Hi all. I think it’s a good time to describe where I expect to my Forex trading going in the next few years.After a few failed attempts to trade Foreign Exchange in the past (which lost money of course), I feel like I’m finally on the right track with forex robots on the Meta-Trader 4 platform.
Let’s define my objectives for forex trading. I’m not a full-time trader and I’m not looking for forex trading to pay my monthly bills. This is not because I don’t think it is possible, but instead because I have a full-time job and family and household responsibilities. And I find that the job and the family take up about 95% of my time and energy, and at best I have a few free cycles to spend on forex trading and related developments.
At times – particularly with the equity markets – I’m sure I could make good profits from the stock market and have a blast in the process. At the same time, I have no illusions that trading is an easy way to make a living. I consider myself fortunate to have a full-time job and not have to freak out about how I’m going to pay the mortgage.
Anyway, I want to clear this up because you might say that my financial objectives are too low, and that good forex traders should be able to make X percent. These objectives are based on a part-time effort and are in addition to the money I make through my regular day job.
My overall objective is to provide a competitive return for my capital versus the stock market. Some data indicates that historical returns for the Dow Jones Industrial Average are between 8% and 14%. So consider anything over say 20% to be a good rate of return.
Through my work with scalper EA’s, I’ve found that an achievable rate of return is about 1 percent per week. This doesn’t sound like much, but with compounding, that about 64% per year! If (based on the very real chance) that these results are not achievable, I would be perfectly happy with only one half a percent per week or about 28% on an annual basis. Many private equity, hedge fund and equity fund managers would be thrilled to return close to 30% percent to their investors on an annual basis!
Of course, some years you might make more, some years less, and even have some loosing years. But overall, I’m talking about a 5-year average return of at least 30% per year.
So how am I going to grow my wealth using Forex robots? Here’s my 5-year plan.
Year one
Year one is about proving the viability of forex trading robots. In this year I test and evaluate various forex trading robots. I back test, forward test, live test and try out every available option without spending much money.
The wonderful thing about the Meta-Trader platform is that you can download the platform, back, forward and live test without paying any platform fees. It wasn’t very long ago that you had to pay $100 per month or generate the equivalent in commissions to have the Tradestation platform which had real-time charting, back testing and live algorithmic trading. Now you can get all that basically for free and you don’t have to pay anyone even a nickel to get started! Sure you may have purchase some Expert Advisors and web site memberships. But the costs are very reasonable when compared with startup costs for a project of any significance.
In year one I’m investing roughly $2000, and I therefore expect to earn about $20 per week or between $600 and $1200 over one year’s time. As of this writing, I’m about halfway through year 1 and I’m up about 20% on my live funds which is on target.
In year one, I will be running Meta-Trader from my home computers, a Dell Desktop and a Dell Laptop. The laptop is handy because I can move it around the house when I need to setup new experts. The desktop stays parked in the basement.
The last important thing about year one is to assemble a list of experts. Each expert should provide solid and successful 10-year back test history and about 6 months of forward testing and some live testing. Each expert should provide between 30% and 60% yearly profit and show a drawdown (Equity peak to trough) of no more than 30%.
Many thanks to my good friend Daniel Fernandez of http://fxreviews.blogspot.com/ who provides a daily education on automated forex trading and most of the robots! DF offers all this information for just a few dollars per month! What a deal!
Year 2
Year 2 will involve increasing my total investments in Forex robots to $10,000. I plan to run a least 5 different systems across different brokers and accounts with approximately $2000 per account. At 1% per week, I should earn about $100 per week. My total yearly earnings should be between $3000 and $6000.
At this point I am undecided whether I will need a Virtual Private Server. DF indicates I can get a low-end VPS for about $10 per month. I’m unclear on whether this will be sufficient to run my 5 or 6 different robot accounts.
Year 2 (and the entire process for that matter) will involve some unexpected adjustments, drawdowns and changes in direction. This is to be expected since markets change, rules of the game change and we have to expect to hit some twist and turns along the path.
Year 3
In year 3, I will increase my total investment to about $20,000. If year 2 works out as planned, that should take only about another $4000-6000 to get me up to the $20,000 mark.
By year 3, I should be making approximately $200 per week. By the end of year 3, I should have earned between $6000 and $12,000.
I will probably require my own industrial-strength VPS before we get too far into year 3. This could cost between $100 and $200 per month according to DF.
Year 4
In year 4, I will increase my total investment to about $40,000. If the prior years work out as expected, I will have to add between $8000 and $14,000 to get to the 40K mark.
By year 4, I should be making approximately $400 per week. By the end of year 4, I should have earned between $12,000 and $24,000. By the end of year 4, I should have between $50,000 and $60,000 under management.
