Meta-Trader - Amachay Review

Welcome back Meta-Traders.

In this post we tackle the Amachay trading system from Asirikuy.

Amachay is a word in Quechua that roughly translates to “protector” and is named after an Asirikuy member named Wilson who gave Daniel the original idea for the system. Wilson means son of William which is a name of Germanic origin that means Will, + Desire + Helmet for protection before going into battle. We would not have this system without Wilson, so if you are reading this, thanks for your efforts!

This system is also significant since it’s the first one developed in combination with input from Asirikuy members, something we will see more of going forward. And as you get to understand the beauty and simplicity of this system, you will appreciate how the community effect in Asirikuy is really starting to bear fruit.

Amachay works against multiple currency pairs using the 4 Hour charts. Other than a Coatl H4 portfolio, this is the only other system on Asirikuy that runs on the 4-hour timeframe.

The logic begins in a way similar to some other systems on Asirikuy: Wait until a certain day and time and look back a certain number of bars and draw a box which is bounded by the highs and lows of the look back period. From that box, a number of levels are derived and shown as follows.

First we start with the black lines which mark the highs and lows experienced over the look back period. Next, the Stop Loss levels (red lines) are calculated which are some percentage of the box height above the box high for short and below the box low for longs. That’s one interesting thing about this system - it doesn’t use the Average True Range, but rather calculates levels based on some percentage of the box size.

Next, 3 price levels are determined which are some percentage of the box size, and those percentages are inputs to the system. Those lines are the blue, green and yellow lines shown above.

In the original entry logic, long positions are entered close to the the bottom of the range, and shorts are entered close the top of the range. There are some other entry conditions that make use of indicator and price bar configuration which ensure that price is not too extended and that position entry is somewhat counter to recent price action. Take profits are some fixed percentage of the box size above the green line for longs and below the green line for shorts.

Position size is calculated to risk a certain percentage of the account based on the distance between trade entry and stop loss. Most of Daniels system risk 1% per trade which is pretty conservative and built to survive a long sequence of losing trades.

One key thing about the system is that the distance from entry to the take-profit is roughly 3 times the distance to the stop loss. That means that the system will take profits at least 3 times as large as its losses. That means that the system has a very favorable risk to reward ratio. The flip side is that the system will lose more often than it wins, but we’ll get to that below.

So the cool thing about this system is that it is based on return to prior price levels so essentially Amachay is a counter-trending system. And since we are dealing 4-hour bars, these are large ranges. Amachay is going for a relatively large Take Profit - say a few hundred pips – with say a 50-60 pip stop loss.

After some testing, Daniel realized that this system – while profitable - could be improved by doing quite the opposite, buying close to the upper part of the range, and selling close to the bottom part of the range. The additional entry conditions still qualify the system as counter-trending on entry, but are essentially looking for breakouts of the range to reach the take-profit. This second logic set is the one posted on and tracked by live accounts on Asirikuy.

What about performance?

The table on the left shows the results of my 10-year back test for the 7 pairs traded by the system. In only one case (EUR/USD) did the returns exceed 10% per year. On per pair-basis, the performance is not that impressive, but when combined into a portfolio, (and using Daniel’s back tests), the system produces an average annual return of 44% with a maximum drawdown of about 25%. That puts it about in the middle range of performance of the other portfolios being tracked here. But it’s clearly within my 30 to 60% per year performance target.

Looking at the 10-year equity bar-chart, the system was profitable in 9 of 10 years (red bars) which is a lot more than we can say for the S&P 500 (orange bars)! Also notice how the system beat the S&P every single year in the past 10-years. It’s a performance like this (and other portfolios on Asirikuy) that shows how Forex would appear to be an excellent way to build wealth over time versus the stock market.

But don’t think that Amachay will be easy to trade. The test showed there was a period with 17 consecutive losing trades. The Win to loss ratio is 36 : 64 so the system loses 2 out of 3 trades on average.

I have had a demo of Amachay running for about a week, and it hasn’t placed any trades yet. Once I get some demo results, I’ll include a link on the right side of the blog, and you can follow along.