Are You Backtesting Correctly Six Common Technical Mistake That Will Make Your Simulations Useless

When simulating the performance of a trading strategy using historical data within the Metatrader 4 platform there are many things that you can do which will inevitably end in bad performance and unreliable results. Many of the reasons why people regard backtesting using Metatrader as unpredictable and difficult to reproduce are a consequence of one or several technical problems which can arise due to the lack of carefulness of the trader running the evaluation. Knowing about these problems and taking action so that they do not affect simulations is something necessary to arrive at reproducible and reliable results. I have proved - within several trading strategies - that simulations can be reliable and easily reproduced if special care is taken to avoid technical pitfalls.

Within the following paragraphs I will share with you the six main technical reasons why traders arrive at unreliable simulation results that greatly over or under estimate the profitability of their trading systems. These problems can be easily avoided through some simple measures that can ensure that simulations are as reliable and useful as possible. Falling into just one of these problems can cause back-testing results to be utterly meaningless so avoiding them is of primordial importance for anyone interested in the accurate evaluation of trading systems and expert advisors. These are the technical problems you might encounter :

1. Using a 4 digit broker to run simulations. Many people think that the most accurate simulation results for their systems are obtained when running backtests with their brokers Metatrader 4 platform. However they do not realize that backtesting data is ALWAYS downloaded from metaquotes servers and that the 4 digit broker data set downloaded from Metaquotes contains MANY errors which make simulations totally unreliable. There are major gaps in price in the lower time frames, many daily candles missing large segments of volume, introduction of Sunday daily candles on some years, etc. If you want your simulations to be reliable you need to use and ONLY use five digit brokers for backtesting which download the much more reliable five digit data set from metaquotes.

2. You are using the weekend spread. Another very common technical problem people come across is the running of simulations on the weekend when the spread is extremely high in some cases. When you run a simulation during the weekend using this spread values you will have much worse results than what you would have when using the regular spreads provided during the trading hours of the week. In the end you should always perform your backtests in trading hours or change the spread within the Metatrader 4 platform (we use a script in Asirikuy in order to achieve this).

3. Your strategy trades below the 1 hour chart. During the past few years I have tested and run live/back testing consistency analysis of several strategies that run within the 30 min, 15 min and 5 min time frames only to find out that their results are each and every time inconsistent with simulations. The reason why this is the case is because the lower the time frame the more prominent the effect of one minute interpolation errors when determining things such as indicator values becomes. The broker dependency also increases exponentially and when trading 5 minute charts it becomes so high that the simulations are utterly meaningless. The fact is that variability caused by broker dependency and interpolation errors within these time frames is SO high that you can have totally different results between your backtests and reality. The problem is less pronounced for the 15 minute chart and only a small effect occurs on the 30 minute chart but the problem is not almost completely eliminated until you move to at least 1 hour charts.

4. Your Take Profit and Stop Loss values are within 10 times the spread of the instrument you are trading. When you are running simulations of systems that use these type of trading obtaining reliable results is impossible, not only due to the problem with one minute interpolation errors (which for this case is huge) but because of execution variables (such as re-quotes and spread widening) which prove to be VITAL in the actual real-life profit of these strategies. If you want your simulations to mean something and provide you with some approximation to valid profit and draw down targets then your average Take Profit and Stop Loss must be above 10 times the spread.

5. You are not recalculating your data before each backtesting run. Something which is extremely important is the recalculation of data before starting each new simulation. When you load a chart or when your demo feed sends a tick to your platform there are sometimes history recalculations which corrupt your data and cause your simulations to become erratic and invalid. In order to correct this problem you must recalculate your data within the history center before running every back-test. This can be achieved by going to the one minute section of the instrument you want to recalculate within the history center and clicking the download button until it prompts you to recalculate data. Doing this ensures that your data will not suffer from corruption from your demo feed.

6. You are running a backtest over the last 1-3 months. Your historical data is composed of the data you download from Metaquotes servers and the data you obtain from your live/demo feed from your broker. The last 3 months of testing data are usually downloaded from your broker while the data before pertains to the history center. Usually if there is a time stamp mismatch between your platforms live feed and the Metaquotes data there will be massive generation of errors within the past 3 months of data as the program gets "confused" from these differences. If a chart of the instrument you want to trade shows massive gaps after you do a historical data recalculation then this is a problem. You can generally avoid this by only running backtesting that end three months before the current time.

Certainly the metatrader 4 platform has many limitations and the above restrictions limit us to the development of certain kinds of trading strategies. However this doesnt mean that simulations are unreliable but mainly that great care has to be taken in order to make the backtests reliable, reproducible and coherent with live trading results. By following all the above suggestions and avoiding this technical pitfalls you will be able to obtain reliable backtests of your trading strategies which will allow you to get a good picture of the possible long term performance of your trading strategies.

If you would like to gain a true education around automated trading systems and how you too can design strategies that achieve reliable simulations with accurate profit and draw down targets 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)

The Market and the Expert Advisors

As I mentioned in a previous post, expert advisors, (entities that deal with trades automatically) may never be tested in a satisfactory way for future performance. The reason why, as I said, was because there is no way an expert advisor may be tested to account for all future market conditions. This is mainly because the market is too dynamic, being a reflection of global economical aspects which as we know, change dramatically as time goes by.
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As an example, I have prepared a monthly EUR/USD graph, showing the relationship between these currencies for the past years. As you can see there are a lot of market conditions. For example, the market conditions between 1998 and the year 2000 are mainly bearish, while the conditions between 2000 and 2002 are those of a trending market.
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Now, here comes the pretty part. If you had forward tested an expert advisor for a year between 2000 and 2001 and that expert advisor did very well in ranging markets then your results would have appeared to be very positive for that time. Your results may have even remained very positive after that (for a small while!).
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Then, as market condition begin to change, your ea would have started to show negative results, probably killing your account somewhere along the next 3 years in which the market was amazingly trending.
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It is clear to anyone now that an ea has to go through an amazing amount of market conditions. An ea may perform well in forward testing or backtesting. This DOES NOT imply that the ea will perform well in the future, it just means that it did perform well somewhere in the past and it may perform well again in that exact same type of market condition.
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So the best way in which you can have positive results is by having several expert advisors that work on several types of market conditions. This assures that you will have small sustainable revenues in the long run. One to five percent a month. Anything else promised by anyone with a single expert advisor in the forex market is a pure lie.
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I put it like this. If an expert advisor made 10% a month, you could be starting today with 500 dollars and having 5 million in less than 6 years due to compounding. Come on, market conditions would change far before you could get such a sustained revenue. The expert advisor would die in the process.
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If you want long term sustainable profits in forex, aim at one to 3 percent a month with several expert advisors to compete in different market conditions. If you want to get rich with forex quickly, please go to Vegas. At least the drinks are free :)

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

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

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

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

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

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

Of course, as part of the Watukushay project an ebook section about this system will be developed within the next few weeks. If you would like to know more about watukushay expert advisors and the watukushay project please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Forex Expert Advisors Forex Shocker an unbiased review

Today I will continue on my latest series of expert advisor reviews which as you know are all experts I have found either through the suggestions of my readers and subscribers or through searching the internet for expert advisors. This post will focus on the review of the Forex Shock expert advisor which I actually found through google (as we do most things).

At first glance, the forex shocker website seems like the way in which an expert advisor website should be structured, almost no marketing gibberish and just the testing evidence we need to evaluate if the system is profitable or not. Then, when I started looking with a little bit more depth at the actual trading statements of the forex shocker I was (not surprisingly) not shocked.

It would appear when you first look at all the trading evidence that the forex shocker is actually a very well documented and tested expert advisor but the next thing you have to look at is the validity of the tests and the actual trading scheme the expert advisor uses. For example, when you look at the trading statements you realize that the EA uses a very large risk to reward ratio of 10:1, which is appaling and already a signal of this system not being long term profitable, trading only on the random movements of the market which adapt to its logic on the current market conditions (I go to depth about this on my ebook).

