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 !

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 todays forex trading.

What will the profit targets be ? Will it be more profitable than the gods 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 gods 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 !

Forex Expert Advisors Forex Humanoid an unbiased review

In an effort to continue my reviews of expert advisor systems todays post will focus on the review of the Forex Humanoid expert advisor. Of course, I write all this reviews with the hope that traders new to automated forex trading will not get ripped off by unethical sellers that offer systems that just do not work and put the hard earned cash of those out there at significant risk. Remember that all my reviews are as unbiased as they possibly can with no cash (or services, or doughnuts, or anything else) given to me for neither good or bad opinions about any particular system.

Now lets start reviewing the forex humanoid expert advisor. I have to say that the forex humanoid expert advisor looks like the regular trading expert advisor out there, with little evidence to prove their claims and really outrageous results.

First of all, lets look at what they are saying on their webpage. They are saying that their system gets no loses, yes, no loses. And not even only that but they are saying that they have managed to turn 10K into 100K during the last year. Now, they also claim that their expert uses a better than 1:1 risk to reward ratio. I mean, if there is a system out there that can make a 1000% profit return with no loses and a 1:1 or better risk to reward ratio then it IS the holy grail by all standards.

But wait... What is wrong then about this expert ? Well, that they are pretty much not proving any of the claims they make. For example, if their expert is so profitable why isnt there any live testing information but just pictures (which I mean, can be perfectly easy made up) which cannot prove the profitability of this expert. If it is so good, why isnt there a live testing statement of at least a year showing us what it can do ? Why does he say that the expert has made all that money when it certainly has NOT ! If it has, then where is the proof ? I mean, I just hate when EA creators just say things for the sake of saying them.

If you are going to say something, prove it, or shut up. Backtesting results do not mean that the EA actually did that, maybe in some imaginary world where streets are made of gold and most EA sellers are honest but definitely not on this one. This system could have of course, been designed with the benefit of hindsight, hey, if you know the past you can make a system that makes 2 million from 10 dollars in one year and I mean, it is just outrageous to claim such profit and draw down targets with no live testing to prove that backtesting and live testing correlate. I mean, this system is a total waste of time and a total death trap for people out there. If the EA creator givves us a year long live or forward test proving that it trades exactly as in backtesting Ill be glad to change my review. Up unitl now, I consider this EA absolutely NOT worth buying or testing, totally worthless.

If you would like to learn more about how you evaluate and trade free experst and actually be profitable in forex automated trading 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 !

The Peril of Printing Money

Traditionally, printing money supposed to be the last resort to the monetary policy. However from the recent sovereign debt crisis in the Euro zone and the U.S., we can see these policy makers are embarking on large scaled quantitative easing process to avert the collapse in the financial system.

The US embarked on the QE1 and QE2 with each over US$1 trillion respectively in the last 2 years, similarly, the Bank of England had its first QE1 in Mar 2009 and the QE2 in Oct 2011 with £75b and £50b respectively. And recently, in saving the mess in the Euro zone, the ECB has engaged in the so called long-term refinancing operations (LTRO) which is equivalent to the back-door quantitative easing, with €409b and €529b for the last 2 months.

Essentially, what is QE and LTRO? QE refers to the central bank implements quantitative easing by purchasing financial assets from commercial banks and other private sector businesses with printing new money. While LTRO refers to the central bank lending money at a very low interest rate to euro zone financially troubled banks with printing money, which has led to the term “free money" and these banks are suppose to pay back at a much later date.

For the LTRO, the injection of cheap money means that banks can use it to buy higher-yielding assets and make profits, or to lend more money to businesses and consumers – which could help the real economy return to growth as well as potentially yielding returns.The best part, the banks can borrowed these money and pay back to the ECB after 3 years rather than the usual 3 months or 6 months.

So whats the consequence?

The biggest consequence is the income gap between the rich and the poor will widen significantly!

As we have too much money supply in the market it will result in "too much money chasing too few goods", which means the food prices will increase in tandem which drives up the cost of living. This is the demand-pulled inflation that is brewing in the economy.

On the other hand, during inflation, asset prices will rise accordingly while the paper money will lose purchasing power. Hence, the poor being not able to invest in stocks and houses, will be the greatest losers in the economy.

On top of that, commodity prices such as precious metals and energy will escalate too. The poor definitely do not benefit from this because not only do they own minimum precious metals, they need to face up to the consequence of the rising oil price that make their living even worse off. The rising energy prices will act as a double wammy to the economy because this cost-driven inflation will push the inflation rate higher. Hence, demand-pull inflation coupled with cost-push inflation, the economy will likely to run into "hyperinflation"!

Does the policy makers know the consequences? Why did they do this?

Well, with the QE, bank rates are artificially kept at an ultra low levels which makes borrowing easier for the business sectors. At least thats their intention - to promote more borrowing which in turns stimuate groth in the economy. But whether the low interest rate helps to revive the economy really depends on the business confidence because we can have the lowest rates in history but if the public shows lack of interest in borrowing the "free money", the economy cant move forward! Hence, QE did pump lots of money into the banks but this only improves banks liquidity, not the economy. Even though, the minority rich will get richer as asset prices like stocks, properties and commodities will soar, but the majority of the population is still poor and unemployed!

Now with the fear of inflation, how would the business confidence improve? Whether the central banks print money or not, it will take time for any economy to recover. If I were the Fed, Ill stop printing money, let the economy go through the cycle, let the commodity prices fall and hopefully tommorrow will be better!

