Meta-Trader - Watukushay #2 Review

Welcome back Meta-Traders.

This is the first in a series of reviews of the systems found up on Asirikuy. Asirikuy author and webmaster Daniel Fernandez always preaches that you should not trade systems that you don't fully understand. And what better way to gain an understanding of the systems than to go through them one at a time, run backtests and learn about their underyling logic?

One more thing before I continue. Coding long-term profitable systems is very, very time consuming. I've found that I can go from concept to working code in a few hours time. But the systems aren't very good and certainly not worth trading with real money. Really good systems are developed over time and it takes days, weeks and sometimes months of analysis, trial and error before you get a system worth risking with your hard-earned funds. I personally don't have the time or inclination to do all that work. Fortunately, Daniel has put the time into developing the systems, and for a modest fee. Now with just a little bit of work on our part, we can review the systems to derive the benefit from his hard work.

Just to keep things in order, a quick word about Watukushay #1. This system is based on a moving average crossover. This is a good starting point for system development, but is so simplistic, it doesn't perform well in backtesting or forward testing. A 10-year back test on Asirikuy gained only 20% over 10 years.

Now onto to Watukushay #2.

Entry logic is based completely on price action using candlestick chart patterns. Long entry comes on the "3 white soldiers" candle stick pattern which is a trend continuation pattern. Short entry comes on the "3 black crows" pattern which signals a continuation of a downtrend. The Sell trade entry in the screen shot above shows the "3 black crows" sell trade entry.

What about trade exit?

Trade exit comes from a complely different set of conditions. Did you think that trade exit should come on just the opposite of the trade entry conditions? I used to think that way and its a very a normal and simplistic assumption for a beginner, but not one that does not lead to profitable systems!

In this system, trade exit comes from one of 3 candlestick trend reversal signals. For a long trade, exit conditons would be one of the following: Hanging Man, Bearish Engulfing, Dark Cloud Cover or Bearish Rapid. I've heard of all of these except for Bearish Rapid which turns out is Daniel's own pattern.

For a short trade, exit comes on the bullish equivalent of those same signals. What's even more clever is that many of these patterns are defined at least in part as a percentage of the daily Average True Range of the pair over the prior 14 days.

What about results?

I did a 10-year back test on a 100K starting size and the equity grew to 729K. This comes to about a 20% annualized return. What's even more impressive, is with only 3% risk setting and 10% drawdown. The screen shot on the left shows 10 straight profitable years with about $2 in profit for every $1 in drawdown.

There are 3 live accounts up on Asirkuy showing results for nearly 1 year of live trading. I can't share the details, but let's just say for 2 of the 3 accounts, the results appear basically equivalent to the back testing. That's another way of saying the systems are back and live test consistent.

I uploaded a 10-year back-test statement for Watukushay #2 to my Yahoo group at http://finance.groups.yahoo.com/group/fx-mon/ minus the parameters.

Based on all of the above, I think Watukushay #2 has earned a place in my robots trading portfolio going forward. I'm going to start with 1% risk and gradually work up to a high risk level from there.

Check back in a week or 2 for the first forward-test results, and live test results later this year.