Then you look at the backtests which are straight equity curves with almost no draw down extremely characteristic of systems with large risk to reward ratios that exploit the one minute interpolation errors of the metatrader backtester. So, you have an EA that has backtesting that is worthless, with a 10:1 risk to reward ratio and very limited live testing information. My judgement is then sound and clear, this expert advisor is, in my opinion, not long term profitable and therefore absolutely not worth buying or testing.

If you would like to learn more about automated trading systems and how you too can profit from the world of fx automated trading with realistic profit and draw down levels 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 !

Getting to know me My Contributions on Currency Trader Magazine

If you are a frequent reader of my blog you should know by now that I have always had a deep interest in research and publication. However I had always felt quiet limited in the area of currency trading in this regard as I had not been able to find a way to publish my research and ideas somewhere different than my blog. Sure, my blog is a good place to publish these stuff and I do thank you all for your visits and time but truth be told, anyone can publish whatever they want on a blog and no one has any chance of knowing whether what is published is true or is not.

Certainly I write in my blog in absolutely good faith, I would have to say that I am often restraining myself from writing things so that people may not overestimate my conclusions, this is something I have learned during the past two years, something that I think has made me a much better blogger and reviewer. However I do understand that many people may view my blog with skepticism, what guarantee is there of the truthfulness of the contents besides my word ? Sure, in the world of forex, particularly in the world of automated trading systems, you have to know that the person you are trusting is someone who knows what he is talking about. Anyone can make a blog and start writing things about the currency markets and if you sound convincing enough people will believe what you say, regardless of the actual truth that it holds.

For all these reasons I wanted to find a place in which to publish my research on algorithmic trading systems so that the people who come here know that they are reading content from someone who has experience on the subject and knows what he is talking about, not someone who randomly decided to start a blog about currency trading. This is when I found currency trader magazine. I like the fact that it is freely available to anyone who wants it and the fact that its contents are written by reputable traders, fund managers, etc, pushed me forward to try and get my first article published on the magazine.

I wanted to start with something simple that I consider of interest to everyone so I decided to write an article on adaptive money management and the dramatic importance it has on a trading system. This article which treats the effects of fixed equity, movable stop loss and ATR adjusted money management on a simple MA cross system (which my blog readers will certainly know as Watukushay No.1) was published on the November issue of the magazine.

As an added bonus you all get to see a head shot with a small bio of me on one of the first pages of the issues. This lets you know that I am a real person named Daniel Fernandez who trades the forex market and knows what he is talking about. I am not a person who was "made up" to go after your money or someone who found about currency trading yesterday and decided to start a blog on it. I am a dedicated trader and researcher who is genuinely concerned about the profitability of traders like YOU. If you are interested on the article, make sure you subscribe to the magazine, it is free and I will most certainly try to get a high quality article up on the magazine at least once every month.

Last but not least, if you are interested on automated trading systems, how to program them and what characteristics you need to take into account to find a long term automated profitable system please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

A new Likely Long Term Profitable Trading System My modified Trend Finder Daily System

Well everyone, I have been working hard this past month to get some new expert advisors to test for my newsletter subscribers, you saw the first results in my last post about GBP/JPY daily breakout system and now youll see another interesting result using the trend finder daily trading system. This system was suggested to me by a newsletter subscriber too (thank you very much for all those wonderful suggestions !)

The first think I noticed when I started to research this system was that it started on forex factory as yet another Awesome oscillator, stochastics, SMA based system. It is really common to find systems based on this particular combination of indicators as they are known to give some very good trend following signals. The reason why this happens is because the combination of indicators is mathematically sound. If you know where the Awesome oscillator, stochastics and SMA come from (how they are calculated and what they mathematically mean about price) you will notice that it makes sense to use these three types of indicators together. Such systems include but are not limited to such systems as the Ozfx and trend finder daily.

Ok, I have to admit that I wasnt this excited about the system since I have programmed myself the Ozfx and similar systems without any long term profitable results. The system does get some beautiful trend following trades but then it gets absolutely killed by changing market conditions which the indicators themselves cannot filter out. Well, the solution normally people use to tackle these problems is simply to add more indicator filters (which is not a good thing to do if you just add random things and hope some will work) but a much better solution was found for this system in my case.

First, we need to know what is definetely wrong with the Trend finder daily, what is exactly being neglected ? Again and again, EA creators on forums show their classical way of thinking on forums, the system entry rules are explained in a crystal clear way but the money management and order placing just seems to be a randomly thrown number. The author suggests 100 pip stops and 50 and 100 pip take profits. Really ? Why did he come up with this number and why is he using it for all currency pairs ? Well the answer is just that most people on forums underestimate the importance of these values.

Again, my first try on the simple adaptation of SL and TP values as well as the lot size against the ATR indicator which is a measure of market volatility. This somehow improved the system but did not actually make it profitable in backtesting from 1999 (the original system crashed like no other with wipe out results and breakeven in the best cases I could get). The new system was still losing but there was some hope. The answer was pretty simple, let your profits run ! Having a fixed TP was making the biggest trades end prematurely so I decided to add an ATR adjusted TL to the mix and there you go, a profitable trading system since 1999. Again, my point sees to be proven as most system that make some sense and try to follow daily trend can be made profitable by the addition of ATR adjusted values and often some type of volatility filtering mechanism. You can check the results below (backtesting from 1999 to 2009 with 90% modeling quality).
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Of course, this system is being tested and is available to anyone who purchases my ebook or to any newsletter subscriber,. This system will be demo traded for at least 1 year before starting a live test. If you would like to learn more about automated trading system profitability and how the correct strategies and thinking can bring you profit in the automated trading forex market 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 !

Forex Expert Advisors Forex Transporter an Unbiased Review

A few weeks ago, a fellow trader asked me to review another automated trading system he saw online. This expert advisor, called forex transporter promises to give risk-free returns of more than 800% a year. Today my objective will be to go through the forex transporter website and find out if the claims they make are backed up in a convincing fashion by the evidence they show. As always, I will examine the website and evidence shown and analyze the trading system to see if it fulfills my criteria for sound trading and long term profitability. After that I will give my opinion of whether the forex transporter system is or is not worth buying or testing.

This website starts with some very bold claims, a profit higher than 800% with no risk (as stated on the site). First of all, it is illegal to say that a forex expert advisor is risk free, it is required by people selling any trading system or software to clearly state the risks assumed by a trader. There is no such thing as risk free trading, saying so is nothing short of misleading and put simply, wrong. I understand that people want to sell their systems but doing so by conning people into thinking that a high risk investment is not is unethical to say the least.

After further evaluation of the website we also find some pretty bad surprises. The system uses simple backtesting to "proof" profitability, something which is definitely wrong. More over, the backtesting is very limited with only results shown for the year 2009. Why would they choose to only show the last year when it is clear that backtesting can be done accurately from 2000 ? The reason, I think, is associated with the fact that the forex transporter system uses a progressive money management system.

Certainly you might think that the forex transporter does not use an unsound money management system because the lot size is constant. Big mistake, if you closely examine the graphs and the statements you will notice that the actual profit/loss of trades is increased as the system loses trades. It certainly does not increase lot sizes so it increases the TP and SL in order to arrive at a money management progression without altering the lot size. The result is an equity curve which is typical of martingales or any other type of progressive money management strategy. The so called "profit equalizer" is nothing but an uncontrolled increase in risk as loses progress which will put your account at the risk of a wipe out eventually. It is not a matter of if, just a matter of when. This wipe outs might have happened in other years and this is the paramount reason why they are hiding the complete backtesting results.

