The Peril of Printing Money

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

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

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

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

So whats the consequence?

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

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

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

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

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

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

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

Happy investing,

Pauline Yong

Stock Crash

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



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



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



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



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



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



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



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



Happy investing!



Pauline Yong

Better Expert Advisors Volatility Adjusted Take Profit and Stop Loss Values

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

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

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

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

If you would like to learn more about free ATR adjusted expert advisors and other free and commercial expert advisors I have reviewed please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

The Vicious Cycle of Expert Advisor Testing

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

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

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

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

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

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

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

If you would like to learn more about the systems I have tester or I am currently testing please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Its Simple Either Youre Honest or Youre NOT !

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

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

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

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

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

The truth remains the same, either youre honest or youre NOT. Either you are willing to show all possible evidence that your system is profitable or you have something to hide. If you would like to learn more about the systems I have programmed with long term profitability in mind and how you too can learn to design and program systems like these please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Living From Automated Trading System How Much Money do you Need

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

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

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

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

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

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

Well, if you would like to learn more about commercial and free expert advisors I use to trade, experts I have programmed, bought and reviewed, please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Why Keynesian Model Doesnt Work for the U S Economy

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

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


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

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


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

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

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

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

Happy investing,
Pauline Yong

Trading the Forex market for Profit as a team

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

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

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

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

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

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

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

Of course, this is only an experiment and by no means does it change the fact that I am still experimenting and learing from automated trading software, which I think, is the real solution to the forex trading profitability problem. If you have liked this post or any of my work please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

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

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

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

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

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

In the end it seems that the removal of Friday from trading is more of an irrational fear caused by the psychological impact and "probable loss" from gaps than a good practice based on statistical evidence. When using systems that have sound trading tactics and modestly large SL and TP targets it has been evident that removing Friday trading has only detrimental effects on their long term performance. Of course if you would like to learn more about the development of sound trading systems and how you too can use, design and program your own systems based on realistic profit and risk expectations please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to trading systems. I hope you enjoyed this article ! :o)

Forex Expert Advisors GBPBOT an Unbiased Review

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

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

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

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

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

Moving Averages and Its Applications

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

Five Common Mistakes in System Optimization

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

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

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

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

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

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

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

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

Forex Automated Trading EA Championship Worth the Trouble

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

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

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

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

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

Stay on the sidelines and wait until the ea has a significant amount of live testing before you "jump in" just by thinking, "it won the contest". If you would like to learn more about profitable free and commercial forex expert advisors please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Ending the Year By Hearing You Out o

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

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

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

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

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

All that said...

!! Have a Happy New Year !!

If you would like to learn more about the content of my website and learn about how you too can be profitable with long term profitable trading systems designed with sound trading tactics please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Why I Like Tech Stocks

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

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

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

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

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

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

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

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

Happy investing,
Pauline Yong

My Sorry Excuse for a Trading Journal

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

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

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

Again, for all of those who have been looking at a journal file that was not updated, I am sorry, but from now on the journal will be one of my primary concerns related to the website. However if you would like to learn about automated trading system and what can be done to design profitable one please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

What Doesnt Change Talking About Inherent Characteristics of the Market

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

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

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

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

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

December is Here

Today is a very special day, December 01. The end of the year begins, Christmas comes and the forex market starts to change into a very "untradable" and difficult beast. What is so special about December and why do most people avoid this month for trading ? Why is it that trading systems generally accumulate more loses in December ? Today I wanted to write a post dedicated to this wonderful month that on top of bringing us happiness and joy (my anniversary is in December :)), brings us a lot of confusion and problems in trading. Through this post I will try to explain the general characteristics of December and why we should avoid trading it or not.

What is so special about December in the first place ? (Besides snowmen, Santa and Saturnalia) Well, December is the last month of the year and as such many traders and institutions, specially large ones, need to close their positions in order to close their books and pay their taxes. This is not only true in the US but in many other countries around the world in which tax paying, balances, profit targets, and other important business needs to be carried out at the end of the year. What does this mean for us the poor mortals ?

December and January usually mean that the big boys will be taking their profits and closing their year long positions. Hedge fund managers, banking institutions, investment funds will start to close their profitable positions, not only in currency pairs but in other assets which may generate exchanges that may significantly affect currency exchange rates. Last year for example, there was massive profit taking in Dec/Jan from the very fast downtrend we saw because of the economic crisis on the EUR/USD. Such a retracement, which moved the market nearly 1000 pips in two weeks proved to be bad for many traders which tried to sell the retracement thinking that a down trend was still in place.