Happy investing,

Pauline Yong

Stock Crash

In the recent stock crash, he DJI had an unprecedented wild ride initiated on August 4th a crash of 512 points (4%)due to a downgrade of its long term debt by Standard and Poors. On August 8th, DJI shed another 635 points (5.5%) but on August 9th, DJI had a big jump of 430 points (4%), however, on August 10th DJI swung negatively by 562 (5%)points due to rumours that a French Bank might be in financial distress. As predicted, the next day a big swing to the positive side by adding 424 (4%)points.



In 6 trading days, 5 days had more than 400 points (or 4%) move! That was unprecedented and it definitely affected the stock markets around the world. Our KLCI had a sharp fall but compared to the regional markets, as usual, we dropped the least. But still, the damage was done to our stock market technically, as our KLCI is now trading below 200 day moving average, it could signify the beginning of a long term bear. By long term bear I mean 9 months - 1.5 yrs based on the past trends.



Currently, I can see an intense fight between the bull and the bear. Last weeks event was a first sign of fear that the investors express it on the stock market after a 2 year bull run. Lets think objectively: (1) Have we seen any default yet by any of the U.S. or the European debt ridden countries? (2)The property market in Asia is looming but has it burst? (3) Interest rates around the world are considered low as we just recovered from a recession 2 years ago, so thats good for the stock markets, right? So what hasctriggered the crash on August 4th?



Some said it could be some political motive by the supporters of the Republican that they want to teach Obama a lesson by having a stock crash on his birthday. Its not uncommon to have this thought because the recent debt ceiling negotiations between the Democrats and the Republicans have exposed the weakness in the Obamas administration. Investors feel that Obama may not be able to handle well the current economic problems the Americans are facing, and that would hurt the U.S. economy which in turns affects the stock market negatively.



So the recent stock market crash has clearly send out a strong signal to the world that the investors do not have the confidence that the Obama administration can resolve its economic problems well, their historically high debt level may raise the risk of default by the U.S. government. Even without a default, the country is facing inflation problem and the depreciation of the US dollar may give havoc to the rest of the world.



For one, China would be in trouble since they are the largest holder of the American debt with more than US$1 trillion. And many central banks around the world will see their foreign reserves depreciate as the dollar depreciates.



In addition, the European countires like Greece, Spain, Portuggal and more seemed not committed in cutting their fiscal (government) spending, as they are afraid of losing the popular votes. So in the next 2 years, It wont be a surprise if I see defaults in governments in these countries.



So what to invest? Im still saying the same old words: For short term investors, go ahead and take advantage of the market volatility, as for the long term investors stay away and wait patiently!



Happy investing!



Pauline Yong

Better Expert Advisors Volatility Adjusted Take Profit and Stop Loss Values

During the last few years I have seen dozens of different automated and manual trading systems. When I analyzed what made some profitable and some unprofitable I realized that most of the differences happened depending on where each expert advisor would exit the market. When I saw this I realized that the take profit and stop loss values many expert advisors try to impose to achieve a fixed trading style are perhaps the most limiting factors within their programming.

When back testing and forward testing some expert advisors, I realized that many of them were profitable up until 2006 and then plummeted all their gains in 2007 and 2008, most of these where particularly EUR/USD trading systems. Then, out of curiosity I opened an EUR/USD monthly chart with the ATR indicator. To my surprise, there was a steady increase in volatility from the end of 2006 until the end of 2008.

Most of these expert advisors could be optimized to achieve better results in 2008 but then they failed to do well in 2006 too. So the answer was very simple, the parameters they used to exit the market were unflexible and were getting crushed by changing market conditions. The fix is pretty simple.

When these experts are changed to calculate their stop loss and take profit values based on the ATR (average true range) indicator, there is a drastical change in their profitability. The ATR indicator changes according to the pairs volatility so making an expert advisor adjust the magnitude of its trading orders based on a percentage of the ATR value can have good effects on its profitability. Suddenly, you start to realize that the system could have been profitable along all those changing market conditions if its exit orders had been adjusted to fit the pairs volatility !

If you would like to learn more about free ATR adjusted expert advisors and other free and commercial expert advisors I have reviewed 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 Vicious Cycle of Expert Advisor Testing

A few days ago I read a comment by someone on a blog saying that he had nothing against expert advisors but that he never participated in discussions or reviewed expert advisors because of the way they are currently being tested and commented on. I couldnt agree more with him. The way most expert advisors are currently being tested and reviewed by the general public is not only wrong in my opinion but also problematic, misleading and fruitless. After studying several community review sites and forums I came to the conclusion that there is a vicious cycle happening which people hardly ever notice. The cycle always seems to go through the following steps :

1. Discovery - A new system is discovered and people start to hype around it. This can be a free or a commercial system. People start to do backtests and to encourage the development of the system as a group. There is a high expectation for the system and the way it performs. Generally the strategies are short term profitable, with high risk to reward ratios.

2. Early Forward Tests - Some people now start to put the experts on demo accounts to see if the backtesting they have done has anything to do with reality. Generally the experts produce good amounts of profit in small amounts of time, further encouraging the hype produced on the earlier moments.

3. Failing Period and Reoptimization - A period starts when the ea begins draw down accumulation and people start to change it, introduce new parameters, optimize current settings, etc. The hype starts to go down because people find that the system did not work across all market conditions.

4. System Trashing - By this moment all the hype has gone down and people are already in the discovery phase of a new trading system. All testing of this expert advisor is discontinued and testing is focused on new expert advisors. This ea will probably go through this cycle once more when someone rediscovers the system in a year or two and becomes exited by the initial forward and backtesting results.

