The Three Commandments of the Successful Forex System Trader ~ forex trading jobs in india

5:25 AM in account, asirikuy, challenge, commandments, Forex, free, fund, new, of, restoration, risk, successful, system, systems, the, three, trade, 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 !

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Trade Asirikuy Systems Risk Free The New Challenge Account Restoration Fund ~ forex trading jobs in kenya

10:14 PM in account, asirikuy, bands, bollinger, challenge, Forex, free, fund, indicator, new, restoration, risk, series, systems, the, trade, understanding

Today you will be witnessing one of the most important decisions I have taken within Asirikuy history. Several months ago I decided to create a fund called the micro-account stimulation project (MASP) which had as an objective the donation of 100 USD to a random Asirikuy member every month so that the selected member could create a challenge account and trade an Asirikuy system of my choice within it. The selected member would be given the 100 USD with the mere condition of running the EA on a VPS for two years and allowing me to monitor the account within Asirikuy. I was full of hope with this project and I hoped it will encourage people to open up mini accounts to try out Asirikuy systems and truly commit to their trading. However I was wrong about this. Today I will talk to you about the fate of this MASP fund and what will now be done with the money I have been putting aside for this project.

So what happened with the MASP ? People simply were not interested in my offer. During the past 5 months I have been contacting random Asirikuy members every month to tell them that they "won the prize" and would be given a free 100 USD from me to start their own micro account to trade an Asirikuy system. However the few who answered never really created the account or emailed me the details and the truth is that most members didnt even bother to contact me back. I also informed them they had won on the newsletters, the forum, etc and almost all the time I simply did not receive any reply.

I think that the reasons for this may have been several. Perhaps people are reluctant to receive money from a stranger (could be ?), perhaps they didnt want to open an account with any broker offering mini cent accounts, they didnt have a VPS or perhaps the price of the funding for the broker they wanted was too high. For whatever reason, the truth is that my very well intended Micro Account Stimuation Project failed and I now have 500 USD saved which clearly had a purpose they no longer have.

The solution ? I will now be changing the MASP to a project called the Challenge Account Restoration Fund. From now on I will be adding 100 USD to this fund every month (plus the 500 USD currently there) and the collected money will be used to restore the account of a challenger who reaches worst-case scenario levels within his or her account. Every system and every portfolio has a worst-case projected level and if this level is reached, I will send the owner of the account money from the Challenge Account Restoration Fund to replace their lost capital. Of course, the funds capacity is limited and it will cover older accounts and accounts with less initial trading capital with a higher priority. Up until now no account in Asirikuy has reached a worst case scenario but all current challengers can now be assured that if they reach such a case, there will be some insurance waiting for them :o).

The idea of this project is to provide challengers with some degree of compensation for the risk they are taking and to spend this money I was already looking forward to donate to Asirikuy members in a more efficient manner. This effectively means that people can now participate with cent accounts in Asirikuy in a Risk-free manner since the fund will obviously be able to cover the 30-60% worst-case scenario for small 100-200 USD accounts. As you see, I do this because I truly believe in my systems and I believe that a worst-case scenario for them is unlikely - although possible - and I want people to have some benefit when they take a risk with any new Asirikuy EA.

So now I can say that I am doing something no person involved in trading has ever done - to the best of my knowledge- I will be returning money lost by traders who use my systems if they reach certain draw down levels (provided they are Asirikuy challengers). I hope this encourages many traders to join Asirikuy and possibly some Asirikuy members to join with challenge account in this quest towards long term profitability :o).

If you would like to learn more about my journey in automated trading and how you too can trade automated trading systems with a high like hood of long term success 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 !

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Making Automated Trading Systems 6 Tips for Successful System Design ~ forex trading korea

6:32 AM in 6, a, analysis, automated, design, for, Forex, making, performance, portfolio, revisiting, successful, system, systems, the, tips, trading, turtle

One of the questions I get asked the most is how I come up with and design all my mechanical trading strategies. Several people have wondered how I device my simple criteria for systems and how such simple logic can indeed be successful under todays ever-changing market conditions. However, what fellow traders often dont realize is that my system design is based on some very simple principles anyone could follow to achieve success in automated trading. On todays post I want to give you - fellow traders and system designers - some tips about system design so that you too can benefit from my experience around this area of successful strategy production.