Let us also think about the fact that there is no way in which we can trust this backtests. As I have always said, backtests can only be trusted when there is true back/live testing consistency to prove that a system actually trades live as it does in simulation. There are too many tactics to generate good results in backtesting which can be used to show good results. Given this fact, we cannot trust EA sellers to be honest, we MUST have this confirmation. Why isnt there a live test so that we can compare and have reliable proof ? Why would they not trade the system they are trying to sell ? Your right, they probably want to profit from selling you the EA instead of from trading it.

Now let us also go down a walk through honesty lane. Why do people show fake testimonials ? I will never know. If the system is good why in the world do they have the need to invent these fake testimonials ? How do I know they are fake ? Just take a look at the following screen shot. I doubt that "business man with broad shoulders" ever tried the system. Please, do us a favor and dont treat us like we were retarded, we can also go and get royalty free images.
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What is forex transporter ? It is a system which does not have any reliable, convincing information to backup its claims. It is a system that uses unsound trading tactics to recover loses, tactics which expose the system to an uncapped market exposure. Because of these reasons, the forex transporter system is NOT worth buying or testing. This system is definitely a good example of the dishonest, unethical behavior of many EA sellers, an excellent example of how things should NOT be done.

If you are fed up with all the hype and unreal claims made by EA sellers and you would like to learn more about the way in which automated trading and trading systems work and how you too can design and trade your own 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 !

Forex Expert Advisors Forex Nemesis an unbiased review

Today I am going to dedicate this post to the review of another forex expert advisor I have found called forex nemesis. As always, my idea is to evaluate the claims on their website based on the evidence provided by the author. After this Ill give my opinion about whether this system is or is not worth buying and testing. This review, as all others is as unbiased as it can be as I get no compensation for either negative or positive comments on the software.

To begin with, the forex nemesis website looks like the regular sales pitch website we get for most commercial expert advisors. The claims made on the website are absolutely misleading and totally meaningless. As an example, the firs claim on the website says that the software is able to generate more than 4 thousand dollars everyday but again, this is totally meaningless since no reference is made to the capital necessary to achieve this goal. Then the website is plagued with similar claims giving profit sums with absolutely no mention of the necessary capital to achieve this. I have to say, it is pretty bad to prey on people with this kind of tactic just making them believe they can achieve this profit sums with no mention of the necessary investments or the risk level reached.

As for the claims made, there is absolutely NO proof on the website that leads to believe that they are true. What this website calls "proof" of profit are just very limited backtests and pictures of trades which hold absolutely no meaning or proof of long term profitability. This is just one of the many expert advisors out there trying to fool people with this very limited and meaningless "evidence". The backtests cannot be even taken into account because there is absolutely no live testing we can compare them to to make sure there is no exploitation of backtesting vulnerabilities.

Long story short, this expert advisor is absolutely NOT worth buying and joins the ranks of most other expert advisors sellers out there that try to sell expert advisors by making absurd claims with unrealistic profit targets that they CANNOT backup. If you would like to learn more about how you can design and program your own long term profitable system or trade an already long term profitable system please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Technical Analysis Time Cycles

Many of us have been focusing too much on the technical indicators and moving averages, and neglected one important aspect of the technical analysis - the time cycles.

Time cycle is the study of the TIMING of the market boom and bust, which tells us the timing of the event happen as history keeps repeating itself. According to one of the pioneers of cyclic analysis, Edward R. Dewey, "something out there in the universe must be causing these cycles (bulls and bears) ... there seemed to be a sort of pulse to the universe that accounted for the pervasive presence of these cycles throughout so many areas of human existence."

For example, take a look at our Malaysia GDP growth chart

From the chart, we can see that in the history of our Malaysian economy, the recessions were recorded in 1973, 1985, 1998, 2009, which is 12 years apart with the exception of 1998. In feng shui perspective, they all fall in the year of OX (1973, 1985, 2009) and Tiger (1998)!

I also discovered another horoscope that is prone for stock crash - the year of Snake. For one the Great Depression started in 1929, the year of Snake, subsequently we also have smaller crashes in 1965, 1977, 2001 and possible 2013? Is it coincidence or there is really something out there in the universe making this happen?

There was a Russian economist, Nikolai Kondratieff discovered this during the 1920s and published a book called "The Major Economic Cycles" in 1925. In his book, he noted the repeating behaviour of the economic cycle which is deemed capitalistic in the communist world, as a result, he was sentenced to death and died in a Siberian labour camp in 1938. Despite the tragedy, his work was recognised by people and his theory is known as the Long Wave Cycle or the K-Wave theory.

In the K-wave theory, there is a cycle of around 60 years divided into 4 seasons: Spring, Summer, Autumn, and Winter with each lasts about 15 years. For example the big cycles are as follows: (source from Wikepedia),

1. The first industrial revolution started in 1787 - 1842 (55yrs)
2. Rail Road and Steam Engine era 1842-1897 (55 yrs)
3. Age of steel and electricity 1897 - 1939 (42 yrs)
4. War and Post-war boom 1939 - 1982 (43 yrs)
5. Information Technology era 1982 - ?

As we can see if we add another 40yrs to 1982, it become 2022, which is 11 yrs from now. According to many analysts, they believe were now going through the Winter wave of the K-wave cycle. How far is this theory hold true, I leave it to you to interprete. There are 2 more articles relating to this K-wave:

Article 1
Article 2

Happy investing,

Pauline Yong

FUNDAMENTAL ANALYSIS

FUNDAMENTAL ANALYSIS

In carrying out currency transactions can not be separated from our expertise for analysis. This analysis is important to determine the direction of movement of the currency. There are 2 methods of analysis are fundamental analysis and technical analysis.

Fundamental analysis is an analysis based on economic circumstances, political and global security. Information and news relating either directly with the economic situation can be used as an indicator of sufficient importance.

Some fundamental factors that are used to perform analysis and needs to be observed are as follows:

1. The interest rate (interest rate).

2. Balance of Payment (BOP).

3. Producer Price Index (PPI inputs).

4. Consumer Price Index (CPI).

5. Retail Sales.

6. Non-farm payrolls

7. Gross Domestic Product (GDP).

The news could be obtained in view Marketiva, there will be news in the form of English-speaking voice and the form of news writing. It is important to note because it is usually after the appearance of news the price will rapidly develop the movement.

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Using Tick Volume in Forex A Clear NVO Based Example

A week or so ago I wrote a post about tick volume in forex and how I believed it could be used for the development of long term profitable strategies. Inspired by a currency trader magazine article, I decided to explore this issue even further to discover if I was capable of coming up with some 10 year volume-based profitable strategies. Of course - as I had mentioned before - the first problem comes when you realize that tick volume is different between each broker and that some sort of normalization must be carried out before even attempting to come up with something useful. Within this article I will talk to you about how I sorted this obstacle and how I came up with my very first volume-based system with 10 year profitable results.

Evidently there is no such thing as true market volume in forex since the amount of money exchanged by all market participants cannot be accurately determined in an "of the counter" type of market. This lack of "true volume" information seems to doom forex traders to absolutely forget about using this information leaving them at a great disadvantage against stock and futures traders who do have access to centralized exchanges with very accurate live-updating volume information.

However tick volume - which simply measures the volume of ticks during a certain amount of time - has been shown to be proportional to true volume in systems where this data is available for comparison. In forex we have tick volume and this allows us to think about the building of systems based on this information. However a big problem is that each broker has different liquidity providers and for this reason the number of ticks as an absolute value becomes useless as each system would need to be tailor made to the data feed of each broker and this is just impossible to do since forex brokers do not let you access their 10 year data (or they havent even been on the market for this long).