The problem with this cycle ? The people here lack a good understanding of how automated trading systems actually work in the long term. People tend to generalize results that are obtained in very reduced time spaces (2 months for the longest, less than a week for the shortest) and they often try without any success to modify the ea in order to prevent draw downs on those small time periods. The problem I guess, is that most of this people are not really profitable with any automated system and they are just desperately trying to find one that works, trying to extrapolate very small trading tests towards the whole profitability of the expert advisor. Their efforts are fruitless because no meaningful trading information is gathered and they also misguide people since some of the systems they trash are actually profitable in the long run but experienced a period of draw down (which can last months for long term profitable systems).

My readers should know that this is the complete opposite of how I do my testing. All of the experts I trade have their logic rigorously examined and backtested before testing, they then have extensive periods of forward and even live testing in which I know the draw down that is expected (hence I do not run if the system enters draw down). I do not trade systems with high risk to reward ratios and I always look for systems that are consistent performers in the long run (at least 10 years). I am not interested in short term profitable systems because I am interested in long term profitable systems which often have draw downs that last for 3-5 months and I am ok with this because I know, it is just the way the market works with forex automated systems.

If you would like to learn more about the systems I have tester or I am currently 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 !

Its Simple Either Youre Honest or Youre NOT !

Through most of my career as an EA reviewer and an automated trading system creator I have been shocked by the large amount of dishonesty in the selling of commercial automated trading systems. What most people dont realize is that NONE of the commercial expert advisor sellers out there are being totally honest with them and all of them (that I know of) use one or another type of deceitful tactic to win over their hard earned dollars. This post will be dedicated to the discussion of this fact and the fact that there is a very simple truth: Either you are an honest seller doing your best possible effort to proof the profitability of your trading system and show it to others or you are a dishonest seller trying to sell something to your customers which you know or suspect wont work. Its simple, either youre honest or youre NOT.

Lets start from making things a little bit clear about what I mean by dishonesty in the world of automated trading systems. I am not simply talking about the fact that expert advisor creators lie about simple things such as "the number of copies available" or the "testimonials" or other aspects of their systems. I am talking about the most important aspect when buying a commercial EA which is merely the evidence provided by the author to backup a trading systems claims.

The simple fact is that today there are some simple standards of evidence which ALL automated trading system sellers should know about and put up on their websites. This evidence is nothing fancy but it can be inferred by using simple common sense. As a matter of fact, if the development of the trading system went on without taking into account that this evidence had to be created then the EA would already be not worth purchasing before the homepage is even made and the sales pitch created.

The evidence required is actually not that difficult to get if you are honestly working towards the development of long term profitable systems. You simply need a 10 year backtest of the trading system with 6 months of live testing (with investor access to the live account available to confirm the statements are REAL an UNALTERED!!) with a 6 month backtest of the same live trading period showing back/live testing consistency. Of course, this requires you to achieve a very long period of profitability in backtesting WITHOUT hindsight or the exploitation of backtesting faults plus the will to test your system on your own money on a live broker to compare your results with your simulations for a 6 month period in order to validate your claims.

The truth is that long term profitable system development is NOT an easy task and these systems do not have the profit and draw down targets everyone loves to hear about. The easy way out for sellers is clearly to be dishonest and tell you misleading half-truths which make most people buy systems which WILL fail in the long term. If people simply discarded ALL the trading systems that do not show the above suggested evidence, they would be left with NONE. Why ? Because NONE of them are honest enough to show all this evidence without omission because for 999 out of 1000 it would mean the end of their sales pitch and for the 1 or 2 who would be able to show long term profitability it would mean a drastic reduction of their profit and draw down targets. Always keep in mind that the aim of commercial EA sellers is NOT to make money from their systems in the long term. Their aim is to make money from selling their EAs to you.

The truth remains the same, either youre honest or youre NOT. Either you are willing to show all possible evidence that your system is profitable or you have something to hide. If you would like to learn more about the systems I have programmed with long term profitability in mind and how you too can learn to design and program systems like these 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 !

Living From Automated Trading System How Much Money do you Need

Well, since most people start trading forex to get out of their 9 to 5 jobs and gain financial independence, I decided to write an article just about that. This article will try to cover several aspects about how much money you actually need to become independent and star to earn a living from forex automated trading. You will see that is not as straight forward and easy as most people make it seem and it requires far more skills than the ones expert advisor sellers would like you to believe.

First things first. Can it be done ? Yes, I have been doing it for the past 6 months. Sure, I still work (because I love my job) and also have other streams of income like this website. Would I leave every other stream of income to live from forex automated trading ? Probably not, and there are several reasons why this is not the case.

But well, realistically, how much money do you need to have in order to maintain your living standards and quit your day to day job ? I would have to say that you would need to have at least 2 times your yearly income saved up. Any other way, you are just going to get grinded by the market or youll not make enough money as you do now with your full time job. The reason why this happens is called market exposure. In real life, it is very difficult to make money in the forex market (that is, make money you will be able to keep) and when you put your money out there and make some, you are exposing your capital.

So what does this mean ? Well, it means that the more you make, the more you are likely to lose. In profitable systems (in my experience) this means that you will sometime lose 50% of what you will eventually make. So for example, a 25% yearly profit would have a maximum draw down near 13% (not exactly, depending on the system and other variables but sort of). So if you want to be safe, you could be making 20-30% of your capital each year but to live from this, that 25% must be equal to your current yearly income so you would need 4 times your yearly income or at least 2 times your yearly income but your capitals risk would be higher (50% profit with about 25% draw down).