Within the next few paragraphs you will find some very practical tips to help you with you design successful automated trading systems. I am absolutely sure that these tips will help you overcome some of the most prominent obstacles in automated trading, avoiding the mistakes that condemn most people who embark on this journey to failure and frustration. So how can you improve your system design and come up with better and more likely successful strategies the next time you design an expert advisor ? Keep reading to find out !

1. Understand what your system will attempt to do. Most people who attempt system creation often dont understand what their system will be doing. It is not a matter of saying "it will be making money" or "it will follow an MA cross", it is a matter of understanding what the system will attempt to capture and why it has a fundamental reason to work. Having an idea of how the market works and how your strategy exploits an inefficiency of the market is vital for success.

2. Everything must make sense. I cannot tell you how many times I have come up with people who want me to help them program systems that have a ton of indicators they dont even understand. In order to be successful, absolutely every single thing you add must have a reason and the reasons must not be shallow, like "because it filters ranging markets", they have to be clear and mathematically precise. Something like "this indicators helps me detect when price has moved in X direction because the indicators mathematical meaning shows Y about price..." is more like it.

3. Analyze and analyze deeply. Often traders will attempt to design a system based on a few weeks of forward or live testing or even on just a few months of "visual" backtesting. I can never stress enough that analyzing and testing systems on a statistically significant period is vital for success. I always analyze systems for at least 2-5 years of historical data before I even consider the coding of strategies. Not only does this analysis provide me with information about the system but it also helps me understand the underlying reasons why it does or doesnt work.

4. Do a mathematical expectancy analysis of the entry logic. When you are making a new trading system you always need to know if your expert has potential and what time frame and type of trade your system will be capturing. Doing a mathematical expectancy analysis is vital to get this information. This allows you to know for sure which time frame your system works best on and it gives you a good amount of information regarding the probable successful of your trading strategy.

5. Have simulation reliability in mind. When you are designing your trading system you need to do so with simulation reliability in mind. Being able to carry out reliable backtests is very important when evaluating trading strategies and taking into account this factor when you are programming your system is vital for success. If you program your system with simulation reliability as a main concern chances are that the results you will get will be much more reliable and consistent with live trading results.

6. Have adaptability in mind. Many traders decide to code their strategies with fixed exit target values (like fixed pip values of a TP and a SL) something which is bound to bring your systems to failure as different market conditions start to develop. Considering adaptability from the beginning and including adaptability within your mathematical expectancy analysis is important to guarantee the long term success and profitability of any trading system. If you look at systems that have been historically successful, most - if not all of them - use some for of adaptive exit.

I hope that the above tips help those of you interested in system design achieve better success in your quest towards the development of a useful trading strategy. Obviously there may be other aspects worth considering but this - in my experience - are the most important to know if you want to develop a successful trading strategy. Do you have any other useful tips or information you would like to leave ? Perhaps some personal experience ? Just leave a comment and well discuss it together :o)

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

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Revieweing Thrust VPS a New Cheap and Reliable Option for EA Hosting ~ forex trading ea

6:09 AM in a, and, automated, cheap, commercial, ea, for, Forex, hosting, new, option, reliable, revieweing, reviews, september, systems, thrust, trading, video, vps

The subject of Virtual Private server hosting is a very sensitive one that affects all traders who want to use automated trading systems. Although it is possible to build a "home VPS" by setting up a raid backup server, a secondary internet connection and a large UPS this is not practical for most people and renting the service from a provider located within a data center seems like the best idea. Amongst the realms of shared VPS servers - where a single computer is shared as a host between different servers - Thrust VPS comes out as a new, fresh and reliable service that can be used by forex traders to host their metatrader 4 platforms.

