volatility". This concept is founded in the fact that the market is supposed to move "more" during some ours and "less" during other hours of the day, effectively making a person able to predict when the market moves the most and when it moves the least. This is true to a certain extent since it is not a mistery that - for example - the EUR/USD tends to move much more when the US and EU trading sessions overlap. This is natural and it is a consequence of the way in which the world is setup, it is only obvious that a currency pair will move more when the countries where the currencies are most traded are "online" at the same time. However, there is a long road from "predictable volatility" to the exploitation of a market inefficiency something which I intend to explain within the remainder of this post. I will try to argument why "predicting" volatility does not imply profits and why exploitations of an inefficiency based on this principle will most likely be short lasting.

Notice how I always put some quotes around the word predicting. The fact is that even though a person can effectively say -with a high like hood of being correct- that the cross between the US and EU sessions will have a higher volatility than the previous Asian session the person cannot tell you exactly by how much or if this volatility will be directional or non directional. The fact is that this person has exactly the same data as all the other market players who all know that the market moves more around this time (for the EUR/USD as an example) and less around the Assian session. So what advantage does knowing this give a person against other market players ? Basically none, since the information is already there and it is already priced into market action.

Then we have a problem related and additional to the above which is the move from the theoretical to the practical field. How would you exploit a time of predictable volatility ? It does not seem to be straightfoward as the technique used would depend greatly on the directionality and character of the actual market movements. For example, you may try to exploit a "predictable" surge in volatility on the EUR/USD by placing a breakout trigger above and below the current price level before the market reaches that predicted time. However, if volatility is non-directional you will find that you enter a trade towards the wrong side when price starts to whipsaw around your previous price level. In the end youll see that the market is efficient to this information and does not allow anyone to take profit from this in the long term as the directionality of the increase in volatility is actually not predictable with a statistically significant probability. A mathematical expectancy analysis of a breakout strategy in the beginning of the US/EU session overlap reveals this to be the exact case.

Then the other strategy is to exploit areas where volatility is "predictably low" in order to use scalping techniques. I wrote a post concerning this before, particularly about EUR/CHF and EUR/GBP scalpers which exploit this principle. The main problem here is that the inefficiencies of periods of low volatility are based exactly on this fact. When you trade during a period of low volatility you are increasing volatility by your intervention. If enough people do this or if you introduce enough volume youll make the market efficient to your own trading strategy. In fact, this is why most of this EUR/CHF scalpers started to fail or be much less profitable, due to the fact that the inefficiencies on this time frames were widely acknowledged and their "edge" was lost. The fact is that low volatility inefficiencies are what people would call "non-tradable" since trading them actually makes them less profitable, a tactic which would -as many people fear- die if trading volume increases significantly.

In the end I think that this "predictable volatility" tactics actually have no solid basis as the information they are based on is fundamentally known to all new and proffesional traders out there- besides - any mechanical trading system developed on the basis of "predicted volatility" at any given time is bound to be unprofitable with time as the volume changes due to the trading of this actual inefficiency. Looking at volatility patterns during this "predictable" times during the past few years reveals very important changes in the way they happen, their directionality and their start and end, pointing to the fact that long term exploitation of market inefficiencies based on them is not possible. Think about these trading tactics as glasses of water, once you drink the water, your done.

If you would like to learn more about automated trading and what I have learned regarding their design, construction and programming with sound strategies 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 !

Free Expert Advisor Portfolio 2 Week 6 Slow and Steady !

This week has not been very exiting for out expert advisor portfolio. Every expert advisor traded throughout the week, with all of them loosing and winning at somehow the same phase.

The expert advisor portfolio remains in profit, above the 10% profit threshold. With ichimoku5 and moneymaker trading the higher bulk of trades. I also noticed that the portfolio didnt go below the initial deposit of 10,000 which means that we may now be above our initial condition and heading towards steady profits.

This however, is sadly only speculation. Although this portfolio has managed to keep up, we still have several months of forwards testing before we can say "It works". As always the trading statement is available here.

Oh My Bad Luck The Perception of Luck and its Psychological Effect in Forex Trading

It is funny when you see how new traders talk about their first experiences in trading and what they believe happens when they start using a given system. Time after time I have found out people in forums saying that whenever they start to run a system it goes south and that this is merely a consequence of their terrible, terrible bad luck. As a matter of fact there are many reasonable explanations to these phenomena and a clear argument that shows us why most people are bound to start trading systems within draw down periods. Today I want to talk about this "luck" aspect of trading, why people get this perception about their own trading experience and the psychological effect it tends to have in the end.