Now if you are currently making 40K USD a year, do you have those 80K USD saved out there ? My best guess is that you dont since most of the people who want to live from forex are generally in debt or have a small amount of savings generally in the order of 10 to 20% their yearly income. Now you know another reason why so many traders lose money. Most of them are undercapitalized not to say undereducated (forex wise).

Why will I continue to work ? I would not consider living completely from automated trading systems since they are, after all, high risk investments and they lack continuity in the way they make money. Most profitable trading systems will have draw downs which can last for 2, 4, or even 6 months and well, I do need food every month. So I consider automated trading systems as a saving strategy towards an early retirement. I would like to have a few million in 20 to 40 years and I really do not mind if there are a few draw down periods along the way as the money that is invested is money I do not need at that very moment.

Well, if you would like to learn more about commercial and free expert advisors I use to trade, experts I have programmed, bought and reviewed, 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 !

Why Keynesian Model Doesnt Work for the U S Economy

After the great depression, in 1936, John Maynard Keynes argued that should the government play a significant role to steer the economy out of recession through public spending, they would not have had a prolonged recession.

In Keynes 1936 article, "The General Theory of Employment, Interest and Money", he argued that the solution to the Great Depression was to stimulate the economy through public spending such as government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a series of chain reactions, whose total increase in economic activity is a multiple of the original investment.


This is a wonderful concept and many politician applied this economic model through "stimulus packages" during the recent financial crisis, Barrack Obama for one is a firm believer who has trashed trillion of dollars into the US economy, Malaysia - RM60b, Australia - A$42b and many more. The results? These economies have a V-shaped recovery but looks like its only temporary and many economists are projecting a double-dip recession. So what went wrong with this wonderful Keynesian model?

After Keynes passed away in 1946, Milton Friedman (Monetarist theory) criticized vigorously that Keynesian model did not work well post World War 2 and that Keynesian policy led the country into stagflation (high inflation and high unemployment), which they did during the early 1970s and further deteriorated in 1973 the oil crisis.


In 1942, during the World War 2, Keynes published an article, titled "How to Pay for the War", he suggested that the war effort should be largely financed by higher taxes and compoulsory savings, rather than deficit spending in order to avoid inflation. However, the deficit as a percentage of GDP was as high as 30% per year during that time under the hands of President Roosevelt which planted the seeds for the major economic problems the Americans are facing now.

People may have twisted Keynesian theory a little by saying its not working but they did not understand that Keynes advocate prudent spending. What is not working is the lack of disciplinary action by the country leaders who are afraid of losing popular votes by taking the easy way out.

In any economic models, there are strengths and weaknesses. Personally, Im the the follower for Keynesian model. Despite the fact that this model violates Adam Smith "invisible hands" theory which is essential for any capitalist economic system, but if we look around those successful economies, they actually have a stint in socialism!

Finally, in answering the question whether Keynesian model works for the US? Well, Warren Buffett has mentioned about tax raise, but I think maybe some forced savings like our EPF system maybe a good start for them.

Happy investing,
Pauline Yong

Trading the Forex market for Profit as a team

During the past few months, I have been closely watching the experiences of several people new to the forex market in search for some answers about why they are profitable and why they are not. I am a true believer in that anyone is a potentially profitable forex trader, but I also believe that trading the forex market profitably is outstandingly difficult.

One of the people I have spoken with who started less than 6 months ago trading the forex market told me that he read about 10 books about fx trading before deciding to enter the market with live money. He also paper traded for two months before entering the market and he was actually making money everyday on paper (havent we seen this before ?).

Now, when he entered the market it was a different story. He put two thousand dollars inside a forex account and started to trade, then he started to make mistakes, started to do things he knew he should not and after a fight with his wife (about money), he ended up losing all his capital in only five hours. This seems to be the summary of most peoples starting story inside the forex market (mine included !).

Somehow, this is the way the forex market does its baptism on his and her followers. But can this be ended ?

Well, I started to look at traders who did not lose their first accounts, I started to look at traders who seemed successful and had somehow, "conquered" the forex market. My conclusion is quiet simple. Losing is a consequence of trading by yourself.

I am now utterly convinced that most peoples money could have been saved if they had been trading with someone else. At least, the most stupid, ravaging, emotional mistakes would not have happened if you have had someone on your side saying "NO ! dont be stupid !".

This is why I am starting a manual trading group and I am actually seeking other traders who may want to join me (as I have some more free time now for trading). We would meet once each week trading day, probably sometime along 9 p.m - 10 p.m EST and we will analyze pairs and determine which entries to make, we will trade demo first and then live when our skills and team work are sharp. The meetings will be arranged through skype and hopefully this will make us more knowledgeable and void of our own mistakes. If you are interested please email me at ekans_ at hotmail.com or leave a message in the chatbox located in the left sidebar.

Of course, this is only an experiment and by no means does it change the fact that I am still experimenting and learing from automated trading software, which I think, is the real solution to the forex trading profitability problem. If you have liked this post or any of my work 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 !

To Trade or Not to Trade A Little Bit About Friday Trading

Can I disable Friday trading ? This is perhaps one of the most common questions I hear from people who try automated trading systems. Certainly the reason why most people are concerned with Friday trading can be easily understood but when you really look into the evidence people have to avoid trading this day of the week you will find that - for most systems - it is nothing more than a senseless superstition. What is so wrong and different about Fridays ? Should you avoid or not avoid Friday trading ? On todays post I will try to address these questions. I will first explore the reasons why traders avoid Friday trading and what the evidence actually says about trading the last day of the week, after that I will give you my conclusions about Friday trading and what you should do in order to know if you should or should not avoid trading Fridays.