There are several problems that usually happen with Virtual Private Servers that make people very reluctant to use one or another service provider. The most common complaint of traders about their VPS servers are unscheduled reboots (usually done for updates) problems accessing their platform through remote desktop and the lack of responsiveness of some support teams. I would have to say that many of these problems occur from time to time will all VPS providers and unless you are using a dedicated VPS (which is bound to be much more expensive) then you will have to deal with this if you want to have a VPS. (note however that using auto-login solutions and adequate security settings removes about 99% of these problems).

A few weeks ago I decided to try a new VPS solution in the market -called ThrustVPS - after hearing some good comments from fellow traders about their reliability, the speed of their servers and the great price. This company offers simple Windows 2008 VPS setups from 14.95 USD a month with 1GB of RAM, 30GB of disk space and 1TB of bandwidth each month. Compared to other VPS providers the amount of RAM is good but the amount of disk space and bandwidth seems rather limited, although much more than adequate for the needs of a regular metatrader 4 user.
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The payment process, setup and initial configuration of the server was quite easy and fast with everything ready within almost less than 1 business day. The server response is fast and the lag towards IBFX, FXDD and Alpari UK servers is low (5-10 ms) (of course, since the server is located in the US the lag towards Alpari UK is higher). The amount of RAM promised is available for use and the load on the VPSs processor seems to be very low at almost all times. Up until now I have not experienced any reboots or any other unusual behavior that may intervene with the Metatrader 4 platforms I have loaded within it.

However you should bear in mind that ThrustVPS is a young company and VPS providers are generally very good in the beginning before they start to get a lot of customers and start to behave in a greedy way. As a company grows and more clients appear they may resort to piling up more VPS on a single computer instead of buying more hardware something that reflects in an overall reduction in performance for some users. Definitely in the beginning almost all VPS providers are this good but time will tell if they are going to keep this level of performance or if they will just start to fill their current computers with more and more VPS servers without any hardware upgrades.

However right now ThrustVPS seems like a very reliable, cheap and fresh option for people looking for a new hosting provider for their Metatrader 4 platforms. This VPS company provides us with a cheap basic VPS plan with enough RAM and disk space to load several Metatrader 4 platforms with a very fast internet connection and a reduced lag to US forex brokers. As always I advice you setup adequate security measures and an auto-login solution which are absolutely necessary for reliable trading within a VPS. Hopefully ThrustVPS will remain this reliable for years but - as I said before - we wont know this for sure until the company starts receiving more customers.

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

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Volume Based Forex Systems Can it be Done ~ forex trading games

4:06 PM in an, article, asian, based, be, can, currency, done, exploiting, forex, inefficiency, it, latest, magazine, my, session, systems, trader, volume

When you analyze the forex market one of the first things that becomes clear is that the finding of true volume information is very hard if not actually impossible. Since the forex market has no central exchange it would require a person to track all of the largest banks in the worlds in order to know the real volume and magnitude of the transactions being done. Doing this in a real-time fashion to get volume data like that of stocks or futures would be a gigantic task that would most likely be frustrated by the complexity and "disorganized" nature of the foreign exchange market. So the question becomes, is there any way to measure volume ? is there any way to design a system based on volume information ? During this post I will share with you some of what I have learned about this problem and the best solutions that we have to tackle this issue.

Even though there is no such thing as a source of true volume information in forex trading, we could find a property that is correlated with trading volume which allows us to trade it in a way similar to how we would actually trade "true volume". The only property which has been studied extensively and which does show a strong correlation with true volume (at least we know this from other markets) is the tick number which corresponds to the number of times price is refreshed on your trading platform. This means that if during an hour there are 50 price quotes, then this hour is bound to have much less volume than an hour where there are 1000 price quotes.

Our problem here would be to use this tick volume information in a manner that is as less broker dependent as possible. Since different brokers have different feeds, filtering and liquidity providers it becomes impossible to actually use values of absolute volume as the starting point of any given trading strategy. A system that would attempt to use tick volume absolute values would certainly fail since these values are totally broker dependent and there is no way in which they can be related with actual market inefficiencies.

