MegaDroid - Watch for sudden acceleration

Welcome back Meta-Traders and Forex fans.

It was another wild week in Forex with EUR/USD finally appearing to find a bottom in the 1.2150 area.

Daily ranges remain close to a one year high at over 200 pips based on Average True Range on the daily chart with 14-day lookback. This period of high volatility provided excellent trading conditions for the robots i'm following.

God's Gift EUR/USD was the winner on the week picking up 74 pips and is now up an impressive 16.9% for the year.

God's Gift GBP/USD didn't trade this week but remains up 18.1% for the year. For God's Gift GBP/USD, this performance is just about half of the 10-year average return of about 32%, so its right on track for where it should be on a year-to-date basis.

For 10-year back test results for these robot, click here God's Gift backtests. If you want a copy of these robots, buy Daniel's Fernandez e-book here which is a bargain at $18.95 USD.

Megadroid Demo continued to trade like clockwork and leads the pack up 26% for the year.

Megadroid Live had an interesting week and traded every day in its trading window (Mon-Thu) which was a first in the 6 months i've been following it. Also recall that Megadroid has been in "recovery mode", trading twice its normal lot size until it recovered from the loss I took back on 4/22/2010.

Strangely, Megadroid continued to trade in "Recovery Mode" this past week even though it already recovered the loss. As a result, it picked up 5% in trades on Monday and Tuesday. I was feeling good but a bit nervous, so I opened a ticket with Megadroid support asking for an explanation. They asked for some screenshots which I sent back, but didn't hear back from them.

On Wednesday, Megadroid entered an S2 signal and bought 0.20 EUR/USD at 1.2404. This trade was up briefly, then went sharply against me. At one point, it was down about 80 pips (and at double the lot size) this was down about $160 and wiped out my entire gain for the year! This was a shocking and scary development, but I hung in there and went to bed. When I woke up Thursday, I was relieved to find in closed the trade at a small profit. This was similar to the S2 trade that I closed manually back on 4/22/2010, but I learned my lesson and stuck with it this time.

I followed up with Megadroid support and got no reply. So I took matters into my own hands and lowered the risk setting to 0.05 which reduced my lot size to the desired 0.10 which worked as designed when the robot picked up 10 pips ($10 USD) on Thursday. So due to unintended "sudden acceleration" (Toyota) Megadroid picked up 5.6% on the week.

By way of follow-up, I did some research and the Megadroid S2 signal has a 50-pip take profit and a 200-pip stop loss. That means on any given day I should be prepared for a 40-pip loss (which is the stop on the S1 signal) plus a 200-pip loss on the S2 signal for a total of a 240-pip loss. If these signals occur when the account is in "recovery mode" this would constitute a 480-pip loss which would represent about 48% of the account. This number turns out to be surprisingly close to the maximum 10-year drawdown shown from the back-test results found here.

Lesson learned? Be prepared for drawdown. Every trading systems has some drawdown. Understand the historical drawdowns of the robots you are trading and don't be surprised when it happens! Also I learned the Megadroid support can be pretty lame when faced with an interesting but very real dilemma.

Speaking of drawdown, the 2 new robots i'm following Forex Maximizer and Megadroid Pro quickly went into the tank and lost 12% and 25% respectively. This is not at all surprising based on back-test results.

Anyway, this type of performance is why demo accounts were created and gives us a good look at robot performance before we risk our hard-earned real money. Demo accounts are just one of the many reasons why forex trading with Meta-Trader rules!

Take care and check back later for more cool stuff.