The best solution to the above problem is to use an NVO or normalized volume oscillator that portrays tick volume as a percentage of the tick volume values for the past X market periods. There are already several NVO indicators available for free for metatrader 4 and the one I like the most is available here. This indicators shows us volume in a -100 to 100 range where 0 represents the median volume value and -100 and 100 represent the lowest and highest volume values during the past X periods. Below you can see an image of the NVO together with the volume indicator (which just shows absolute tick volume values as a histogram).
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After we have this information it now becomes quite simple to design a strategy based on this NVO indicator. But how do we use volume ? The traditional way to use volume is to distinguish between different "reasons" for different "events" to happen in trading. Usually price action patterns, indicator signals, etc, can happen due to reasons that are not related to actual changes in market behavior. For example, you can have a shooting star candlestick pattern develop because of lack of liquidity and not because of an imminent reversal. What volume allows you to do is to eliminate all these "false" signals, since you are only entering positions after a signal that is meaningful happens. Meaningful in this case, means that it happens on high market volume (which we assume to be proportional to tick volume which is what we actually have).
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I designed a very simple system using a very simple candlestick pattern and the above mentioned NVO indicator. The results in simulations (Jan 2000 - Jan 2010, EUR/USD) were quite good with a system with an average yearly profit to maximum draw down ratio of 0.5:1 without any optimization or additional exit logic besides a simple SL and TP. What this strategy shows is simply that entries with very good mathematical expectancy values can be designed when using an NVO as a way to measure the meaningfulness of certain market signals (of course a strategy has to be designed with the use of volume in mind from the beginning, strategies like the ones used by Watukushay No.2 or Teyacanani dont actually benefit from an additional NVO based filter).
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Bear in mind that this does not mean that you should add an NVO filter to "every system" to attempt to improve its entries. This will most likely not work since anNVO is only useful as a way to aid in entry selection when the price pattern we are looking for benefits from this type of criteria. When a pattern is valid regardless of volume, the NVO becomes a problem and NOT a solution. Also most indicator signals do not get any improvements from the use of an NVO since their signals represent the conjunction of complex calculations done over price through significant periods of time. In the end if you want to design a system using an NVO you should plan this from the beginning, adding such a filter as an after thought is NOT going to work in the large majority of cases.

After a few weeks of hard work and development using normalized volume oscillators I can say that I have developed at least a couple of strategies that show long term profitable results on a basket of currency pairs. However we will see in time if such strategies are in fact able to avoid broker dependency due to the NVO implementation and therefore succeed in the long term. Tomorrow I will be releasing a few videos in Asirikuy dealing with volume as well as the actual logic and coding implementation of the above mentioned NVO strategy.

As always if you would like to learn more about automated trading and gain a true education in the development and understanding of these trading systems 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)

Why your losing so much money Characteristics of most people who buy an EA

During the past few days I have tried to put all my thoughts about EA customers together so that I can get a clear view of their profile. It is very important to know what people usually think when they buy an expert advisor because this shines light into the reason why EA sellers use the tactics they do and it also helps me device counter tactics to at least save some people from the claws of the many unethical EA sellers out there.

So why do so many people lose their money out there on systems that dont work ? What are the general characteristics of the people out there looking to buy an automated trading system ? Well, I have found out through a lot of asking and interacting with lots of traders that this is generally what describes people looking for an automated trading system :

• Lack of Trading Experience : Usually traders who are out there looking for an automated system lack substantial trading experience. Most of them have not been trading forex for more than one or two years and most of them have never had a profitable year of manual trading. However, the majority have actually never traded for more than 3 months and even some have just heard about the forex market, days if not hours before going through the EA websites.
  

• Lack of Understanding : This is perhaps the most important. People looking to buy an EA generally lack the understanding of what can and cannot be done. What can be profitable and what cannot, what makes a system long term profitable and what makes it fail bluntly. People, simply put, do not understand what they are doing. Well, picture yourself buying a train. You have a general idea of what you may want (faster, lighter, etc) but you would have no idea of how this is achieved or how you may verify what people tell you is true.
  

• Bad economic situation : This is probably the worse one since it makes people the most vulnerable. People who are out there to buy experts are feeling quiet desperate about their financial situation or are about to feel that way. I found out that a majority of people looking for experts has been laid off, has gone out of business or are in some type of dire financial situation. This takes me to the next point.

• They want to believe : Since people are in bad economic situations and are also ignorant about what they are doing, this makes them extremely prone to believe whatever people tell them. If it is not true, they dont have the knowledge to know so and if it is... Well... Sadly when people tell the truth, there will be someone out there telling more attractive lies. So if people find an EA that makes X a year (for real) and then they see an EA that says can make 1000 times X and they are told through some almost fictional evidence that it is true, then they will believe the later and lose all their money.
  

• They want results in the short term : Well, of course, if you are in a bad economic situation and you are told you can make a lot of money, then you want to make that money fast. People who look for experts generally want very short term results. And they get them ! Most commercial experts out there are made to produce short term profits, then wipe accounts in the long run. Of course, if people are ignorant, they dont know that profitable trading is a long term thing.

• They want a forex ATM : People usually want to profit the forex market in a regular fashion, with no draw downs and then go every month and take out money from the bank. Like if forex was an ATM, people want to just take money out of it every month. However, the financial markets do not work like a 9 to 5 job and they will not pay you money every month. Profitable trading systems like the turtle system and the gods gift ATR can have several months of draw down. People are not able to deal with this, because they believe it can be avoided.

As you can see, this characteristics are very hard to get rid off and they do make almost all the people who go out there in search for an EA lose the little money they have left and fall into even deeper financial stress. I have even heard cases of people who took lones and were even in a deeper mess after dealing with automated trading system. If you would like to know how you too can become profitable using stable, long term free trading systems with realistic profit and draw down targets 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 !

Pointbreak Week 4 Ranging Down the Hill

As I have buttressed in my previews Poinbreak reviews, this expert advisor does quiet badly in ranging markets. This week was the complete confirmation of this fact with an even larger range on the EUR/USD pair.

As I have analyzed Pointbreaks moves for the past week, I have realized that Pointbreak set itself up as if the pair would have continued through 1.4900 up to 1.5000. As we all now, the pair did quiet the opposite and bounced back to the 1.46 figures. This frustrated Pointbreaks attempts to elucidate a trend and quiet frankly ended with a large open draw down after the pair did its rebound.

This I think is the worst possible market condition for Pointbreak a 200-300 pip range in which the market continuously tricks the pair into thinking that a trend has been established when in fact it just reverses.

Up to this point, pointbreak has an open draw down of almost 1500, which puts this expert at a not very comfortable level (almost 10% open draw down). It is kind of feeling like a grid system right now and quiet honestly I am not digging this very much.

I do hope that Pointbreak will recover and indeed manage to stablish a trend the next couple of weeks. While this happens we get to see how this expert reacts to harsh market condition. The statement, as always, can be viewed here.

Coin Tossing in the Forex Market Random Trading for Learning

Well, I know many of you would think that I am completely crazy, talking about coin tossing inside the forex market. Most of you should know that gambling in the forex market is completely wrong, hence the saying, "if you are going to gamble in the forex market, go to Vegas, at least the drinks are free". But I am not talking about gambling here, in fact, it is the complete opposite.

What I am going to explain here is a very good teaching strategy for people new to the forex market or people who want to improve their forex trading skills significantly. What you do is put a group of forex traders together and flip a coin to enter either buying or selling a given currency pair. Well, isnt that gambling ? Actually, it is not. Gambling only happens in forex when one enters a position randomly and expects that position to be profitable.

This system works by letting a trader into a position using a random trade direction and then letting the trader decide how the position should be managed. Should it be closed with a loss ? how much is the stop loss ? how much is the take profit ?

Using this small exercise, traders in a group start to figure out the hardest thing to do in the forex market, which is getting out of your positions. This system in fact shows that someone can be profitable, even when entering the market at random, if their exit criteria is good. If you know the chances of a given position going into profit and know exactly what your profit target and loss areas are, you should be a profitable trader overall, even if your entries do not obey any particular logic.