December also means low liquidity. This is mainly for two reasons. First, no one wants to take positions at the end of the year in the big institutions and central banks and second of all, everyone is on holiday and most people who trade will not be trading the markets. What does low liquidity mean ? Deviations from technical analysis. Probably export/import exchanges and profit taking take much more importance in December and non speculative moves which are inherent to the market may start to play an important role. The tendencies you have seen for most of the year can disappear and your technical analysis can betray you. This is the reason why many people avoid December trading. Because the beast becomes unpredictable (even more so !) and many times the usual trading tactics stop working.

Does this mean you should not trade in December ? well, certainly you can trade in December. For example, there are some automated trading systems that in fact accumulate more profits in December because of the directional counter trends and there are some people who know how the market behaves during this month and can take benefit from it. My advice is simple, be careful with December and January. The first time you face these months dont trade them, observe them and see how they deviate from what you would have considered normal. Would you have been able to profit ? Why do you think the movements happened ?

My invitation, analyze this December and we will write some conclusions in early January. I for one will trade this December with my S&R system, well see if I am able to get good results out of this month. Of course, all automated trading system will trade it, since they are all 10 year long profitable there is no fear for the month of Santa :). If you would like to learn more about long term profitable automated 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 !

New Improved Forex Killer Strategy long term trading

Well, as many of you may know, I have developed a new forex killer strategy over the last three weeks with good results. This strategy is much simpler than the older one I had published and focuses mainly on the four major currencies. So we will only be trading EUR/USD, USD/JPY, GBP/USD and USD/CHF. I also recommend forex killer users to take a look at automated trading systems, as they may prove to be more profitable and more hassle free than forex killer.

The strategy uses clever money management to improve our chances of taking profit over trading positions. For this strategy, we will use our forex killer software and the daily data for the major currencies saved from metatrader.

- For this strategy you will trade at the end of each trading day.

- Save the daily data for each one of the major currencies in metatrader 4

- Load the data on forex killer

- Calculate the results for all the currencies

- We want a short and long term signal probability higher than 75%. Yes, Long AND Short term graphs MUST have a probability higher than 75% or we do not enter the trade.

- After you get a positive signal go to your trading platform and open two trades in the direction of your signal. Each trade is opened so that a 200 pip loss is equivalent to 1% of your equity.

- Both trades will have a one hundred pip stoploss, one of the trades will have a one hundred pip take profit while the other will have a 100 pip trailing stop and a 300 pip take profit. This clever management means that after the first take profit hits, the other trade is risk free.

- After the trade is opened, wait until both orders are closed through either one of the market orders.

I have tried this strategy for the past 3 weeks on a demo account with very good results. I have had about 6 positive signals which are equivalent to 12 trades. From all these trades, 9 were profitable and 3 are still opened.

I hope you enjoy this new and easier to use, long term trading strategy for the forex killer software. I also encourage you to get my ebook on automated trading systems if you are new to automated trading systems and would like to find a profitable one !

Anchoring Bias

In Professor Kahneman and Tversky’s 1974 paper, they describe anchoring bias as this:

“In many situations, people make estimates by starting from an initial value that is adjusted to yield the final answer. The initial value, or starting point, may be suggested by the formulation of the problem, or it may be the result of a partial computation. In either case, adjustments are typically insufficient. That is, different starting points yield different estimates, which are biased toward the initial values. We call this phenomenon anchoring.”

An experiment was done to prove this theory. There were two groups of students given the following arithmetical expressions respectively and were to give an estimate within 5 seconds.

Group A: 1 x 2 x 3 x 4 x 5 x 6 x 7 x 8

Group B: 8 x 7 x 6 x 5 x 4 x 3 x 2 x 1

Group A made a median estimate of 512, while group B made a median estimate of 2,250. The motivating hypothesis was that students would try to multiply the first few factors of the product, then adjust upward. In both cases the adjustments were insufficient, relative to the true value of 40,320; but the group A’s guesses were much more insufficient because they started from a lower anchor.