Year 5
In year 5, I will increase my total investment to $100,000. This will require quite a leap since I may have to invest between $40,000 and $50,000 to get up to the 100K mark depending on how I do in prior years. I have the assets available, but I’m going to have some significant college expenses at that time, so there might be other items competing for free capital.
By year 5, I should be making approximately $1000 per week and at the end of year 5, I should have earned between $40,000 and $60,000. At the end of year 5 (assuming I get there as expected), I want to start withdrawing the money and using it pay for my kid’s college, or whatever else comes up. There’s never any problem finding things to spend money on when you are a homeowner!
So that’s my 5 year plan. I think it’s a very solid and achievable plan. I do expect that some of the accounts will have loosing years, but by diversifying across at least 5 different systems, it’s unlikely that they will all go into drawdown at the same time.
Depending on how things go, I’m going to keep my total investment capped at about $100,000. From this I should be able to earn between $30,000 and $60,000 in additional income per year. Not bad for playing around with trading robots!
That’s my plan – stay tuned to my blog as I make my way through this journey!
Sounds like a really good plan.
ReplyDeleteI have some similar plans, but my main problem now is convincing my wife to put more money into the pot after having lost money for 3 years. Right now Tiger Tail is in a flat period, slight draw down period (which happens). I am only up about 7% right now this year and hope things will change soon.
At this point I can completely understand and relate to you and Daniel's comments on diversifying among several different strategies. I have been working on my 2nd EA I will likely keep that shows a fairly good 10 year back test but gets choppy going into 2008 to present (appears it is not as recession resilient, or should I say extremely volatile resilient). All 10 years to 2009 show a profit and in the end of 10 years using 2% risk show 34K gain on $10K account, compounding of course. All in all it has some good numbers like a little under 1:2 reward to risk, 71% accurate, average draw down less than 20%. I'm excited to add this one to my portfolio, but I think it could use a lot more tweaking.
If your Megadroid run goes well this year I will consider using that as a scalping strategy. I am considering using Gods Gift... is it ATR or v7?, as I did a back test last night on the v7 and it had some decent results though I am not sure if this was the one I was suppose to use as I did not see any settings in this one I could adjust but did see some settings that corresponded to the ebook in the ATR EA.
On another note: have you experienced MT4 problems where you download history for say the EUR/USD on the 1M timeline, then your output on your chart changes in some way. You do a back test on an EA and it gives you the around 90% with little mismatch errors. then you go back to your chart and do a refresh, after doing this if you run a back test again, you get tons of mismatch errors. Not sure what is going on. And in addition if I look at 5/7/2010 on the H1 chart there is a big gap in price then it starts in at 6/10/10 almost a month later. very strange.
At any rate thanks for you posts and your ideas as they help me along as well.
JT
JT-
ReplyDeleteThanks for the comment.
I think the only way to convince your wife or yourself to add more money is based on the results. There are brokers that go as low as one penny per pip, so if you are short on capital, then I would suggest implementing your strategy in a one cent account. If its going well after a few months, you can scale up to dime or dollar pips from there.
Regarding the data, if you suspect an error in the data, I would open up MT4 from another broker and compare. I thought that once the data is downloaded to MT4, it stays here and is not subject to revision, but I could be wrong!
Let me know what you find out and i'll do the same. Thanks,
Chris
Hello Chris,
ReplyDeleteThank you very much for a great post :o) It is definitely a good plan with a sound base and clearly something that looks achievable using automated trading systems. I wish you the greatest success and I am thrilled that I am already a part of your journey towards long term profitability in automated trading :o).
Regarding a VPS, you can run 5 experts on a 10 USD VPS, I think that there will be no problem there, as long as you setup your platforms correctly to save RAM you will be able to do this with no problem. Probably in a few years we will be using MT5, making the platforms and EA execution even better.
About the questions made by JT, the EA is the God's Gift ATR (not v7c) and the errors he is experiencing are most likely due to the fact that the demo feed refreshes the platform independently of the downloaded data so the data gets corrupted when it is refreshed from demo servers. You should use the alpari US broker platform for backtesting (due to the fact that it is a 5 digit broker, 4 digits brokers download the 4 digit metaquotes data set which has MANY data errors) and NEVER backtest the same week or past week of trading since these gaps are created due to the inherent corruption of recent data caused by the demo account's intervention. Always recalculate all data before doing backtests so that you can ensure that mismatch errors do not exist.
Regarding the wives, the most important thing is to sit down with them and explain to them what you are willing to LOSE and how much money is your worst case scenario. I believe that speaking about the risks and not the profits is the best thing to let her know that this is something realistic and not a fool's dream. Probably a few months of live testing on a live account will not tell you anything since this is NOT a statistically relevant period of time. Why not 3 months, 4, 1, 6 ? You need to have reliable backtesting results coupled with live/back testing consistent results so that you can truly have an idea about your experts performance over a statistically relevant period of time.