Of course, the objective of this exercise is just to get traders to know exactly how to exit the market and is most effective when done in a group of people (each trader taking a different toss and then discussing their opinions). If you liked this article and would like to learn more about 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 the article !

Forex Expert Advisors Forex Massacre an Unbiased Review

Today we are going to take a look at a system that was developed allegedely by a seven figure forex trader. This trading system- named Forex Massacre- claims to be able to do several interesting things like making more than 20K every month or thousands of dollars per trade. Today I am going to go through this systems website analyzing the evidence provided by the author and judging if this evidence is enough to backup the authors claims. After carefully analyzing the whole website I will try to analyze the experts trading tactic giving you my opinion about the systems like hood of being long term profitable and whether or not this system is worth buying and testing.

I can say with total confidence that this forex masscre system seems to be a total insult to customer intelligence. The website talks a lot about the benefits of the system, huge monthly profits, no need for previous knowledge about forex trading, more than 90% winning rate up to date but the system never shows any proof of profitability. It is certainly like these marketers are not even trying anymore. Why in the world would someone buy a trading system based on a few pictures ? The fact is taht any of those screenshots of "trades" could have been draw by anyone with photoshop (even paint) and a metatrader 4 platform. These screenshots of trades do not tell as anything as even if they were actually real they are hand picked and do not say a thing about the long term profitability of this trading system.

What does the website of forex massacre actually tell us ? Absolutely nothing ! The website is a whole venture of hype coupled with a few - probably hand drawn - pictures of trades that may or may not be in line with the reality of the way in which this system trades the market. I think that it takes a lot of nerve and dishonesty to sell a system that does not have the slightest evidence of profitability. Where are the backtests ? Where are the live tests ? If this system is so profitable, then why doesnt the owner show us a 6 month live investor-verified account on a myfxbook link to proof its profitability ?

Sadly I think you guessed right. Probably the creator has never tested this system live and backtesting statements just show a losing system that does not even do well in simulations, otherwise they would have at least placed some backtesting statements on the site. In the end this trading system has absolutely no evidence of profitability (not even evidence of its trading method or tactic) and therefore it is NOT worth buying and testing. In fact, this system is even insulting as it makes you go through 3 pages of reading without showing you any valuable information. I only have two words for this system... Next please !

If you liked this review and you would like to know more about trading system reliability and how you too can determine if a system has potential for long term profitability 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 SCIENCE

FOREX SCIENCE

FOREX SCIENCE very important that you have control and Main Technical Forex efficient and many benefited from the Business Forex real, because it simply and basically, our goal is to achieve a profit trading or profits. So with this Forex Science which later became one of the main goals in the process LEARN FOREX us. However, usually without realizing it you will get it and turned into a figure who is more disciplined, patient, calculating, and can control themselves well. Since you can not possibly obtain a distinguished stable profits without FOREX SCIENCE.

SCIENCE FOREX you can learn little by little so you can easily dicerna.Awalilah this business practice with a demo or demo money first because it is not money nyata.Tetapi if that capital was $ 5 real money and can also be used to open the account and belajar.Nah take five dollars and apply science Forex you will learn as follows.

Knowledge About Forex

Forex Brokers

Brokers are intermediaries who bring together between seller and buyer. And in this case we use is a broker which has allowed us to transact online. By using this online broker trading business will be very easy and simple. Usually the broker has facilitated the application where we can easily order.

Forex Trading What are you going?

Trading can be done 24 hours a day, 5 days a week monday till friday
- Beginning of New Zealand & Australia market hours 5:00 to 14:00 pm,
- Then the Asian markets such as Japan, Hong Kong & Singapore at 7:00 a.m. to 16:00 pm,
- The European markets of Germany and England at 13:00 to 22:00 hrs
- Up to the American market at 20:30 to 10:30 pm.
With the long time interval, you can adjust when trading with your spare time.

Pips and cost-benefit calculation

The movement of units / lowest price in the Forex is calculated in units of points / pips. The value of each point will vary according to type of currency pairs (pair) and the type of contract.
Profit / loss = (Selling Price - Purchase Price) x contract size x lot
Example:
Buy 4 standard lot EUR / USD 1.2500 and Sell 4 standard lot EUR / USD 1.2570
Profit = (1.2570 - 1.2500) x 100,000 x 4
Profit = $ 2,800

Note: the majority of applications used for trading (Marketiva) there is a facility which automatically calculates profit / loss. So you do not have to do it manually.

Deposit / Withdraw

Deposit is a process where you fill in the balance / balance to be used for trading.
Withdraw is a process where you withdraw the balance / balance to dollars.
Deposit and withdraw it later will you experience when you have been trading with real funds. For the learning process or the beginning we did not need it, because most brokers have been providing facilities for trade with initial funding of $ 5 and virtual money (toys), often called the Demo Account.

Learning Forex

Why is it called the process, the point to can be a reliable trader, there is no dictionary or a formula for sure. You should find yourself a secret that is inside yourself. Capital nature or positive is that you must be disciplined and continue to improve the Knowledge / your knowledge.
Some important points which you can use as reference in stages to increase knowledge:
- Technical Analysis: Charts, indicators, time frames
- Fundamental Analysis: Knowing the market, and the effects on the movement of forex pairs
- Psychology of Trading: What factors determine the individual and the psychology of your trading future.
- Money Management: Setting the balance, lots, capital, and risk calculation.

Foreign Currency Risk

Forex is like a double-edged sword. With the Forex can make you rich quick, so understand about risk in Forex and not to be missed informasi.Bergegaslah before you have a lot of FOREX SCIENCE kesibukan.Demikianlah which certainly will be better able you apply to immediate practice.

Trading Forex with Fibonacci Lines Retracement and Profit levels

I have always been a fan of simple trading strategies that just work. This, I believe, is the case of trading using the Fibonacci series (which I have used for manual trading for about 2 months). As you may know, the fibonacci sequence is a progression of numbers where each number is the sum of it and the one before, hence 1,2,3,5,8,13, etc. The division between a number of the fibonacci sequence and the number just before approaches the golden ratio as we approach infinity. This sequence and, by consequence, the golden ratio, are found widely throughout nature and... Of course, in the forex and stock market.

Trading the forex market with fibonacci numbers is very simple, although it does require certain amount of "perception" to visualize the trends, breakouts, retracements, etc. I found this very good video on youtube that will explain trading with fibonacci levels in a much simpler way. The mechanism is as straight forward in the video as in metatrader 4.

Are You A Rational Investor

Let me start by introducing to you what is Behavioural Finance. It is the study of the influence of psychology on the behaviour of investors and their subsequent effect on markets. It combined the discipline of psychology and economics to explain why and how people make irrational or illogical decisions when they make investment decisions.

For example, many investors know that before they invest in a particular stock, the first thing they should do is: RESEARCH! But honestly how many of us actually perform this step? You may be surprised that there are many investors who have the ability to do analysis on stocks but often find themselves making rush decisions based on tips and advice of their so-call expert friends. So in behavioural finance perspective, these investors are ‘irrational’.

Irrational investors are easily swayed by emotions, they do little planning, lack of savings and have low risk tolerance. Interestingly, according to statistics, there is a relationship between risk tolerance and capital base. Large capital based investors tend to have higher risk tolerance, think long term and they are more rational as compared to small capital base investors. So that means if we understand the mindset of a successful rational trader, we can actually produce the same winning strategies that have been proven for years and decades for them. All we need is to establish some ground rules for our portfolio.

Here is a summary of the six reasonable guidelines that we know work for irrational investors:

1. Never attempt to time the markets; its impossible
2. Live below your means and save regularly
3. Asset allocation is the key to a winning portfolio
4. Buy and hold quality, and buy intending never to sell
5. Compounding guarantees long-term wealth-building
6. Do it yourself; millions do, especially millionaires

Bottom line: Nobody wants to think of themselves as an irrational investor. But the chances are four out of five that you are, and that youre probably in denial if you still believe youre rational.