Similarly, investors always look at the historical price of a stock as the reference point and act on it. Proton used to be the darling of the stock market with prices around RM8 - RM10 in the early 2000. However, due to Asean Free Trade Agreement (AFTA) and other competition, Proton’s market share has plunged from 60% to 24% since 2000. When the stock price declined to RM6 in January 2006 many investors thought it was a bargain (as they reference from the high of RM10) and started to accumulate the stocks. Little did these investors know that Proton later fell to below RM2 two years later.

In another example, investors like to anchor on the 52-week high and 52-week low of stocks and make reference from these two numbers. They tend to think that a stock has the potential to get back to its 52 week high which often leads them buying into over-valued stocks.

Investors like to predict stock prices based on their past performance. However, if you are the proponent of efficient market hypothesis where it says stock price follows “Random Walk” theory, there is no way you can predict the future price. Just like the fair coin game, the previous flips have no relation to the subsequent future flips.


Happy investing,

Pauline Yong

The Three Commandments of the Successful Forex System Trader

Very often people will ask me what is needed to achieve some success in automated trading. I get asked if it is actually possible to live "making money while you sleep" and to exploit market inefficiencies as the market changes. Often people I explain my line of work to are extremely skeptical. For example a person I met a few weeks ago at my sisters wedding asked how this was possible and that if this was possible, why isnt everyone making a profit from the forex market. Oh well, it certainly is useful when you talk to people who have absolutely nothing to do with trading - as a matter of fact - I had not found myself in such a difficult position to explain something for quite a bit of time. In the end, I told her that - in analogy with getting to heaven and the ten commandments - people do not succeed with the use of automated trading systems because they do not follow some very simple principles. I explained to her that there are simple rules that need to be followed when you trade these systems and that deviations - even if only small - can end up making a person fail to achieve the ultimate goal of long term profitability in automated trading.

On todays post I want to talk to you about these "three commandments" I explained to her and why each one of these simple rules is absolutely vital to get success in trading, specifically with mechanical trading systems. Of course, some of you may disagree and some of you may agree but in the end these are the rules I have found to work for me and what I believe "raises the bar" so that only a few traders are able to get to this point. Evidently I have not been enjoying this position for decades and therefore I am still tempted and strive to stay with my "three commandments of the mechanical system trader", hopefully following these three seemingly simple - yet very complex rules - will keep me in my way towards a few decades of forex automated trading profitability :o). Do you want to know more about these rules and whether or not they apply to your current situation ? Keep reading to find out !

1. You shall understand what you are doing. Perhaps this eliminates most of the people out there who are currently wanting to become profitable in the long term using these systems. Understanding is a vital part of success and achieving a profitable position in automated trading will simply not be possible - from what I have seen and experienced - if you do not perfectly understand everything you are doing, the systems you are using and how automated trading works. Understanding needs to be deep and should NOT be merely superficial. Understanding should cover deep knowledge about your systems logic, the inefficiency exploited, etc. If you have not gone through at least a few years worth of trades of the system you are trading in a trade by trade basis doing a trade by trade in-depth analysis then you still need to go a long way before you can consider that you truly know what you are trading. In the end, any effort you wont do is an effort somebody else will make and that someone will take your place as a profitable mechanical trader. So if you want to avoid efforts, this is not the place to be.

2. You shall know what to expect. After knowing what you are doing comes to know what you should expect. Traders who are successful using automated trading systems know exactly what to expect from their systems, they know all the characteristics of the systems they trade and precisely what their predicted draw down and profit periods are like. People who understand their automated trading systems and analyze them extensively know the accuracy of their simulations, the length of profit and draw down periods and all other characteristics of systems. Again - as with understanding - we are not talking about a superficial understanding of what to expect. Anything that happens with your system that you do not take into account within your plan will make you unsuccessful so you have to be prepared for every possible case. What if your system reaches a draw down deeper than the simulations ? what if the system has double the number of predicted consecutive loses ? You should know what the meaning of these events are related to your systems performance.

3. You shall evaluate your systems. The last commandment of the successful mechanical trader is to evaluate. You cannot be successful if you trade a system with blind faith - because every system can fail - and continuously evaluating the performance of your trading system and the current market conditions is of incredible importance to achieve success. Knowing when a worst-case scenario will be reached, if the current draw down cycle is too long, if the system is now too risky to be traded, etc is one of the most important aspects of successful mechanical trading.