So why do most systems go into draw down right after you start using them ? The answer to this question is surprisingly simple and tells us a lot about both trading systems and trader psychology. To understand why this is the case we first need to take a look into the way in which inexperienced traders select their automatic or manual trading systems. Usually the only thing new people care about is the slope of the equity curve and the fact that it is making money consistently, constantly and in great or moderate amounts during a period superior to 1 or 2 months. When a new trader sees this type of system he or she immediately wants to use it and set it up. After all, the system has been showing excellent results and why should this be different in the future ?
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The problem to those experienced in trading should now become more evident. New traders fail to understand that systems trade in profit and draw down cycles and that the only way in which a system can remain profitable in the long term is if those profitable periods are greater in magnitude than the draw down periods. However, they fail to grasp the fact that a system can still have very profitable periods and then strong draw down periods that wipe accounts. A general lack of focus on the reliability of simulations and the need to have long term reliable back testing results ends up with inexperienced traders only paying attention to very short term live tests that are statistically meaningless and only portray very short term trading results.

Additionaly- despite the actual long term profitability of a system- the existance of long consistently profitable periods makes the entering into draw down periods more likely since the market is waiting to cash on the systems exposure. So the more attractive the equity curve seems to new traders, the more likely it is to show a venture into draw down territory. In the end inexperienced traders will systematically select systems that have a high like hood to enter draw down periods and this will lead - in the bast majority of cases - to the above mentioned result. Every time you get a system, it seems to start losing money. Oh my bad luck.

However the solution is not to do the opposite and get into systems that are losing money (new traders tend to simplify things this way), the solution is to know the extent of the draw downs a trading system will get into, to have reliable long term trading simulations that can show us precisely what we should expect from the system. As always it is lack of understanding what makes new traders so bad at picking systems and even worse at being able to live through extensive and deep draw down periods (something that is bound to happen with any system). If you look for a system that consistenly makes profits and "seldomly loses" you are getting yourself into this game of picking losing systems and even worse, you are most likely to use systems with very unsound trading tactics and risk to reward ratios.

In the end, the "luck effect" - as I like to call it - has an important effect in trader psychology , ending up with traders losing all their "faith" in automated trading. People who time after time use systems with very nice equity curves only to find strong draw down periods sometime after will most of the time say "automated trading doesnt work" and they will completely quit the quest to achieve profitable trading using this type of systems. However it is important here to understand that what generates this "luck effect" is merely the general lack of in-depth analysis and the desperate search for a holy grail of automated trading. When new traders acquire some experience and they begin to see that the analysis and understanding of a trading system is vital for success, the luck effect immediately starts to vanish since draw down periods become a part of the business and not an undesirable evil.

Of course if you would like to gain a true education in automated trading and learn to design and use systems you can understand and have confidence in 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)

The Murrey Math Forex Trading System

Amongst all the manual forex trading systems I have studied during the past few years, one of the systems that has proven to be effective is the Murrey Math forex trading system.

Murrey math uses a combination of important price levels in order to guide the trader into taken one or another position. The system takes the previous 64 bars high and low and divides it by eight, showing you these important levels as 8/8, 7/8, 6/8, etc. It turns out to be that these levels accurately represent important support and resistance price lines which, when used accurately, can give the trader an amazing accuracy in the fx market.

I have developed some simple guidelines for using the Murrey trading system (different from the ones you must commonly find) because I have found them to be most effective, of course, you are welcome to change them so that they fit your trading style. Anyway, in order to use this trading system, you should get the Murrey Math VG indicator available for metatrader 4 (this automatically traces the lines we are talking about).

In general terms the 8/8 and 0/8 lines are extreme resistance and support levels, when price reaches either of this terms it is safe to expect some kind of retracement. I trade the other bars as I would trade regular support and resistance levels. So my system rules would be like this (I trade the EUR/USD one hour chart with this system) :

• When price closes in the 8/8-8/7 or 0/8-1/8 regions I take a trade into the opposite direction with a take profit of 8/5 (from 8/8) or 8/3 (from 0/8) and a stop loss of 50 pips. I move the stoploss to break even after I reach 8/6 or 8/2.
  
• When price bounces of a line, tries to reverse but closes above the previous Murrey Math Line (by above I mean at least ten pips above) I treat it as a resistance so I take a position in the direction of the trend, as soon as the bar closes, my take profit being the line it bounce from and my stop loss the next Murrey Math Line.(the oppositve applies for lines that act as support)
  
• When price closes more than 20 pips past a murrey math line that previously acted as support or resistance I take a position into the direction of the trend with take profit equalling the Murrey Math line number that acted as support +2/8, with stoploss being the Murrey Math line -1/8.
  