Bottom line No. 2: Paradoxically, the biggest secret of the "Rational Investor" is that they know theyre irrational! So they use the six rules to protect their portfolio from their own worst enemy, their brains.


Happy investing,

Pauline Yong

Backtesting and getting it right ! How to correctly backtest an MT4 expert advisor

During the past few years I have been asked several times to write a tutorial about how to correctly and accurately perform backtesting on metatrader expert advisors. I have to say that I had not done so because there are myriad of other places online in which you can find information on how to backtest expert advisors but then I realized that many of these places are outdated and some others fail to give accurate information about how to really perform the process. So here it is, my very own tutorial on how to accurately backtest expert advisors.

First of all, you need to get some data in order to backtest an EA. Earlier version of metatrader 4 did not have a way to download data directly and this is the reason why many tutorials use the Alpari one minute data to perform the tests. This process is unnecessary and long, other people say that metaquotes data is crap. That is completely wrong as I have several examples of comparison between live and backtesting data with metaquotes data that show that the data received from the metaquotes server is just as good as Alparis. However, if you dont do the process correctly you WILL corrupt your data and render it useless for backtesting. Here are the steps you need to follow in order to perform accurate backtesting :

• Install a metatrader instance solely for the purpose of backtesting and do NOT open any demo accounts on it (broker DOES matter since some brokers use some non standard nomenclature for the currencies the backtester cannot associate, I recommend you use IBFXs platform as I know their currency names work ok). The reason not do open any demo accounts is because the updating of data from the brokers server can mismatch with metaquotes data and corrupt it (very important !).
• Now that you have the new instances of mt4 installed with NO demo or live accounts go to the tools menu, then open up the history center. Now you will see a menu you can open (click on the + sign) on your left with all the currencies which can have data downloaded. Go to whichever currency you want and open it, then double click on the one minute data icon and click the download button on the bottom left side. Say "yes" if it pops up a warning about using metaquotes data (this is normal, it is warning you about there being possible differences between your broker data and metaquotes).
• Exit the history center by closing it.
  
• Restart your metatrader platform.
• You should now me able to perform 90% quality backtesting from 1999. It is however very important that you do all the above process on a FRESHLY INSTALLED instance of MT4 with NO demo or live accounts added.
  

After following the above process you will have access to 90% backtesting on several currency pairs which may greatly aid you in the evaluation of newly programmed as well as the optimization of already programmed trading strategies. However, you should be ware that not all backtesting is meaningful and it is only useful up to a point. If you would like to learn what backtesting can be used for, when it says something and when it doesnt say anything as well as how to know if your strategy can be accurately evaluated with backtesting 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 !

Forex Trading

More and more people are asking me about forex trading, whether it is a sound investment and how they can be successful in forex trading.

Personally I think investors are good to expose themselves to various forms of investment as ways to diversify their portfolio provided they understand very well the risk involved in each type of investment. Forex trading involves higher risk than the usual equity investment that requires certain trading skills and discipline. Of course all these can be trained as you go along in the journey of trading, be it forex, futures or equity trading.

So if you were to ask me if it is a sound investment, my answer is "Yes" if you trade with a plan, this plan must state clearly your entry price, target price, and your stop loss.

Next, I would like to share with you my personal views on how to be a winner in world of forex trading.

1. Big Picture

Too many traders get too detail in the day to day, minute to minute trading which often make one get confused and frustrated. Identify the bigger trend first. For example, if you want to know which currencies are superior you need to know where the money is flowing to. In 2013 money has been flowing into the US market which caused the USD appreciated against other currencies. In 2014, analysts are expecting money should be flowing into the Euro zone markets especially the UK, hence we should expect USD, British Pound and Euro dollar are the superior currencies for 2014.

Next, which currencies are weak? The emerging market currencies are weak, the Asian currencies are weak, Yen is weak due to massive money printing, as well as commodity rich countries like Aussie dollar and Canadian dollars are weak too.  

With these big picture, we shall come to the next step: selecting the pairs.

2. Currency Pairs
When choosing the pairs, always pair a superior currency with a weak currency to get a clear trend in your chart. If you pair 2 weak currencies or 2 strong currencies together, chances are you would see a very irregular chart pattern that often lead you to no where.

3. Trading Plan
Finally always trade with a plan that spells out exactly what is your entry price and at what price you need to cut loss. Calculate your reward to risk ratio for every trade and stick to your plan strictly.

Other factors such as interest rates, current account deficits and other economic issues will affect the currency of a country too, but the above 3 items are basic ingredient for forex trading that I hope will help those who just started in currency trading to have a better picture.

Below is the USD index chart for 40 years. I see that the USD seems to follow a 7 year bull run chart pattern. 1978 - 1985, 1994 - 2001. If history repeats itself, the next bull run is 2011 - 2018. This is just my personal view that at least this is what the chart is telling me, you may view it with an open mind.

Good Luck in your trading!

Forex Expert Advisors Forex Machine Gun an Unbiased Review

Today I will be revieweing the last of the expert advisors which were released during the past month. This trading system - called forex machine gun - makes some very interesting claims about consistent profitability, controlled risk, normalized returns and non-indicator based trading. During the following paragraphs you will be able to read my review about this trading system starting with a careful analysis of the evidence provided by the authors and the trading tactics used by the system. After carefully looking at all the evidence I will also tell you my views about the like hood of long term profitability for this strategy and whether or not - in my opinion - this system is worth buying and testing.

The Forex Machine Gun has the world Martingale all over its website something which made me thing - in the beginning - that this would be another crappy Martingale system that has absolutely no chance of being profitable in the long term. Then I found out that what they meant was actually a different Martingale tactic called anti-Martingale which increments lot sizes with profitable and not with unprofitable trades. Of course, the anti-Martingale tactic is quiet unusual since it is not very effective for most trading techniques due to the fact that the tactic needs to have considerable streaks of consecutive loses to be successful.

So I was excited to see what evidence the guys at Forex Machine Guy could show to actually back up their claims of profitability based on an anti-Martingale tactic. What I saw was - sadly and not surprisingly - a lot of unreliable evidence. The only thing available on the website to actually say anything about the systems profitability is a video of a backtest shown which lets us see the anti-Martingale tactic in action and the profits it generates on simulations. The problem is mainly that the simulations are carried over the 1 minute time frame so actually results are completely USELESS. When simulations are run on the 1 minute time frame, interpolation errors make 80% of any entries and exits most likely flawed reason why profitability is most likely grossly overestimated and the trading systems simply will perform very differently in live trading.

The use of a lower time frame also suggests that very tight SL and TP values are being chosen, something that also makes the presence of live execution variables - such as spread widening, requotes, off-quotes, etc- of vital importance to address the true profitability of the system. The guys that made Forex Machine Gun dont show any investor-access live updated results, reason why there is simply no way to know if the system trades as it is said on the backtests. There is also an absence of ten year backtesting resutls (which would be worthless either way due to interpolation errors).

So the fact is that to proof that the forex machine gun has any like hood of being long term profitable we would need at least 5 years of investor-access verified live testing results that showed the system trading live, under real execution parameters. The fact that simulations simply CANNOT be accurate for this system forces us to take a long live evaluation approach instead of the usual backtesting and live/back testing consistency path (which although extremely easy NO commercial EA sellers ever take for some reason).

Due to the fact that the system does not have any reliable proof of profitability and due to the fact that no live testing evidence is shown I consider the Forex Machine Gun trading system NOT worth buying or testing. If the creators show 5 years of live testing results using an investor-access verified account I would be glad to redo this review and recommend the trading system.