What is the problem with Friday ? There are many reasons traders - especially new ones - give when you ask them why they are so reluctant to trade on Fridays. The first and most valid of these reasons is carrying positions over the weekend. Since traders know that getting a position through the weekend involves the risk of facing an unfavorable gap, they will attempt to avoid the carrying of positions in order to preserve their capital and avoid worse than stop loss trades. It is no mystery that if the market moves against you on a weekend and open up beyond your SL your broker will close your position at the next available price level which is - probably - much worse than your SL.
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Of course, the possibility of disaster changes depending on the trading strategy you are using. Systems that use 100-200 pip stops with a 1-2% risk will almost never lose a significantly large amount of money on a weekend gap (for systems like this the worst case I have found has been a 3-4% loss, just about two losing trades worth) while strategies that take huge risks on tight stops would run the risk of wiping the account on a large gap. For example, if you are trading a system with a 10 pip stop risking 10% (yes, there are systems that trade such an unsound money management) leaving a trade opened through the weekend is suicidal as a moderately large gap of 100 pips will wipe you out and an even larger gap of 200 pips can leave you owing money to your broker (yes, this is possible but I will discuss it on a later post).

The truth is that for all the systems I have tested that use sound trading tactics the largest loses due to weekend gaps have not surpassed a 3 consecutive loss count. It is also worth mentioning that the opposite effect (being on the right side of the gap) also happens with roughly the same frequency so in the end (over a long period of time) the effect of leaving trades over the weekend for these systems is almost the same as leaving trades open during any other day of the week.

Then we also have the fact that none of the systems I have ever tested and found reliable take any benefit from removing Friday trading. As a matter of fact- since Friday contains NFP releases and some other important news events- removing trading for this day of the week causes all the systems to lose a good part of their profitability, causing their net profits to go down and -even worse- damaging the average compounded yearly profit to maximum draw down ratio. Many important trending movements seem to begin on Fridays - with news as the catalyst- and for this reason removing Friday trading has never shown to bring positive consequences for any of the systems I trade.

In the end it seems that the removal of Friday from trading is more of an irrational fear caused by the psychological impact and "probable loss" from gaps than a good practice based on statistical evidence. When using systems that have sound trading tactics and modestly large SL and TP targets it has been evident that removing Friday trading has only detrimental effects on their long term performance. Of course if you would like to learn more about the development of sound trading systems and how you too can use, design and program your own systems based on realistic profit and risk expectations 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)

Forex Expert Advisors GBPBOT an Unbiased Review

As always, my weekly search for new expert advisors plus the suggestion of two Asirikuy members has led me to the finding of a new automated trading system called GBPBOT. On todays post I will review this expert advisor based on the evidence provided by the authors website. I will compare the actual facts given by the evidence with the claims made by the creator and well be able to see if the trading system is actually able to generate the profits the author claims or if it simply cannot. I am also going to analyze the trading systems trading tactic through the evidence and I will tell you my opinion about the GBPBOTs likehood of being long term profitable. With all this analysis in mind, in the end I will be able to tell you if the expert advisor is worth or NOT worth buying and testing.

I have to say that from the start the GBPBOT website appears to be the same as all the other over-hyped and over-valued expert advisors which are more sold on the virtue of good marketing than on profitability. The website greets us with a very bold claim saying that the system can make more than one million dollars in 19 months. It is not surprising to see that these claims are merely based on simulation which, to make things worse, are NOT even remotely reliable as the modeling quality used is 25%. Who are these guys kidding ? Who are they trying to convince with such a low modeling quality ?It is a FACT that the results obtained with this quality are WORTHLESS since it means either that the data is awfly incomplete or that the EA is trading on the 1 minute time frame, voiding the results due to the one minute interpolation errors.

Going a little bit away from all these worthless backtesting results we can see that the EA has some "live trading" results. To begin with, these live tests are awfly limited and tell us nothing about the profitability of the trading system. The EA has been "live trading" for less than 2 month, a period which is simply too short to say anything. Even if longer live testing periods were available, the complete lack of reliable simulations makes the evaluation of long term profitability extremely difficult. Moreover, the so called "live tests" are not reliable since we dont know if they are real accounts, with live money, or demo accounts or even imaginary accounts. The truth is that these statements can easily be made up or modified to show whatever an EA creator wants to, reason why having investor access to the accounts or investor access verification by a third party (such as myfxbook) is VITAL to believe the results obtained from this so called "live accounts".

Things become even worse for the GBPBOT when we analyze the soundness of its trading technique. From the statements it seems that the GBPBOT uses a trailing stop and a relatively small TP with a very wide and even not strictly limited SL. The lack of an SL within the statements tells us that either there is NOT an SL or the SL is hidden and executed internally. Nonetheless, the backtesting statements do show some loses and these loses appear to be MUCH LARGER than the profitable trades of the EA making it have a very unfavorable risk to reward ratio as shown on the image below. As I said before, the backtesting is unreliable due to the very low modeling quality so profitability is much likely GREATLY overestimated due to this fact.
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What do we have with the GBPBOT ? We have a trading system with unreliable simulations, very limited unconfirmed live testing and a very unfavorable risk to reward ratio definitely a system NOT worth buying and testing. I would advice the creator of this EA, which also seems to be the creator of other forex automated trading systems, to think a little bit about the traders he or she is selling these systems to, to think about the capital loses he or she is causing and to put more effort and time on testing to show reliable evidence of long term profitability and less time on marketing. To me, this is simply a major flaw in honesty and ethics, who would even consider selling a system without knowing for certain that everything that could be possibly done to confirm its long term profitability has been done ? Apparently many people, something which is very, very sad.