For people who read this blog who are also Asirikuy members the three above mentioned commandments may have sounded very familiar as I refer to them continuously within the Asirikuy website videos as the Asirikuy mantra : understand, expect and evaluate. From my experience these three simple things are the only actual skills you need to be a successful system trader. You simply need to understand, know what to expect and evaluate performance.

Of course, easier said than done :o) Maybe the first point seems to be the hardest - and it probably is- but the second and third are NOT any easier. Knowing what to expect from a system requires extensive analysis and it requires you to have a very clear understanding about the role and limitations of simulations and the whole way in which the system changes as market conditions start to develop, not to mention a deep understanding of system cycles, their extent and composition. Evaluating is also not very easy to do since it requires the confidence to run your system on live accounts and to weather the profit and draw down cycles trusting your expectancy analysis to be right.

My advice for you is therefore extremely simple. If you want to be successful in automated trading, follow the above three rules and I can guarantee that you will - at least- get to the point where I am today :o). If you would like to learn more about my journey in automated trading and how you too can build and trade your own automated trading systems based on sound trading tactics please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Forex Expert Advisors FxReports an Unbiased Review

Several weeks ago a website visitor asked me to review an automated trading system company and the products they offer on their website. The website looked interesting to this visitor since they offer forward testing account results updated through myfxbook with confirmed investor access and trading priviliges. Of course, I am interested on reviewing any new systems out there that may appear to be profitable so today I am going to fulfill his request and review the FxReports website and their Arthur, Excalibur, Gneuviere, Lancelot and Merlin automated trading systems. My review will focus on evaluating the claims made by the author against the evidence provided on his website. In the end I will give my opinion on the experts and if I consider them worth buying and testing or not.

First of all, the author of the FxReports website does make a decent web site. The web page does not have any hype and the trading systems are portrayed without any claims made whatsoever. It is my believe that the author wants us to infere the actual profitability of the expert advisors from the actual forward testing results shown. I also like his scam section where he has a list of several different expert advisors which are copy-cats of different freely available trading systems. Definitely by showing that many commercial experts are actually rip offs of free ones he is showing people that definitely they are just buying dreams. Tthe free experts are always available out there, just without the sales pages.

What about the websites forward testing results ? Well, this is were things start to get a little bit bad for the trading systems offered by FxReport. My problem with his tests are quiet a few. All of his trading systems are run on demo, NOT on live accounts and this poses a HUGE problem because of the strategies used by the trading systems. All of these experts take profits in very small amounts, most on even less than 2 or 3 times the spread. This is the classical problem of demo/live testing consistency found when one tries to take small profits from the forex market. When you move that to a live account you will see that reality changes a lot because small profits are affected deeply by requotes, spread widening, etc, which are what mainly differentiates a live from a demo account.

I have seen many times this type of experts which "scalp" different pairs turn to dust when they move to a live account. There is also the problem that when taking such small profits GREAT differences between brokers arise and broker dependency becomes a huge issue. The author obviously does not include backtesting results because at such profit levels the results would be totally meaningless. Probably the EA on backtesting would make trillions due to one minute interpolation errors. There is then no way to accurately measure long term profitability which means that we have no idea if next month the EA will stop working on the market, something which most of the time happens with systems that rely on very low take profit values.

The lack of data to assess long term profitability, the lack of accuracy of forward testing results on this type of systems and the absence of live accounts (which anyway would have to be at least 2 years or older to give a true picture of the system, due to the absence of reliable backtesting) make all the expert advisors on the FxReports website NOT worth buying or testing. I would advice the author of this EA to take the profit of selling 2 of these experts, put up 3 micro live accounts on IBFX, 3 micro live accounts on Alpari US and run a live test so that people can really see the system run on the real market. If this evidence is provided I will be glad to rewrite my review to include this new trading evidence.

If you would like to learn more about long term profitable systems, how to design them, program them and trade them profitably please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

The Missing Piece of the Turtle Trading System Trading Different Instruments

As I said in yesterdays post, there is still a lot that needs to be done in order to have a truly complete implementation of the real turtle trading system. Up until now, I have managed to program Systems No.1 and No.2 accurately which make the main logic of the turtle trading system complete. The system can now be traded to its fullest on a single currency pair with any system you choose to trade. Remember that the creator of the Turtle Trading System stated that you could use any of the two systems, whichever you liked the most.

However there is still a big chunk of the puzzle missing, this chunk is portfolio management. Up until now I had decided not to make a lot of effort to program this since we cannot backtest trading of several currency pairs at the same time, however it seems logical to program this now that the initial parts of the system are ready.