However the most interesting part comes when we realize that tick volume does go into predictable cycles and that we could build an indicator that normalizes this values so that we can have an "oscillator" that describes tick volume movement relative to the past X bars. This indicator would be similar to the stochastic oscillator used on price charts with the difference that it would use tick volume data. The oscillator would move to high regions when we are trading near the volume tick high of the past X periods and to low regions when we are trading near tick volume lows. By obtaining volume information that is relative and does not rely on the absolute tick volume values of the instrument we are trading we can make sure that broker dependency would be diminished and the design of profitable trading systems could start to happen.

Such an indicator could be used in several ways to find and exploit possible inefficiencies. For example, we could trade breakouts when volume drops below a certain oscillator threshold or we could attempt to trade continuations whenever there a price action movement with enough tick volume towards a given side. We could in fact also use volume information to find meaningful situations where patterns that would normally not be very interesting become relevant when they happen within the high regions of the tick volume oscillator.
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Certainly it is important to see that although there is no exact true volume information in forex the fact that we do have tick volume information and the fact that this tick volume is proportional to true market volume could allow us to develop successful systems since we have a totally new dimension of information which we dont have when we look exclusively at price charts. However it is very important here to realize that normalization of tick volume information is necessary in order to avoid broker dependency and such other problems that would make system development with absolute tick volume information a total nightmare.

The article right after mine on the last issue of currency trader magazine explores the use of some tick volume information and indicators for the development of long term profitable strategies showing that this indeed can be done, leading to very interesting results. Now it is my turn to see if Metatrader 4 is up to the task :o)

If you would like to learn more about automated trading and how you too can develop your own likely long term profitable systems please consider 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)

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Liquidity in Forex Part No 1 What it Means and Why it is Important ~ forex trading game app

3:54 PM in 1, and, characteristics, evaluating, forex, important, in, is, it, liquidity, means, no, part, quality, systems, trading, what, why

The term "liquidity" is used a lot in trading and finances since it is a vital aspect of market behavior. However, people often use this term very liberally in forex trading often without understanding its exact meaning and the implications of high or low values of this particular property. On this article I want to explain to you what the term "liquidity" is, what it exactly means, its implications within a given instrument and why it is such an important characteristic of the market.

Imagine that we had 20 people standing on a circle with 19 of them holding empty glasses and one of them holding a glass full of water. Now we want to see how much time it will take for the person with the glass to pour it onto the next one and so on until the water reaches him/her again. What we find is that it takes a long time for the water to be exchanged along the full circle because only 2 players are able to participate (the one holding and the one receiving) while all the others have to stay on the sidelines, waiting for their glass of water. Now imagine that we give half of them a glass of water, the process is much faster since the number of active participants has now increased to include everyone, all the people are actually exchanging water all the time.
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Liquidity on the market is nothing else than the "water" in the above example, it is the amount of volume exchanged of a given instrument over a given amount of time. When there is high liquidity there is a lot of volume being exchanged and when there is low liquidity there is little volume being exchanged. When we have a lot of volume people can get in and out of the market easily (since there is always a buyer for every seller and vice versa) while when there is low liquidity the market gets "stuck" as people have to fight to get in or out of their positions. When there is low liquidity you also get harsher price movements since a person holding a position may be forced to drastically change the offering price to match what the other end - which is very scarce - wants. So while under high liquidity exchanges are easy and swift, under low liquidity prices move more erratically since the offered and accepted prices tend to have larger gaps between them. The consequences for the little trader are unpredictability and spread widening while for the large players the consequences are mainly not being able to get in or out of positions due to the lack of available exchange capacity.

Liquidity in the forex market is extremely difficult to read and study since the market has no central exchange but it is handled over a wide variety of banks worldwide in an over-the-counter manner. The volume of a given contract that has been exchanged during a certain period of time therefore becomes hard to read since it depends on the particular provider you are talking about. Even though the market is praised as being extremely liquid and huge, the fact is that this is only be true if you can access to all - or a lot - of liquidity providers (banks). If you limit yourself to just a few you will see that the liquidity you have access to is nowhere near the trillions of dollars people talk about.