If you would like to learn more about automated trading and how you too can develop systems that give accurate simulations and have a high chance of achieving long term profitability in forex trading please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Forex Expert Advisors StealPips an Unbiased Review

During the past few days I have received both spam and review requests from Asirikuy members for an expert advisor which has just been released. This new trading system called Steal Pips, promises to deliver consistent long term profits with a "price action" based trading strategy. On todays post I will review this trading system; as always I will look into the evidence provided by the authors as well as the claims made on the website to see if the Steal Pips expert advisor has reliable evidence to backup its claims or if its merely another over-hyped worthless system. Based on the evidence shown I will also evaluate the trading tactics used by the Steal Pips expert advisor and I will tell you if the system ir or is not worth buying and testing.

The Steal Pips website begins with some claims of "long term profitability" followed by a "live statement" which is supposed to show verified trading results. I have to say that this guy, which seems to be the same creator of the USDBOT (or at least using very similar marketing tactics) treats us like if we didnt know anything about forex trading. What in the world are we supposed to conclude from an account statement which is only 2 weeks long which is not verified by a third-party and which risks 10% of the account per trade ? Yes, thats right, if you look into the statement, the profits are achieved on a VERY high risk. Would anyone with any sense of sound risk management risk that much ? Absolutely NOT ! It is obvious to me that these results were obtained on a demo account (there is no proof of it being a live account, no investor access, etc) with the simple intention of showing high gains when in reality trying to achieve such results is bound to place the trader within reach of an account wipeout. Showing this result is not only insulting to peoples intelligence, it is also misleading and unethical in the sense that it makes people believe they can achieve a certain result in a "long term manner" when in reality these results are the result of a mere 2 weeks of trading using an abnormal and unsound level of risk.

The when we head down the website we find some backtesting statements which show us more about this systems trading tactics. The backtests shown reveal the use of progressive money management, doubling the lot size used after a loss (a Martingale system). On a single year backtest on the USD/CAD, these progressions reached their fourth level meaning that starting with a 2% risk, the person would have been risking 16% on a single trade. If only two more consecutive loses had been reached, the owner would have been risking more than 60% of the account ! Then we also see that the backtests are limited to a period smaller than 2 years, what are we supposed to conclude from this ? Obviously 10 year backtests are not shown because the Martingale probably blows up the account on some years and the author does not want these results to be shown for obvious reasons.
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I have to say that the StealPips expert advisor is a strong disappointment. Not only does it expose incomplete, unverified and extremely limited evidence of profitability but this evidence also reveals a system which is inherentely VERY risky, a system which will certainly put anyone who trades it on the brink of an account wipeout. I believe that the owner- if he is really a trader- knows that these tactics are extremely risky and that they put peoples equity at a great risk. Then why does this person sell such a system ? I find it unethical and simply disgusting for someone to try to sell a product merely on the concept of "hype" without any regard for the profitability his customers will truly have in the long term.

Due to the fact that the Steal Pips system uses Martingale money management (which eventually causes a wipeout) , and the facts that 10 year backtests are not shown and that "live" testing is extremely limited, uses a lot of risk and is not verified I consider the Steal Pips system definitely NOT worth buying and testing. In the future I would encourage the author of this EA to take a deep look into what he is selling and consider the real risk his customers are being exposed to when buying his products. A person selling a product has a responsability to educate people about the risks of what he or she is selling NOT a right to take advantage of anyones ignorance.

If you would like to learn more about what I have learned in my journey through automated trading and what I consider the best and most reliable road towards the building of wealth using trading systems made to achieve long term profitability with sound trading tactics and controlled risk 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 !

The Fx bandit Expert Advisor Review

I have been using the Fx-bandit expert advisor demo for about three weeks. The experience has been good (partially) and it has also let me realize the really bad things (in my opinion) about this expert advisor.

For the good side, fx-bandit has delivered, up until now, the profit margin it is supposed to give every month. Although one month is a very small period of time to actually test any ea, fx-bandit does some amazing trades and actually held profitable ones through the non-farm payrolls earlier this month (which is something most expert advisors do not do).

For the completely bad aspects, fx-bandits stops are activated after a certain amount of time defined by a variable in the eas configuration. So, if you place a trade today, the stoploss would not be effective until the time (in days!) given by this variable. This is a recipe for DISASTER ! It is not a question of if there will ever be a set of market conditions in which you will have a margin call before the stoploss becomes effective. It is a question of WHEN !

One of my core beliefs is that an expert advisor should be shielded from this kind of flaws. An ea should always have a stoploss which is effective from the time we enter the trade. It is only a question of time then, before the fx-bandit ea gives back all of its profit to the market. As I have told you, not a matter of IF a matter of WHEN.

This is true of all similar expert advisors without a stoploss. It is never a question of "will there be a time when you will have a margin call" it is a question of when. This also explains why this expert advisor seems so profitable. It generates income through this excessively risky strategy, (in my opinion) then most likely gives it back in a single trade.

I do NOT recommend this ea, in my opinion, the trading style is just too risky to be included in our expert advisor portafolio.

Can Ranging Markets be Exploited with an EA

As you may know, I have always talked about the necessity to tackle an inherent characteristic of the market in order to develop a profitable automated trading system. I have always advocated for the exploitation of the trend as a basic and inefficient (in the sense of a manifestation of market inefficiency) characteristic of the market but I have been asked a few times if other characteristics of the market which exist can be exploited. This is a very interesting subject as exploiting another type of market inefficiency would mean that we could develop a more robust trading portfolio.

Several people have asked me if "ranges" can be exploited with a significant gain in the fx market using an EA. In order to tackle this problem it seems obvious that we would need to analyze the development of ranges in the forex market . In short, the following things :

• What is the magnitude of a usual range in a pair as a function of volatility ?
• How many up/down cycles on the range are done in average ?
• Does the number of cycles depend on volatility ?
• What is the frequency of these cycles ?

As with trends, we would need to have see things happen a little bit before we can enter the market. We could just enter a trade when price does two cycles inside a range and we would enter for a profit within a third. The logic would need to find these ranges (which can be found easily with high and low schemes on a fixed number of periods in the past) then the system should see how many up/down cycles have been done and then it should decide to enter a trade accordingly. The EA would have to adapt against changing volatility and hence adjust its logic to varying cycle numbers, amplitudes, etc.

Do I believe if such a system could be profitable ? Yes, of course, ranging is what I believe to be an inherent characteristic of the market. However the way in which ranges occur is much wider than the way in which trends happen and therefore it would be harder to define and enter/exit these trades but if done appropriately, there is no reason why we could not have a range trading EA as a part of our portfolio. This EA would do better on ranging periods while losing money slowly in trending periods while our trending experts would do the opposite.

Anybody up to the task ? I would love to hear your ideas about the specific logic and programming approaches you would use to make such an EA reality. Also anyone who has done any statistical studies to answer the questions I posted above is also welcome to leave a comment.

Finally, if you would like to learn more about how you can design and program your own long term profitable systems or how you can trade a freely available long term profitable system in the fx market 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 !

Judging by the Amount of Trades Does it Really Matter

New traders seem to have a fascination for strategies that trade often. One of the points I have noticed sellers always emphasize when attempting to sell an expert advisor is its trading frequency. People will look for the system that trades the most because "the more you trade the more you make" seems to be the ruling philosophy out there. However few of these traders ever stop to think if trading frequency is really a good or a bad thing. It is important to consider other factors when you take into account trading frequency and this will eventually lead any careful trader to realize that higher trading frequency is generally a bad thing and very rarely a positive characteristic of a trading system. Within this post I will discuss the subject of trading frequency and what the trading frequency of a system tells and doesnt tell us. I will also talk about the consequences of both styles of trading and why an intermediate system - that averages about 1 trade per week - seems to be the best answer.