Last but not least, I am very glad you have joined Asirikuy Chris, maybe you can post a review with your comments in the future so that I can know what you think about the site :o) Thank you very much again for mentioning me in your posts and for supporting my work !
Best Regards,
Daniel
PS : Really appreciate the "friend" remark, likewise :o)
This post is so interesting Chris, it even compelled me to come out of hiding to comment. Seems like Old Home Week here on your blog, all the regulars have made an appearance.
ReplyDeleteAll the detailed plans I've made for fx trading have failed at some stage, so I don't make them anymore. My experience is that adaptability trumps all, so I now make a rough framework for my approach, and try to adapt when the core of my method doesn't seem to be working as expected. This is a dynamic thing, where I get better at adaptation with more experience.
My ultimate goal is to generate about $1000 per day from the market, with few down days and small intra-day drawdowns. I trade trend line breaks mainly, and I love days with significant news announcements because trend breaks can be big reversal points. The biggest problem I have with this approach is to judge whether a trend line break is significant enough for a trade. I have quite a few days where profits are hard to come by and when I force the issue. So adaptation for me mainly comes down to being more patient and keeping expecations in line with choppiness. Enough about my approach.
I'd love to trade via robots but here's a couple of problems I have with them.
If there are profitable EA's like Megadroid appears to be (at least over the past several months), how can that profitability continue once this is known, because whatever inefficiency the bot is exploiting will soon disappear because other users will pile on? One can make the argument that the Turtle's trading scheme is still profitable today even after wide dissemination of success of the method. But the Turtle method had some very large and lengthy drawdowns that most traders would/could not put up with. Megadroid, on the other hand, has small drawdowns, small profits, relatively infrequent trades, and to me is a candidate for obliteration by over usage.
Taking this a step further, Daniel has done some amazing, original work in developing his EA's that he virtually gives away (to homeless people). His generosity and kindness shine through all his work. It's as though he has a mantra of 'give and ye shall receive'. In the money business this approach is virtually unknown. But won't the wide dissemination of his EA's and ideas kill the golden goose? The fx world is rife with thieves and charlatans, and I'm afraid that what Daniel, of Funyoo, or Chris, or townjet, or anyone else produces and markets or gives away will soon lose its effectiveness. And then you are forced into Plan B.
So I guess I'm saying is make your own expert advisor, keep it for yourself, and don't blog about it. Care to weigh in on this assumption, gentlemen?
Hello Redford,
ReplyDeleteFirst of all, thank you for your very kind words about me :o). A very interesting set of comments and definitely some concerns well worth addressing. The main reason why my automated trading systems won't be subject to mass usage is the same reason why you pointed out the turtle trading system still works today. Asirikuy systems have draw down periods that often average 200 days and sometimes even go towards 300 or 500 days. In real life, all long term profitable systems will have these draw down periods because it is the way they defend themselves from mass adaptation. As you say, if a system has a likehood of being massively adapted it will be rendered useless since the market would become efficient to it. However, this may not render the system useless but it may just increase its draw down periods to the point where most traders will not be able to trade it anymore.
I have never been a fan of Megadroid or scalpers and I consider that its evidence of profitability is scarse and statistically not meaningful. You have a system that has a high average winning rate that cannot be accurately tested in simulation due to its scalping nature, a system that uses a high risk to reward ratio coupled with a lot of execution related issues. My best guess is that - since the probability of having a losing trade whenever you enter a trade is not zero- Megardroid will eventually take a few consecutive losing trades 3-4, that will wipe most of its user accounts. It may take a few months or a few years but this strategy has a latent risk for disaster there which I think is absolutely unsound to take. However, this is just my opinion here :o)
I don't believe that sharing my systems so easily makes them prone to mass usage, if anything I know from experience that Asirikuy systems are terribly hard to trade and that anyone who wishes to use them successfully must understand them fully. As with the turtle system, leaving through a year -or even longer- periods of draw down will make them incredibly hard to trade, without understanding, confidence and knowledge, the trading of any long term profitable system is - in my opinion - just impossible to do.
I hope this addresses your concern Redford, definitely a I will check my posts and write one about this ! :o) Also again thank you for your kind words about me,
Best Regards,
Daniel
Well... round about every blog posts online don't have much originality as I found on yours.. Just keep updating much useful information so that reader like me would come back over and over again.
ReplyDeleteWow, thanks all for the great comments.
ReplyDeleteDaniel - great points about using only Alpari for backtesting, I recall you mentioning that before on your blog. Its also interesting to know that the data displayed on the charts is different from the data used for backtesting.