Of course, I couple this simple rules with a signficant interpretaion of candlestick patterns but most of the time I take the positions just as stated above. Either way, candlestick analysis does provide an important insight into price action and you should consider it an important part of every trading strategy. If you liked this trading system but would like to learn more about automated trading systems and other systems I am testing 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 !(Below, an image of a metatrader screen showing the daily Murrey Math Lines for this week)
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Can You Trade Automated Trading Systems Successfully

I have always thought that the way automated trading systems are portrayed to the general public is absolutely wrong. You buy a system that works, you plug it in, you see the profits roll in. Truth be told, nothing could be so far away from the truth. Although I go into much greater depth about this topic on my ebook, I wanted to write a post today about what I think are the necessary characteristics a person needs to succeed in the world of forex automated trading and automated trading in general.

To start I wanted to tell you something you will probably find very contradictory : Not everyone can be successful in automated trading. Of course, you may think I am totally wrong because you just need a profitable system, a person to plug it in and then the system does all the work, right ? Well, it is definitely not that simple. First of all, automated trading is not free from psychological effects as it is usually portrayed by most EA sellers (more on this within my ebook) and second, a person not only needs to have a profitable trading system, the person needs to know it is profitable and the person needs to be able to trade it. As I have said before many times, the market protects itself from everyone making profit from automated trading by making long term profitable automated systems extremely hard to trade, as the turtle trading systems, most people would never trade the long term profitable systems even if they were given to them for free.

So what characteristics does a person need to succeed in automated trading ? From my experience and the characteristics I have seen on the people who have managed to trade these systems consistently, I could tell you at least the things they have in common :

• They are willing to learn. This means that they are able to grasp new concepts, take in and find new knowledge.
• They are willing to accept reality. They are all glad to forget the unrealistic profit targets offered by most EA sellers out there and make peace with what is realistically achievable with automated trading solutions. The more you cling to the huge (50,100 even 1000%) monthly returns offered by EA sellers the more time it will take you to be profitable with automated trading.
  
• They do the work. These people are looking to become dedicated to automated trading, they are not looking for a "set and forget ATM" or some other get rich quick scheme. These people take automated trading as if it was a job.
• They are not stubborn. This is a very bad quality, specially because most stubborn people end up paying for their unwillingness to learn by losing large amounts of equity. They are too ways to learn, listen to the people who know or learn it the hard way, sadly most people have to learn things the hard way and few of them survive it.
  
• They do not have huge egos. I have found that people who feel that a 3 month losing period makes them feel like failures tend to fail in automated trading. People who are able to accept that loses are common and necessary in trading always have the fastest way towards profitable automated trading.

Being stubborn and having a huge ego is definitely the worst combination since these people (as I have seen) are usually very attached to unrealistic profit targets and are always in the quest for a holy grail. Sadly, these people often lose the largest amounts of money and many of them end up quitting when they realize that what they had been searching for was just a mirage in the middle of the desert.

I think that these are the main characteristics I can think of right now. Make sure you leave any other ones you can think of on the comments. If you would like to learn more about why it is so hard to profit with automated trading systems and how it can be done and realistic profit and draw down targets can be achieved 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 !

Time To Evolve From FxReviews to MechanicalForex a Milestone Achievement o

Today its a very important day, not because of the release of another automated trading strategy or some other achievement related to Asirikuy or the development of expert advisors but because today I will be taking a huge step for this blog and - hopefully- my online presence in general. Through the past 3 years fxreviews.blogspot.com has been the home of my forex blogging efforts and after more than 500 articles and a lot of modifications it has now become evident for me that this blog and its potential have exceeded the limitations of what the blogger platform has to offer. Today I am taking a step forward and sharing with you this blogs new url : http://www.mechanicalforex.com. Within the following paragraphs I will also share with you the reasons why I decided to take this important decision and why I consider this a very important move for the development of this website.

Although blogger has been a very friendly, rewarding and robust blogging solution its limitations became evident as my blogging frequency increased and the number of my posts became larger. Blogger offers some great advantages, such as being free, being able to do everything easily and having the safety and reliability of Google servers to host all the data, however it fails in two main aspects that make it unsustainable in the long term for me. The first problem is the inability to customize things - which means that the platform is rather inflexible - and the second is the lack of professionalism that comes from a sub-domain of a free blogging platform.

