Meta-Trader - Death of Forex?

Welcome Back Meta-Traders.

On yesterday's post Feast for the Bulls my friend Edward asked a question whether I have given up on Forex. This is an event in and of itself since I don't get many comments, much less from someone interested in what I'm doing!  Anyway, I found that I had enough to say for its own blog post, so here goes:

Hi Edward-

Thanks for reading and for the question.

Early this year I re-cast my blog from "Automated Forex Trading" to "Money and Markets".  After last year's fiasco (see results above),  I considering ending the blog and doing a post indicating that my Automated Forex Trading experiment was a failure.  But since I had already blown up in Forex twice before (once with FXCM and another time with Zulutrade) I was not anxious to admit defeat.

So instead I changed the mission of the blog to explore what is working in Money in Markets generally, and what I found to be successful.  Besides,  I make trades and investments which go bad all the time, and I don't throw myself on my sword when that happens, I just take the loss and move on.  But in this process I have learned something so I might as well take the time to share it with my readers. 

When I started this blog, I considered trading to be an intellectual exercise that (if I applied enough screen time), I could solve.  After all, I have a Master's Degree in Computer Science, and I know how to program and I am keenly interested in Trading Systems.  Sounds like a perfect fit, right?

So I started this blog and tried all the ususal suspects, moving average crossovers, Donchian Breakouts, Volatilty Expansion Systems, Candlestick Patterns, Neural Networks, you name it.  I spent many, many hours doing research, writing code and back-testing systems.  But I found that none of my systems were worth trading with real money.

In the process I came across Asirikuy. Unlike my efforts, Daniel's systems were well coded, well researched and showed positive 10-year back-tests.  Plus, Daniel's worked seemed to bring a level of scientific rigor that I could not produce given the fact that his efforts were on a full-time basis and mine were part-time at best.  So I started down the road to building my wealth through Automated Forex Trading and made a 5-year plan found here.  Armed with all the trading systems, I went ahead with full confidence that there was a better than even chance that I would come out some type of positive return.

The 2nd full year of my Automated Forex Trading experiment (2011) went pretty well, and I turned in nearly a 17% annual return described here. So far so good.

The 3rd full year of my plan (2012), turned out to be somewhat of a disaster. The story is best told though the performance of the account Atipaq Full Portfolio. After peaking with a spectacular 96% return in 14 months time, the account went into a death spiral and gave back all the profits. Not only that, it also went into a drawdown from the opening levels from which it still has not recovered. Every other account did the same with the sole exception of Atinalla No 1 which is the only account still in the positive. By the end of 2012, I had given back all of the profits from Forex Trading any the entire business was now a money-losing enterprise!

So in the process I asked myself, what am I doing wrong?  Well much learning is done by observing people who are successful and learning from them. In the process I found people such as Oliver Velez, Hubert Senters and John F Carter all of whom I have introduced on this blog.  And here's what I found out:

• None of these guys use fully-automated trading systems although they do have trading systems with setups, take profits and stop losses
• None of these guys back-test
• All of these guys trade a combination of markets, Stocks, Futures and Options

In a recent live event with John F Carter someone asked him, "Do you back test?"  His answer was "No, I only forward test. If it makes money I keep doing it going forward, otherwise I stop."  And bear in mind that John F Carter is younger than me, many times more successful than I will ever be, and probably never wrote a line of code in his life!

Revelation #1

Trading is not an intellectual exercise, it is an activity.  Good trading is a set of behaviors that are learned and developed over time.  And one key aspect is selectivity.  Much of the profits from day-trading are made in the first 2 hours of the trading day.  In fact, the first few 5-minute bars of the trading day are the key times where money is made.  Most of Oliver Velez's traders only trade the first few hours of the day.  Same with Hubert Senters, he is mostly done for the day by 11:30 AM.

Revelation #2

Trading is not that hard.  Sure there is the psychology, the give and take, the fear and greed.   Trading is not that hard, but writing a program to trade is hard.  Trying to find a program that works works 24 hours a day, 5 days a week over a 10-year period is hard.  Trying to figure out what price is going to do in the next 10 minutes is not that hard once you know the tricks (time of day).

Revelation #3

Stop trying to be so smart and just live your life.  Once I stopped trying to solve the Forex puzzle, I found a better life balance.  Work and watch the market all day, but trade actively from 9:30 until about 10:30 or 11:00.  Take a break and come back and trade the close from 3:15 until about 4PM.  Forget about what happens in between (which is usually not that much) and focus on the active times. 

John Carter indicates most people make money in the morning, then give it back in the afternoon simply because humans are not patient enough to sit in front of a screen for 6.5 hours straight.  So get up and leave the screen and do something else.  And go easy on yourself, don't force the trades, wait for them to come to you. 

The last part of the work-life balance is now that I don't have to spend my weekends trying to be smarter than everyone else.  Instead I can just enjoy what life has to offer and trade when its time to trade.

To wrap up, I'm still going to trade the few Forex accounts left until they blow-up or make some money.  Of all of Daniel's systems Sunqu appears to have some promise. So far its up +5.37% in 2013 and ironically, its one system that does not have clearly explainable rules since its based on Neural Network technology.

Keep coming back to my blog since there is still a lot to learn, some of which has to do with technical indicators.  In particular there's one used heavily by John Carter called the TTM Squeeze.  I expect to code my own TTM squeeze indicator and share the algorithm with you all, so check back for that.

Trade well and have a great week.