Redford - great to see you back and thanks for point me to DF's site many months ago.
I think its possible that robots that worked previously can fail based on overuse (remember EAKAIN?).
But its also worth pointing out that robots that work based on some unchanging characteristics of the market will continue to work over time because they are based on sound principals.
Its not unlike commodity systems based on seasonality or stock market based systems based on the level of interest rates. The underlying logic is solid, therefore they will always come through given enough time.
Its also worth pointing out that not everyone thinks the same or uses the same robots. Just look at this blog, of the 4 of us, i'm the only one using Megadroid and the rest of you guys are using other methods.
While on the topic of Megadroid, I watched a video that pointed out that the developers of that system worked on Forex trading desks at major banks for many years. In the process, they were exposed to traders who had developed profitable trading methods based on many years of first-hand experience. How many people reading this blog can say that have that kind of experience? Certainly not me.
Anyway, they based on the logic of Megadroid on what they learned, and I think it goes something like this.
Any move made in EUR/USD between 11 PM and 1 AM GMT will likely be retraced or reverted by the time the Asian session is over. I don't know why that is the case, but i've seen it happen time after time. So I think the 'Droid is based on sound trading principals and that's why it works.
Finally, I agree with Daniel that many of his systems are hard to trade because of long periods of drawdown. Most people can't take that kind of pain and therefore will not be able to trade those systems. I'm not sure I can either, but time will tell.
Thanks again all for the great comments!
Chris
Thanks for the help guys, I should check back more often. Sometimes the comments get carried off before I get to read replies and such.
ReplyDeleteI did not even consider that demo feed and download data had that kind of issue. Thanks for pointing that out Daniel. I will try the alpari US demo account.
I have talked to my wife about investing and risks before... A few years ago we talked about getting GE stock. She agreed with me on purchasing stock, however she wanted to throw everything we had at it! She basically had the argument that, "its going to go back up, GE will not go under". As true as that may sound I "tried" to talk to her about risk and the basic concept about not throwing all your eggs in one basket, to be diverse even it seems like a sure thing. The problem here is that she was right, of course, in that the stock went back up, and I am going to hear about it for the rest of my life that we could have doubled everything we had. :)
To make it worse, my wife's and partly my decision to invest in GE was the most profitable decision we made in my lifetime...
...anyway I think results, profits, are all my wife will look at, she does not really consider risk, which from my standpoint of being married to her for 5 years has got her into trouble a few times.
So I need to allocate a few hundred here and there and get some good results to get her on a larger buy in. I'm working on it...
Anyway, great to hear from all of you. Interesting how a good post can bring out a lot of discussion.
JT
I will just add another 2 cents worth after reading the comments following my earlier post.
ReplyDeleteAs I commented once on fxreviews.blogspot.com, the more experience I get, the more I realize that Daniel is pretty much right about everything forex. Those among us who thinks s/he can do well using a scalping system over the long haul should realize the odds are stacked high against success. They should also realize that a very extensive record of successful live trading (hundreds of trades) is required before believing that the system is viable. I also firmly believe that a scalping system would need to be supplemented by a swing system in which trades last considerably longer and produce some very significant single trade profits now and again.
A method that cannot produce some home-run trades is sorely lacking in potential IMO, so at the very least a scalping trader should also develop or use a method for winning the occasional big swing trade. One EA that comes to mind in this regard is the AI Forex Robot that is an outstanding live money maker up at 4xproject.com. I'm not endorsing it at all, just making the point that a scalping approach could/should be supplemented with a longer term trader. Of course, the Asirikuy robots may also fill the bill.
One final comment: I have followed the path of the 4xproject.com million dollar challenge (or some-such name), in which various robots would be tested with real money, eventually settling on the best of the bunch, until profits of a million dollars was reached. There were great hopes for this project, to the extent that a number of the forum members followed along by doing the same thing as the website.
ReplyDeleteWell, several months have gone by now, and many, many robots at some point showed tremendous promise and early profits, but virtually all of these have been dumped into the trash can. There are only a few remaining profitable robots, and one of them has had very little exposure (Forex Photon) so it is suspect, with the best remaining profitable robots being PipsMiner (active for many months) and AI Forex Robot. Megadroid has shown a small but respectable profit in live trading, as have Nightfox, Warlord, and Cyborg.
Forex Peace Army has also provided extensive demo testing of robots, and the results are similar: some terrific early results followed by a loud hissing sound as the air eventually deflates from the burst bubbles.
Great Plan(less the robots)... Good Luck... Lose the Robots or they will lose your MONEY!
ReplyDeleteGary-
ReplyDeleteThanks for the comments. Obviously, I don't agree regarding the robots. But we'll let the results speak for themselves! If you haven't already, check out http://www.asirikuy.com.
Chris
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