One of the biggest problems I have faced with blogger is the inability to customize the tags and categories of my posts in a way that makes my blog easy to use. The website now has a lot of content and the limitations of the blogger interface make it very hard to reach. So what is so much content useful for if it cannot be accessed easily ? The answer is that it is simply not useful. Since a website needs to be easy to browse and things should be very easy to find, I considered this a major problem for my future developments.

Another important reason why a change was now necessary is the fact that the website is no longer mainly about the review of automated trading forex products, something which makes its name rather inaccurate. Although this was the main topic of the website for a while it is now evident - especially since I started posting daily - that we are now moving towards a much wider area where the review of commercial systems is only secondary to a much bigger goal, which is the continuous achievement of long term profitability. The website is now much more about sharing new ideas and giving advice about how to succeed with mechanical trading than about going through the endless tides of products that reach us every month from the hands of commercial EA sellers.

To solve all these problems and move forward, making my blog much more customizable, easy to navigate, accessible and professional, I decided to create a new domain - that better reflected what the website is about now - and create a whole new website powered by Wordpress. This new website is called Mechanical Forex, a website dedicated to the use, development, review and evaluation of mechanical trading strategies. A website in which the name is much more reflective of what is going on inside of it.

Thanks to some very friendly Wordpress plugins moving all my posts from blogger was a breeze (surprisingly with no broken links :o)) . However there are still some things that need fixing (for example all the links that pointed to articles within articles still point to blogger) but I am confident in that all of these problems will be solved within a few weeks (after I become more knowledgeable in wordpress). However the new Wordpress implementation carees a ton of flexibility that will also allow me to greatly improve the usability of the site, generating tags, category listings and linking systems that will be much better (a world better!) than what we currently have here in blogger.

Starting tomorrow this website will redirect to the new one and new posts will only be placed on the new site. If you are a frequent reader and you follow this blog through the RSS feed please make sure you subscribe to the new blog through any of the buttons shown on the top right. There are also some links on the top right so that you can share the websites articles on digg, stumbleupon, facebook and other social sites. If you like this website make sure you share it with other people you know who might find it useful :o)

Hopefully this new website will be a major improvement, it is definitely a milestone achievement and for me it feels like a move from a "hobby" to a much more "professional" blogger. Thank you very much again for all the support, interest and trust you have given me through all these years :o) Please leave any opinions, comments or questions you might have about the new site ! (you can leave them here or in the new website)

If you would like to learn more about automated trading and how you too can build your own mechanical systems based on sound trading strategies please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach automated trading in general . I hope you enjoyed this article ! :o)

Forex Expert Advisors Forex Trend Scalper an Unbiased Review

A few days ago, a customer suggested I reviewed the forex trend scalper expert advisor. Since I had never come across this trading system I decided to dedicate todays post to its analysis. As always, I will analyze the claims made on the web page against the evidence provided by the authors and this way I will be able to say if, in my opinion, this expert advisor system is worth buying and testing or if it is not. The forex trend scalper system only claims to make money everyday in a consistent fashion, lets see if this is proved by the evidence.

When you arrive at the forex trend scalpers website you are greeted with what I would call an average EA website. However, the author of the trading system did a good job at limiting the amount of outrageous claims and instead provided a short list of rather simple ones. The only one which says anything about trading states that this system can "make money" everyday for the trade. No claims at all are done about the amounts of profits that can be generated, the risk:reward ratio, the maximum draw down, etc. This will lead people to over estimate the profitability and underestimate the risks of trading this system as risk is not brought up anywhere within the sales page.

Even though there are no claims of "profit targets" we do see across the web site several places where people say that forex trend scalper is generating them 5 and 6 figure incomes. If this was the case, as the author says its the case for himself, then why wouldnt he show us his live statements showing he has made a living from the forex trend scalper ? Well, probably, as in most cases, this claims are just made up and hold no place in the real world.

As for the actual long term profitability of this trading system, all the evidence that is provided is a few months of live testing. There are no backtesting statements and therefore no way to compare with live testing and gauge longer term profitability. From the live statements I can tell that the EA is our regular EUR/GBP scalper. This type of experts seem to have thrived after the sales success of the FAP turbo expert advisor.

Since we lack any way to verify the long term profitability of the expert, a three month live test is too short and the scalping of the EUR/GBP is very dependent on broker spreads and broker feeds I consider this expert advisor NOT worth buying. If you would like to know what I think about commercial experts, why most of them fail and how you too can trade free long term profitable trading 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 !