If you would like to learn more about what I have learned about automated trading systems and how you too can learn to design, program and trade long term profitable expert advisors 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 !

Moving Averages and Its Applications

In this video lesson, we learn about the application of the moving averages. It is one of my favourite indicators too.

Five Common Mistakes in System Optimization

I believe that one of the most important aspects of system design and use is system optimization. This step in system design is vital since it allows us to adjust a given trading system so that it can more efficiently exploit the market inefficiency it is based on. When done correctly, the optimization of a trading system gives you a more profitable version of your logic with better profit and risk targets in long term performance and a very robust strategy which is not likely to fail even if market conditions change significantly. When done incorrectly, optimization leads to curve-fitted systems which are "fit" to test profitably in the past but fail to profit in the same way in the future. What is the difference between correct and incorrect optimization ? On todays post I will talk to you about this very important aspect of system design and what mistakes system designers and traders usually make that make their optimizations invalid and the resulting trading system useless.

In the end, there is a good way and a bad way to optimize a strategy and definitely all systems can be adequately optimized if certain precautions are taken into account so that the most important "curve-fitting pitfalls" are avoided. I will now describe the five most common and dangerous mistakes made when optimizing and I will attempt to give some solutions to these very usual and sadly lethal blows to long term profitability.

1. Optimization period length. I think that the most common mistake when doing optimization is -without a doubt- the length of the testing period used to optimize. Strictly speaking, optimizations are not bound to be meaningful fit they are done within periods of less than 5 years given that smaller periods of time are not statistically relevant according to long term changes in market volatility. So if you want to optimize your system and avoid curve fitting, use a period of at least five years. Using a smaller period will most likely "fit" your strategy to very specific market conditions and will make it unable to perform correctly as the market changes.

2. Reliability of the simulations. It is very important to note that in order for optimizations to be valid, simulations need to be valid. Optimizing a scalper or a similar strategy which cannot be simulated accurately does not make any sense since the trading results - and thus the optimization results - are not going to represent live testing to any accurate extent. Designing systems that explicitely control one minute bar opening and that use adequate profit and risk targets - large enough to avoid interpolation errors - is critical for adequate optimization.

3. Ignoring the results surroundings. One of the most important aspects of system optimization is to take into account the results "around" the most profitable result you found. For example, if the optimal value for an indicator period for your strategy is 20 when doing a 5 year optimization what happens when the indicator value is changes to 19 or 21, what about 18 or 22 ? It is very important to consider the surrounding since they give you an idea of the possible changes of profitability you will get if the market changes enough so that your "optimal" settings are no longer that good. If your system is very profitable with 20 and then loses 70% of its profitability with 19, then the strategy is not robust enough and it IS bound to fail in the future as market conditions may drift - even if only slightly - from your set results.

4. Fine grid optimizations. Another common problem with optimizations is the use of very fine grids when optimizting. In general, the coarser the optimization the less risk there is to curve fit a strategy since the fitting is done in a "lose way" and results that may over estimate profits and underestimate future draw downs are also avoided to a good extent. In general you should not optimize to any grid lower than 2% and better 5% so if you are doing an optimization of a strategys SL from 20 to 200 do not use steps smaller than 4 to accomplish this.
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5. Reoptimizing after Optimizing. When you optimize a parameter for given strategy, then optimize another one and then reoptimize the first one to the new profitable results you are most likely doing a sort of "fine grid" optimization in the sense that you are "fine tuning" the first variable to the seconds "best results". This is similar to doing a fully correlated optimization (although less computationally intensive) but it has similar dangers in the sense that increased correlation and probably further curve fitting is introduced. My advice here is to only optimize variables from a first set of parameters in order and avoid reoptimization of a variable after it has been optimized once.

As you see, these common mistakes in optimization are made by most people who want to improve their automated trading systems and all of them are bound to generate very good results using optimizations that are possibly going to be an over estimation of profit and underestimation of draw down in the long term. In a future post I will give you a diagram for optimizations explaining a little bit how I optimize my systems and what "general procedures" I follow so that my systems end up being robust, profitable and with a high like hood of maintaining their risk and draw down characteristics in the long term.

If you would like to learn more about my journey in automated trading and how you too can start to design and program your own likely long term profitable 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 !

Forex Automated Trading EA Championship Worth the Trouble

Each year most of us are very in tune with the latest metatrader 4 automated trading championship. Traders on these contests get hundreds of thousands of dollars out of small initial accounts against demo servers which are modified to show real trading conditions. These includes slippage, spread widening and all the other funny stuff that brokers like to pull on us, the poor retail traders.

Year after year, I have reflected upon the results of the expert advisors and year after year I am more convinced that this contests are badly designed. I think their results are not what most of the people looking for a profitable ea are actually looking for.

First, most of these expert advisors are geared towards making high risk investments in order to win the prize in the short period of time that the contest uses. This fact makes most of these expert advisors far too risky to use for the common retail trader. If I was entering a trading championship I would definitely program one of those expert advisors that can bring up an account size ten times and then margin call the account in a very small time. Sure, there is the probability that the account will margin call in the contest, but since the time frame is so small, the odds are not that against me. For example, a scalper with a 10 pip TP and a 500 pip stop loss is certain to lose everything in the long run, but in the short term it can increase an accounts equity significantly.