When we are going to trade the foreign exchange market, knowing the liquidity levels of the instruments we want to trade is important since currency pairs with higher liquidity tend to be "easier to trade" since they show more inefficiencies characteristic of crowd behavior while instruments with low liquidity tend to show a more random walk much more characteristic of individual investor behavior. Therefore, instruments that are very liquid tend to be easier to exploit using mechanical trading systems while those that dont tend to be much harder to trade. However, as the time frames get bigger liquidity starts to become a less important factor and crowd-based inefficiencies still arise. This is the main reason why you should look for strategies based on larger time frames and longer period indicators when attempting to design systems for illiquid instruments.

On tomorrows post I will discuss the inner aspects of liquidity in the forex market a little bit more, I will discuss some of the currently available literature about the subject in economics and the liquidity characteristics of different currency pairs. If you however would like to learn more about automated trading and how you too can start designing and programming your own systems based on realistic and sound strategies please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

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Evaluating Trading Systems Characteristics and Quality ~ forex trading games online

4:16 PM in a, and, bit, characteristics, coming, ebook, evaluating, Forex, little, new, o, quality, restructuring, soon, systems, trading, update

The evaluation of trading strategies is certainly one of the most necessary processes in the trading of mechanical manual or automated systems. The value of evaluation is great since it allows traders to loose their irrational fear and greed emotions and gain a true understanding about the characteristics of the trading system they intend to trade. Part of the evaluation of trading systems involves the judging of different quality parameters to distinguish what makes a system better and what makes it worse, a process which although seemingly intuitive is not so straightforward. Adequate knowledge about the information pertaining to each parameter of the test and what it conveys the user is necessary to know what its consequences actually are in real trading and what their power is from a comparative standpoint. On todays post I am going to talk about how to look at a systems characteristics and what you should be looking for to judge the quality of a given strategy.

New traders are often confused when it comes to the evaluation of trading strategies something which is not surprising if you take into account the whole amount of information which can be derived for a given system. People new to trading first seem to focus on the absolute values of the profit and maximum draw down percentages but judging the quality of a trading system merely by looking at these two values without prior experience is very hard. It is also true that judging a system just through one of these two values is misleading in the sense that it doesnt represent a good overall picture of the strategys characteristics. For example, saying that a system makes 100% a year does not make any sense if the actual potential draw down is not known and even if it is, other characteristics need to be taken into account.

The most simple way to compare a trading system to another effectively is to use ratios of profit and draw down variables. The profit factor, which compares the gross profit against the gross losses of a strategy is an initial measure of system quality. However, although this type of ratios do give us some information about the past risk to reward long term expectation (especially when evaluated over 10 year periods) they do not talk a lot about the problems the strategy would run into with increases in future risk. For this reason I believe that although these ratios are useful to some extent to compare simulations they do not fully represent the inherent market exposure of the system in a way in which a true comparison is made.

System quality - without a doubt - needs to include an analysis of increases in risk over the projected values achieved in simulations to know the true problems that the user may be running into if - for example - risk in the future increases or the estimation of profit and draw down targets is not accurate. For this reason it seems better to evaluate strategies based on projections of increased risk to know the true quality of the system and how dependent it may be on small glitches in simulations.

In this case our best shot at accurate quality comparisons seems to be the average compounded yearly profit to worst case scenario ratio in which the average yearly profit (over a 10 year period) is compared to twice the maximum draw down of the strategy (worst case ratio). To add more meaning to this increased risk comparison a careful user might also want to test the average compounded yearly profit to double consecutive loses after maximum draw down ratio (worst streak ratio). In this ratio, the average compounded yearly profit is compared to the maximum draw down percentage plus a string of loses equal to twice the number of maximum consecutive losing trades. The idea here is to get an idea about the robustness of the strategy and how bad things can turn before a bad scenario is bound to happen.

Systems that are very sensitive to small changes in the number of consecutive loses will give very unfavorable ratios in both cases while systems that have less dependency on individual trades will get better results. This way of evaluating strategies eliminates by default a lot of systems that use unsound trading tactics such as martingales and systems with very bad risk to reward ratios due to the fact that this ratio comparison makes them show their flaws if increases in risk are presented. One thing all traders should understand is that in the future the risk of any given strategy is bound to increase to some extent and having systems that are able to handle this risk increase is not only vital but necessary for successful long term trading.