So what is so important about portfolio management ? Well, the turtle traders had some very special rules about the way in which they were supposed to trade separate instruments in order to reduce the risk in which they traded their accounts. For example, they were only allowed to enter a number of positions on very correlated instruments while they could enter more positions if the instruments were loosely correlated. This is a sound strategy since correlated instruments will usually move together and therefore placing too many positions on closely correlated instruments would be like putting a lot of positions with the same "directional bias". However, placing more positions on breakouts of instruments that are loosely correlated may give an opportunity to diversify risk.

This adds another programming challenge since multiple currencies (in the case of the forex market) need to be monitored at the same time and currently placed trades need to be taken into account in order to allow or veto the opening of new position within the trading account. However by analyzing backtesting results I have seen that several losing positions may have been prevented in the GBP/USD, EUR/USD and USD/JPY simulations if they had been prevented from entering trades by a correlation criteria. This in fact may mean that risk can be reduced greatly by the implementation of the portfolio management strategies used by the turtles.

To implement all this portfolio management I will merge both experts for the No.1 and No.2 systems and create a third expert that is able to trade whichever system the person wants to trade plus calculate and decide whether or not to open positions based on the amount of currently opened positions and the degree of correlation amongst the instruments traded. After this it will be a matter of years before we know if the strategy does reduce risk and increases the profitability of the system but I am certainly going to include this as a part of my "retirement portfolio" as I have already done with the Turtle Trading System No.2 trading the EUR/USD. If you would like to learn more about profitable trading strategies and how you too can trade and develop your own long term profitable automated 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 !

To Optimize or not to Optimize The winalot and EAzeGor expert advisors

If you have been reading my blog recently you may have read my reviews on the winalot and EAzeGor expert advisors made by the easy-ea company. You may have noticed that both of these reviews had a quiet favorable tone to them because I think both of this experts fulfill a good chunk of my criteria for a long term profitable expert advisor. However, I did say in both cases that backtesting from 1999 was missing and that such testing would be necessary to assess long term profitability.

After requesting backtesting results from 1999 the company answered that they did not have such tests because experts were optimized on an 18 month basis and were then traded in optimized settings. This is obvioulsy the reason why such limited backtesting is available on their website, because of course, they cannot show further backtests if settings are bound to change on the middle of the experts testing.

Now, the big question arises. Is this good or is this bad ? To optimize or not to optimize ? Well, I of course always favor expert advisors that can self adapt to a certain extent like the gods gift ATR because even though there is an inherent lag in the adaptation, the lag is less than 30 days long and the expert just worries about aligning itself against market conditions. Optimization using 18 months of data could also be a strategy you could use, however, it has to be said that if market conditions for the next 6 months are very different from the past 18 months, then the system is likely to fall into draw down but then, it might realign once optimization is done again. The live testing done on both experts confirms at the moment that this optimization strategy works albeit on the changes happening during the past year.

Given this fact, the fact that considerable live testing exists and the fact that the expert advisors trading style fits many characteristics I demand from profitable trading systems I will say that this experts are worth testing. From next Sunday a demo account will be opened and the testing of the winalot EA will start with testing results being commented each week on my weekly newsletter. Susbcribers should also expect the next newsletter to include demo account investor access information.

If you would like to learn more about automated trading systems and what the necessary characteristics for a profitable trading systems are (and why most commercial experts out there just fail bluntly) 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 Slasher an unbiased review

Today I will focus this review on the review of the forex slasher expert advisor which was suggested to me for review by a customer. I have to say again that I greatly appreciate people taking the effort to find systems and ask me to review them. Despite of the quality of a trading system for me its important to review them all so that people will not potentially fall onto the traps usually setup by many commercial expert advisor sellers. On the other side, thanks to this suggestions I have been able to find some worthwhile trading systems. Now lets focus on the forex slasher review.

The first thing that greets you when you open the forex slashers website is a huge banner that advertices the experts claim : "Discover the market slashing robot that has silently swiped $378,137.49 from the so called experts in the past year alone... completely on auto-pilot!"... Well, again, this people have many ethical problems. Whyi n the world would you tell people that an expert advisor did something it DID NOT do. The forex slasher trading system has a backtest that shows a $378,137.49 profit, that does not mean anything since we dont even have access to the experts statements to see if the expert is subject to backtesting interpolation errors or other problems so this testing is worthless for us.