You may remember that "infrequently trading" robot you bought that didnt seem to go anywhere. It waited and waited and traded only once or twice every month without bringing you any substantial profits (just a draw down) within the first 6 months of trading. You are disappointed and you want a system that trades and brings profits to you lightning fast. For this reason you decide to change for a system that trades quickly and seems to be fulfilling your promises, getting you a 50% profit on your account on your first month. You think - I was right - trading frequency was definitely the answer because the more you trade a "profitable system" the more money you make.

I believe that this is the story that goes around time and time again and what causes the general perception that "higher trading frequency" is better because it achieves faster profitability. In reality it doesnt necessarily do this but it only ensures that there is a faster turn out of the systems character and increases the number of trades per draw down and profitable period. So with a system that trades very often (5-10 times per week) you may get a lot of profit very quickly when the market is favorable and then when the market exposure is cashed you will get a lot of loses.

To be clear here, the trading frequency of a system is only an aspect secondary to the systems profitable character. You can have a system trading twice a year achieving the same profitability as a system that trades 10 times a week with some differences that make the first choice better. The most important thing here is the accuracy of the measurement of profitability. Generally systems that trade very often trade lower time frames and lend themselves to further broker dependency and inaccurate simulations while infrequent systems trading higher time frames will give very accurate and broker independent simulations that will allow you to have MUCH better estimates of profitability.

It is also true that the "effort" a trading logic needs to do to come out with profit if it trades frequently is much higher because it needs to make up much more money in spreads. A system that trades an average of 10 times per year pays only 10 times the spread while a system that trades 200 times each year pays 20 times more.
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The fact is that the only advantage that frequent trading systems have over infrequent ones is the actual statistical significance of the simulations which is higher for a frequently trading system (if the simulations are indeed accurate). So a system that trades only once each year will have only 10 trades for the past ten years (which could not be interpreted as being long term profitable or unprofitable due to the small size of the sample) while a system that trades 100 times each year has more than 1000 trades which are more than enough to establish long term profitability - again - given accurate simulations.

However the advantages we get when we lean towards systems that trade infrequently is higher since we have an overall reduction in trading costs plus a gained accuracy in simulations which are vital to address the profit and risk targets of our different trading systems. For this reason the best compromise between both worlds seem to be systems that average 1-1.5 weeks every week with about 50-75 trades per year. These systems are generally traded on the one hour charts although use of higher time frames would also encourage less broker dependency and higher reliability. For example, the Ayotl trading system - my implementation of the turtle trading system - trades on the daily time frames with about 10-20 trades per year, giving very accurate simulations and a general lack of broker dependency. Systems like Watukushay No.2 trade much more frequently but this comes at the cost of higher broker dependency and spread costs due to the lower time frame used (one hour).

So as you see, more trading doesnt mean better since when this is taken to extremes simulation quality is drastically reduces - to the point of being pointless - and spread costs become a dramatic part of your trading systems profitability. If you would like to learn more about automated trading systems, their characteristics and development 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 !

The Asirikuy Website A Milestone Achievement

Few times since the beginning of my blog I have had the pleasure to announce a milestone achievement. The introduction of my ebook and newsletter were certainly very important to me but today I am going to show you what I have been up to for the past few months. Todays post will be dedicated to announcing the official release of the Asirikuy website. What is the Asirikuy website besides another weird name Daniel likes to use ? The website -besides the end of a lot of php and flash edition- is the culmination of more than 2 years of arduous work and development on the achievement of profitable automated trading.

Many of you may be wondering...What the hell does asirikuy mean ? It is a very simple Quechua word which literally means : smile. Because that is what I get after so many years of dedication to the forex market and this is what I want people to get when they trade. I want people to get a smile.

The asirikuy website will be from now on the place I will use to publish all the newsletter related materials including videos, weekly newsletters, myfxbook links, etc. All my newsletter subscribers will become asirikuy website members and through the website we will develop a community around the goals and methods outlined on the homepage (all newsletter subscribers should have received their asirikuy logins and passwords by now, if you are a subscriber and you havent been able to access the website please email me ASAP!). The website will also allow me to share many more things than what I could previously achieve through the use of FTP servers. I will be able to easily post news, research results, tips, etc. The website definitely also makes life a lot easier for my subscribers with easy to access links for all the content plus the elimination of the need to weekly change FTP server passwords.

My objective for this year with Asirikuy is to make it the best source for people interested on automated trading on the internet. I want us to have the most thoroughly developed and tested automated trading systems online with the most sound concepts of long term profitability and capital preservation. I want people to view Asirikuy as an education center to truly acquire confidence and learn how to become long term profitable in automated trading by truly understanding the trading systems used, rather than just any of the other websites which just mindlessly review everything that comes out on the market. with no idea or perspective about the long term profitability of the systems they trade .By the end of the year I hope we have at least 6 or 7 trading systems and at least 30-40 live accounts to show the world how there is a way to be long term profitable when sound trading tactics and analysis are used.

With my public release of the Asirikuy website also comes a major change to the newsletter subscription. It became clear to me after writing the whole Asirikuy website and thinking about my long term goals that in order for people to understand my trading systems and trade them to their fullest the ebook is an absolute must. Reading the ebook and having the live testing information as well as the weekly newsletter and training videos will allow traders to get a full grasp of what is going on and actually have a very good chance of becoming long term profitable with forex automated trading.

For this reason the membership to Asirikuy will cost 30.12 USD for the first month and then 7.21 USD for subsequent months. This way I will be able to unify all the content and have people get access to all the ebook, newsletter and both video databases (with more than 8 hours of training videos). Current newsletter subscribers will also get the ebook and access to the ebook video database. People who have previously purchased the ebook will be able to join the newsletter for the regular 7.21USD monthly fee (just send me an email telling me your interested and Ill send you a link to issue the payment).

I am also very interested in hearing what you guys think about the website and the idea, please leave any comments you may have ! :o)

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

Margin of Safety

"A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable and rapidly changing world." Seth Klarman



By far the most effective behavioural finance strategy which is highly recommended by many investment gurus is value investing. The virtue of value investing is that investors buy at prices that are already low, so there isn’t much room for further down play. I would like to introduce to you our "Father of Value Investing" - Benjamin Graham.

Benjamin Graham
Benjamin Graham, born in 1894 witnessed the devastation of the 1929 crash and has since developed resilient techniques that could be used by any investor. He popularized the examination of price-earning (PE) ratios, debt-to-equity ratios, dividend records, net current assets, book values and earnings growth. That earned him the name of the “Father of Value Investing”. He brilliantly concocted the ‘Margin of Safety” theory that has gained tremendous support across the finance industry. Graham defined margin of safety as the margin at which a stock can be purchased with minimum downside risk.

There are many criteria for Graham’s margin of safety investment approach, the most stringent is this: Purchase the stock with price not more than two-thirds of Net Current Asset Value (NCAV).

How to calculate the NCAV?
Net Current Asset Valuation (NCAV) is computed by total current assets less total liabilities.

Example – Calculation for NCAV
RM’000
Cash at bank 200
Debtors 100
Inventory 100

Total Liabilities 200
# of shares 100

Share price 1.80

In the example, given that the total current assets are RM400,000 and total liabilities are RM200,000, the net current asset per share is RM2 which is lower than the current market price. However, it is still not good enough as according to Graham’s criteria, the purchase price must not be more than two-thirds of the NCAV which is RM1.33. Therefore, we will not purchase the stock.

The margin of safety for this case is 26% (the difference between current market price and the conservative calculation using Graham’s criteria) which is lower than the minimum margin of safety of 33%. Buying at steep discount using the margin of safety approach can help to cushion the negative surprises in the financial market.

The above theory looks nice in theory but it is not very practical in the modern world now. Using this method, I cant find any good bargain because most of the companies have more debt than their current assets. But this method does screen out those companies with solid cash position in their balance sheet. Perhaps, we can improvise the strategy a little, rather than 2/3 of NCAV, maybe we can multiply the NCAV by 2 or 3 times instead.

Happy investing,
Pauline Yong