The above evaluation criteria also allows you to use systems that dont need to wipe accounts to demonstrate that the market has become too risky for them. For example, a strategy with a worst case ratio of 1:2 targeting a 20% yearly profit may be stopped from trading at a 40% draw down while a system that has a 1:5 ratio in the same situation would end up killing the account before we realize it has become to risky. It is also important here to note that sound systems will have a "worst case ratio" better or only slightly worse than their "worst streak ratio" while systems that use unsound techniques -which will be sensitive to small increases in consecutive loses - will have a much worse "worst streak ratio".

In summary my advice is that you focus on the profit to draw down ratios when evaluating trading strategies but -most importantly - that you evaluate ratios in which the maximum draw down and maximum number of consecutive loses are increased so that you get a true idea about your systems robustness. If you would like to learn more about automated trading and how you too can start designing your own likely long term profitable systems please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

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Why are Five Years Statistically Significant for the Evaluation of Trading Systems ~ forex trading expert advisors

6:35 PM in are, around, corner, effect, evaluation, five, for, Forex, ghost, of, september, significant, statistically, systems, the, trading, why, years

Every time someone asks me what I consider to be the minimum necessary period to evaluate a trading system to know if it has a chance of being profitable under future market conditions I unequivocally say "five years". However - although I have explained vaguely in the past why - I have never written a precise explanation that tells people exactly why this is the case and why systems evaluated over at least 5 years have a better chance of surviving than those evaluated over a 1 or a 2 year period. Through the following paragraphs I will tell you the reasons why this is the case and why using this as a minimum period of evaluation guarantees that systems will have a certain degree of adaptability and the possibility to survive to future market conditions.

The first thing we need to ask to understand the 5 years argument is : What changes when market conditions change ? When you analyze any trading instrument and look for changes in the different quantitative characteristics of the market you will notice that changes in market conditions are usually accompanied by changes in volume. This happens mainly because market participants trade more under rough market conditions and less and more orderly under growing market conditions. In the end what you have in an economic cycle is a series of cycles in volume. Since volume is proportional volatility (which is just a way to measure the length of the movements within an instrument) we find that volatility changes as market conditions change. Generally markets in which the economy is growing are steady and quite non volatile while markets where there is a lot of economic turmoil are extremely volatile.

If we then consider that changes in market conditions correspond to changes in volatility then in order to have a sufficient variety of market conditions for the evaluation of a trading strategy we need to have a large enough amount of change in longer term volatility. When you look at the daily or weekly charts of any given instrument, you will notice that volatility within most years tends to change very little while periods of 5 years usually contain large changes in volatility. The graph shown below of the EUR/USD weekly chart clearly shows you the changes in volatility during the past 10 years (as the 14 period ATR indicator). You can see how any given one year period has an almost static volatility while periods of several years, especially 5, have large changes in volatility.
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The period of 5 years comes from an analysis about these variations in volatility. If we take a look at any instrument and consider the time it takes for an instrument to go from its average level of volatility to a new high and a new low and return to the original level we find that this period is roughly 5 years (like how it is shown above). This means that after a period of five years there is a large amount of different market conditions that a system needs to tackle if it wants to be successful. Therefore a system that survives to testing periods of more than 5 years has a high like hood of surviving to changes in market conditions in the future since it contains - within itself - the capability to adapt to changes in market conditions.

Of course, a 5 years period does not implicitly guarantee that any given system will be able to achieve success in the future since the market can change further or at a faster phase than what the system sustained during that 5 year testing period. However it is true that to survive profitably through such a long period a system needs to have some degree of adaptability that is not necessary to survive to shorter testing periods when hardly any changes in volatility happen during most years. It is for this reason that evaluation of strategies through prolonged periods of time is necessary since short tests of just a few years may only show how the system behaves under some very specific market scenarios. Of course, the longer the period you use for your tests and the larger the overall chances in volatility, the more robust your system will need to be.

If you would like to learn more about the evaluation of automated trading systems and how you can evaluate and create your own systems that return profits after 10 years of evaluation without exploiting any backtesting faults please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach automated trading in general . I hope you enjoyed this article ! :o)

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