Now what other evidence does the author offer to backup his claims ? Well, there are a lot of trading pictures that I could make using mt4 with absolutely no problem, so this are NOT evidence of profitability as we have NO IDEA if this are real trades, what the loses are, I mean, we have no idea about the way this expert advisor trades. For all we know, this could all be made up images and the expert could trade totally different.

Now there is something to get a good laugh from on the website. See the live testing ? What ? A live testing statement with only 4 trades which we dont have any more information about ? We dont even know if these trades were taken in an hour, in a year, in 10 minutes. Come on ! I could randomly make trades in forex demo account until I got a 199 profit in 5 minutes from 5 trades and then save a snapshot of this to place on a website. Please, dear expert advisor creator, again, your customers are NOT retarded and you should know better. Dont insult your customers intelligence and dont be so unethical to exploit the naivity of those who cannot really figure out that your expert cannot live up to its claims.

Again, another expert that is totally NOT worth buying since the creator fails to provide even the most basic evidence to evaluate how his expert trades. Why doesnt he provide 10 year long backtesting with at least a 6 month live test ? Well, because the system did not make $378,137.49 last year and it will not make that next year or the year after that one. If you achieve these results on a live account, just leave me a comment and I will rewrite this whole review... Meanwhile, this system is a total waste of time.

If you would like to learn more about how you evaluate trading systems and know the real usefulness of live, back and forward testing as well as a way to start trading profitably with a free long term profitable trading system please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed this article !

The Dangerous Illusions of Short Term Profits in Forex Trading An Obstacle Towards Long Term Success

Perhaps one of the most important aspects of currency trading - in my opinion - is the focus in realistic and accurate long term profit and draw down objectives. Nonetheless, through the past several years I have observed that people almost never focus on long term investment and - more often than not - their decisions are based on short term and meaningless results that give them extremely little information about the real trading characteristics of the system they are using. On todays article I want to discuss with you why most people have short term focus, why it is so dangerous to have one and why this is one of the chief reasons why most people will never reach the goal of living from either manual or automated forex trading.

The truth is that in the beginning people want results and they want them as quickly as possible. Since people who are new to currency trading crave for fast results they often choose and run systems that have showed very high profitability during small periods of time. Part of this is the reason why Martingales and scalpers are so successful with new and less experienced forex traders, they show people fast evolving equity curves with little draw down that seem to answer the prayers of people looking forward to making a living from currency trading.

The main problem here is the focus on profits most new traders have while their focus on draw down is extremely limited. New traders often believe that a few months of profitable results mean that the system will be able to reproduce those results infinitely or at least for long enough as to get them a huge amount of profit to ease all their financial worries. When an experienced trader looks into most of these short term results he or she sees a system with a huge market exposure, unsound trading tactics and lack of proper long term analysis that shows the systems reactions under varied market conditions.

In the end what happens is that these new traders neglect to see that they are looking at a short term profitable cycle and that in the long term the risk level they are using will inevitably lead them to a total loss of their trading funds. It is - if you ask me - a matter of having vision and thinking about loses in the long term. The first question I ask myself when I intend to use a new trading system is : What are my loses (draw down periods) going to be in the LONG term (5-10 years) ? Almost all new traders fail to ask this question while they get overly excited about some short term live results which can range from a few months to a year of trading.

What I have seen after this - time after time - is that the EA goes into a draw down cycle and some traders get wipeouts while others freak out and stop trading the system. Traders then start to believe that "automated trading doesnt work" and that "all systems fail as the market changes" while in reality what happens is that they do not understand or know how to evaluate trading systems and how to focus on long term draw down and profitability to truly achieve long term success. What happens is simply that there are no short cuts in forex trading and completely understanding the automated trading systems you are using is vital to succeed with them in the long term.

My advice for you is therefore simple, do not focus on short term results and always understand the inherent characteristics of the trading system you are using. Always know the long term (5-10 year) draw down and profit targets and always understand the depths and lengths of the draw down periods you will encounter. Also have a strong focus on the reliability of the simulations since you can be greatly overestimating profitability and underestimating draw down if your system does not lend itself to accurate simulations. For this reason I always stick to systems that can be reliably simulated which give me accurate draw down and profit targets that allow me to know what I am trading, be confident and know exactly when my systems would have become too risky to be traded.

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