Q-Diamond Revealed!

Welcome back Meta-Traders.

After about 2 months of demo, back-testing and evaluation, I’m ready to reveal that System-Q is from http://www.qdiamondsystems.com/. I want to mention that I have no affiliate relationship with the vendor and my only interest here is sharing the results of my research with my blog readers.

The vendor sells 3 systems, Q-diamond 100 which trades the EUR/USD, Q-diamond FX II which trades GBP/USD and Q-Aussie FX which trades AUD/USD. All systems trade the given pair on a 5-minute chart. The vendor is currently asking $249 for the EUR/USD system, $179 for the GBP/USD system and $219 for the Aussie system. You can get a free one-month evaluation copy of any of the systems by visiting the vendor web site. Failing that, you can e-mail the vendor at qdiamond.ea@gmail.com. You also get a discount on the other systems after you pay full price for one of them.

The account statements on the vendor’s web page are misleading since they don’t show any drawdown whatsoever. The systems definitely will drawdown, more on that below.

What about performance? In back and forward testing, the EUR/USD and AUD/USD systems return about 6-12% per month. The systems are also capable of some nasty drawdown, and when things go bad, the system can drawdown about 30% in a very short time. Also, the systems are very spread sensitive, and in some back-tests with an accidentally high spread, the system lost and much as 80% on the AUD/USD and wiped an account on the EUR/USD. The system does have a spread protection feature, which when activated will not trade when the spread is wider than 5 pips.

You can setup the systems to run with a conservative, moderate or aggressive risk levels or anywhere in between as follows. The system will take up to a maximum of 5 positions and you set the size for each position. Since I like to start with a $1000 account, I set my starting lot size to 0.05 for moderate risk. Thus, the system will trade up to 0.25 of a full lot. The system can be long and short the same pair, so is not compliant with NFA rules.

A description of the system logic was provided by the vendor as follows. The EUR and AUD systems are trend followers which wait for a trend to develop then trade in the direction of the trend after a retracement. The default TP is 20 pips but can be larger in a more volatile market. If the price moves against the initial trade, another trade is put on in the same direction, and the TP and SL are adjusted to a single value making it “easier” to reach the TP. Under some circumstances, the system will close a losing trade and open a position in the other direction and follow the original logic.

In terms of stop losses, the system uses an SL of 135 pips. To calculate your drawdown, take the position size, times 5, times the 135 pips. In my case, max position size is 0.05 times 5 = 0.25 which comes to $2.50 per pip times 135 pips equals $337.5 or about 30% of my $1000 starting account size. The vendor estimates the system will draw down on average 1-2 times per year and recover in 3 months or less.

In my demo testing, I started trading Q-Diamond 100 back on 7/27/2010. It quickly gained 5% then went into drawdown, losing about 30% of its value. It has been climbing back since and as if this writing is down about is down about 6%. Q-Aussie is up 8% since starting it on August 31, 2010. I lost about a week of trading when the demo ran out, but is running again now.

One annoying thing about these EA’s is that when traded live, the compiled ex4 file must be coded and compiled to work against a specific account. You need to e-mail the account number to the vendor, and he will compile the EA and sent it back to you. This is going to make any updates to the system difficult to distribute. On a positive note, this along with the conservative marketing practices of the vendor will hopefully prevent the system from being over hyped and over used.

I’m a pretty conservative guy and normally I would not consider trading a system where I can lose 30% of my money in a short time. But these systems are such consistent money makers that some alternate tactics may be in order to succeed here. Here’s what I’m thinking.

Start with a small amount of money (say $1000 per account) and slowly decrease the risk as the account grows. Another tactic is to withdraw the profits and keep trading the original amount. Sure, you could lose the entire account in drawdown, but changes are pretty good that after a year or 2, you will have made the entire principle and then some.

The system will grow the lot size proportional to the equity through a variable called Growth Management which is set to True by default. Another tactic is to set Growth Management to False so the system will trade a smaller portion of the equity as the balance grows. Some of the back-tests (including one one shown in the graphic above) have GrowthManagement set to false and that option seems to provide the smoothest equity curves with risk greater in the early going and then slowly decrease risk as the account grows.

The vendor suggests trading all 3 systems on one account with default (moderate) settings. Under that scenario, the account should earn about 18% to 36% per month or about 1500% per year assuming no drawdown. When it does drawdown, the system should recover in about one month. That might be a little aggressive for my taste, but does have a decent chance of turning $1000 into $10,000 in one year’s time.

I uploaded a whole bunch of back-testing statements to my Yahoo group at FX-Mon Yahoo Group. Please join the group if you want a copy of the files and the other stuff up there. The back-tests only go back as far as 2005 since the system will not place any trades prior to then.

My plan is to start trading the EUR/USD systems and AUD/USD systems live later this year. Stay tuned to see how it turns out.