This is when the second and most important factor comes into play. I believe most of these expert advisors to be spurs of good luck in the middle of the trading history. Just as I explained above, the contest just happened in a period when the ea was profitable, but that period of time is too small to judge the experts real long term profitability.

We have seen this with the winners of previous championships, for example, the Bogie expert advisor which had second place a year back then failed dramatically as market conditions abruptly changed. This expert advisors are not designed to be stable, consistent profit makers, they are designed to be contest winner, so take your time when thinking about purchasing some ea that won in an automated trading championship.

Stay on the sidelines and wait until the ea has a significant amount of live testing before you "jump in" just by thinking, "it won the contest". If you would like to learn more about profitable free and commercial forex expert advisors 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 !

Ending the Year By Hearing You Out o

Today is the last post of the year 2009. With the end of this year I complete 2 years and 4 months of having this blog and working on automated trading systems and projects. I have to say that this year was the most constructive year I have ever had while trading the forex market. I had many ideas, some good and some bad, I learned a lot about the programming of profitable automated trading systems and I started to publish my research on currency trading magazines.

The blog has also evolved a lot, my vision on expert evaluation is now centered and focus, I have developed video databases, added a lot of content to the newsletter, totally remade my ebook, definitely a lot of changes. I also committed myself to daily posting, something I had definitely thought was almost impossible for me to do, but I now believe to be a good way to stay in tuned on what is happening in the automated trading world around me. Daily posting started in September, and now, more than 120 posts later, I can say that it was a great decision. I feel it has improved my English writing a lot (you be the judges of that !) and it has also helped me develop many ideas about both automated trading and manual trading strategies.

Trading results have also been good this year. All trading systems have behaved like we were expecting from backtesting results. The gods gift ATR continues to be live/back testing consistent as well as the turtle trading system. This new year will be very important for me since it will be the first year I will start as a forex trader. Forex trading became my only source of income near March/June 2009 and now I hope I can keep up with this incredibly odd but satisfying life style for the rest of my life :o).

However, the objective of this post is not to talk about my achievements and hopes for the future (conveniently leaving out all the bad things) but to hear you, my readers, customers, subscribers and fellow traders out. Today, the last day of the year, I want to hear you say ALL the things you think are bad and could be improved about my website, articles, ebook, newsletter, etc. I would like you to tell me what you think is wrong and how you think it could be made any better. I truly want to know any constructive criticism you may have.

Do you think I am a bad writer ? do you think I could improve my content ? What would you like to see included on the blog, ebook, newsletter, etc ? I want to hear you out to start next year with your expectations in mind. There is nothing more important to me than to help my fellow traders out and having a high quality blog content and services is extremely important for this reason. Tell me all the things you would want to have changed, added as well as those things you would like me to remove, improve, etc.

All that said...

!! Have a Happy New Year !!

If you would like to learn more about the content of my website and learn about how you too can be profitable with long term profitable trading systems designed with sound trading tactics 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 !

Why I Like Tech Stocks

Warren Buffett never like tech stocks, he thinks that the valuation of these companies are too difficult to understand! Although Warren Buffett is my idol, but I’m afraid I’ve to disagree with him this time!

As we are entering to the 21st century – the information technology era, I see enormous potential in technology companies. I strongly think that every investor SHOULD and MUST have at least one tech stock in his or her portfolio!

A tech stock could be referring to companies providing the hardware like Dell, Acer, Apple, Sony, Nokia; it could also be software companies like Microsoft, Google, Cisco; or it could be the infrastructure supporting companies like American Tower Corp, Rackspace Hosting and so on.

There are tremendous opportunities in these stocks as technology and computers are part of our lives. Just take a look at the subscription rate of the Malaysian mobile phones, it’s a wopping 106% of our population with about 30million subscribers (slightly more than our 26m population).

Another example, iphone4 has sold more than 4 million since its launch last year. The mobile phone industry is experiencing phenomenal growth, but it is also very competitive.

How to select the best tech stock? Well, just look around what are the favourite mobile phones people are using. As simple as that! Hence, Apple and Google are analyst favourite. But these stocks are too expensive! I agree! So now I’m looking at the following stocks (I’m not recommending, because I’m in no position to recommend stocks, but I can share with you some trading ideas).

Sony (SNE)
Sony is going to launch its S1 and S2 tabs very soon. You may check it out at the following link: http://mobilerival.com/sony-s1-and-s2-tabs-appear-on-video
Appearance wise, I think it can top Apple I pad. Performance wise, its definitely more superior than i-pad because its Android based. For your information, Android has 35% of the smart phone market share as compared to Apple’s IOS 25%. If you think Sony tab is going to be a hit this Autumn, you might want to accumulating the stock now. Currently the stock is trading at PE 30, low debt equity ratio at 0.25, and price to cashflow is 4.45, free cashflow US$6.5billion.

Nokia (NOK)
Many people must be wondering: “Are you kidding me? This stock is losing its market share!” Yes I agree! But do you know that Nokia is going to launch new smart phones with Windows Phone 7? I’m sure for people who are using i-phone, don’t you wish that i-phone is Windows compatible? Precisely, we have been so comfortable using Windows for ages, if your smart phone is Windows compatible, won’t that make you work more efficiently? In my experience, I can’t use my i-pad for heavy duty work, i-pad or iphone for me is only for leisure purpose. So if my smart phone is Windows compatible I’m able to work smarter and more efficiently! FYI, if you intend to buy Nokia, its going to be a longer term perspective. Because Nokia’s new smart phone with Windows Phone 7 will only be launched in 2012. Currently the stock is trading at PE 10, with US$3billion free cashflow.

Happy investing,
Pauline Yong

My Sorry Excuse for a Trading Journal

For those of you who have followed my posts on manual support and resistance trading and who were excited with my manual trading journal I have to say : I am sorry. Certainly I had made an effort to put up the file on the FTP and to trade the system manually so that you could all see what I do to trade these S&R levels but certainly I may have disappointed a few people with the lack of description and the overall lack of discipline in which I addressed this journal at first. Truth be told, I have been terribly busy with my other trading duties and getting all the journal stuff done with all the analysis required would have taken me a lot of time I did not have in my hands.

To top that off, I started with a trade on the GBP/USD which I never even finished analyzing. After that I also did not open other trades on that account which I did trade on live accounts. Why ? Well, sadly the facts of life didnt help and I had to format the computer that carried the mt4 instance in which I had the demo account used for the S&R trading so unluckily for me I lost access to that account and therefore I could not place any other trades. I know that some of you are faithful to my website and in no way have I intended to waste your time. If you have visited my website for a while you should know that I always handle my projects seriously and tend to the needs and profitability of my visitors and customers.

Well I sure made a commitment to write a good manual trading journal and I certainly intend to do so. From now on the demo account of the trading journal will be VPS hosted to avoid any computer problems and I intend to write a small note on the journal every Monday as to why I traded or did not trade that week with a detailed explanation of each trade as I had explained before. Obviously the first trade I made will remain on the journal and I will finish its analysis so that we may start with a finished trade. So I invite you to check the trading journal file every week on the ftp and to check the account statement on the lower part of the left hand sidebar. I of course give you my word that it will be kept updated and that we will certainly learn a lot about S&R trading from it.

Again, for all of those who have been looking at a journal file that was not updated, I am sorry, but from now on the journal will be one of my primary concerns related to the website. However if you would like to learn about automated trading system and what can be done to design profitable one 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 !

What Doesnt Change Talking About Inherent Characteristics of the Market

Perhaps one of the most important questions you can ask yourself when you start using automated trading systems is : how will I survive in the long term ? This is one of the most common inquiries made by traders new to the field since it seems to be evident that the market is an ever-changing beast that does not allow the mechanical exploitation of any inefficiency for too long. New traders often experience this when they first begin to use automated trading systems. Their systems do very well, then fail or they never do well at all. Besides the fact that many of these systems dont have adequate evaluation- leading with inadequate and unrealistic expectations to long term loses - traders almost never ask themselves : what doesnt change ? It is obvious that if you want to exploit a given characteristic of the market for long term profitability you have to look for characteristics of the market that remain constant as a function of time. But are there any ? On todays post I want to share with you my view about market changes and why - even though the market changes- some characteristics of the market remain constant.

When you start to trade the market seems like an invincible beast that behaves in a very unpredictable manner. I remember that the first few months I traded I used to think "I got it" only to discover that the market would rip my strategy apart the next few months. I used to behave erratically - like most new traders behave- modifying my strategy every week in a desperate attempt to "adapt" to changes in market conditions. Of course, my focus at that moment wasnt the understanding of market inefficiencies but the massive multiplication of my money from 500 USD to a few million in a few years.

It wasnt until much later that I decided to stop my journey and build an understanding. If I ever was going to make money from this seemingly chaotic thing, I would need to find the "science" behind it. It became important for me to understand how the market behaved, what changed, what didnt and what strategies could be built that would most likely work for the next 20-40 years. I needed strategies that could work for long enough to build myself a decent income and NOT strategies that would put my capital into excessive risk or work for a year and then wipe my account.
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The question becomes : what doesnt change ? After reading a lot of books and watching market behavior for many months, I started to realize that the only thing that doesnt change in the market, is the specie trading it. The market is traded by humans and therefore any aspect of the market imprinted with human behavior should remain fairly constant. As many traders have discovered I started to see that - although individual human behavior is very different - crowd behavior doesnt change very much. I then read a few papers on game theory experiments applied to economics on groups of people across very different cultures and the results started to match up as the groups became bigger. I then realized that - what doesnt change - is simply the way in which crowds react to price action.

How do crowds react to price action ? You see manifestations of this everyday - not only in the form of market trends - but in the form of long term reversal and continuation patterns, support and resistance levels, etc. There are some characteristics of the market that simply do not change, characteristics which have appeared time and time again during the past 30 or 40 years. Evidence of this is present on almost all market instruments from the GBP/USD, to gold, to the DOW index. However you will notice when you do a close analysis that - even though these objects are ever-present within market instruments - their AMPLITUDE and LENGTH changes as time evolves. A trend that may have been only 200 pips long in 2004 can be 1000 pips in 2010 and the reason why this happens is related with the markets trading volume.
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As time evolves and there are more people in the world, the amount of money being moved in the markets becomes larger and therefore the extent of inherent characteristics of the market caused by crowd behavior also become larger. Through different market conditions, there may be larger or smaller movements of money, causing overall changes in the extent of market moves that appear like "large changes in market behavior" but that are no more than the same old characteristics viewed under the looking glass of a different volatility. For this reason, the key - I believe- to the exploitation of long term market inefficiencies seems to be the use of an inherent market characteristics that changes only with market volatility. Trends are a perfect example of this fact and there are many examples of successful trend following systems that achieve their long term profitability through adaptive criteria based on market volatility.

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