The Metatrader 5 Series When Huge Backtesting Differences Appear

If you look at my last few weeks of posts I have been very excited about the new qualities of the Metatrader 5 trading platform and the benefits it brings to system development regarding faster execution, faster optimization and added flexibility. Using my prototype implementation of Watukushay FE I analyzed trading over several different instruments and I finally came up with the "starting point" of intra-currency trading for this well-known freely available trading machine. This week I decided to do a small experiment and compare my results of Watukushay FE for the AUD/USD on Metatrader 5 with those found out with Metatrader 4 and the results found were extremely surprising. On todays post I want to talk about my findings, the possible causes of the issues found and what I will be doing to investigate the nature of this problem and what solutions can be implemented to deal with it.

During the first post comparing Metatrader 4 with 5 and the backtesting results of Watukushay FE we already saw a small yet noticeable difference between the testing results obtained on both trading platforms. I talked about the possibility of these errors being feed-related and the fact that the Metatrader 5 history feed might be more reliable since it has been "remastered and fixed" for this new platform. However the difference was small and therefore there was no substantial issue besides an anecdotical note pointing out this curious fact.

However when I decided to run the initial AUD/USD tests on Metatrader 4 to compare the results I obtained with Metatrader 5 the difference changed from "noticeable" to "abismal". The pictures below show you the results for MT5 and MT4 using the exact same settings on the AUD/USD currency pair backtest from 2000 to 2010. The overall equity curve is very different and the results do point out that something is substantially very changed between the historical feeds of MT4 and MT5. I first thought that the difference would be due to the presence of Sunday candles but this turned out to be false since the MT5 feed doesnt have any of them, so regarding this aspect it is the same as MT4. I then thought about the possibility that the whole difference is caused by important changes in data prior to 2006 (before metatrader 4 was launched) and the fact is that data differences are NOT limited to pre 2006 periods, the whole historical feed is different between both trading stations and meaningful differences are present. If you analyze the results youll notice that almost all candles have different - if only very slightly - high/low/open/close values pointing out that RSI and ATR values will be very different. The change in one minute interpolation mechanisms is also not likely a factor here as Watukushay FE strictly controls bar opening on both its MQL4 and MQL5 implementations.
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What causes such a dramatic change in profitability ? To get to the bottom of this problem I decided to strip down the logic to its simplest form and eliminate the closing logic of the EA, leaving only the entry rules. This shows us that there is still some difference between backtesting results (shown below). This means that differences in results are caused by differences in the RSI and ATR indicator calculations which are dependent on each backtests particular historical feed. Stripping down the logic does reveal that most dependency is located before 2002 with results beyond this date being in better agreement. However there is still some dependency which is caused by differences in data between both historical sets beyond this period.
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Since we simply cannot know for sure which of the two historical data selections is better - and they are probably both valid within normal broker differences (with the 2000-2002 data being very different probably due to differences between feeds in this period) - it becomes a wise decision to run backtests on both and trust the less profitable results to calculate profit and draw down targets. In some cases like the EUR/USD backtests this proves to be trivial but on others like the one I showed you today doing this mixed analysis proves to be extremely important. I will email the people at metaquotes to get some information about the different nature of the feeds and I will let you know once I have more information about their origin. However up until now all backtests of Watukushay FE seem to be more profitable on MT5 (meaning that our MT4 simulations are in fact the worst case scenario). Investigating other issues which may be related with the closing mechanism of orders in MT5 is also something I am currenlty doing since I have seen that the differences when the closing logic is enabled seem to have other strong causes besides simple feed dependency (more on this on a later post !).

If you would like to learn more about automated trading, the evaluation of expert advisors and the programming of your own strategies please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Diposting oleh Unknown 16.31 0 komentar

Becoming Successful in Forex When There is NO Time Tips for the Family Guy with a Full Time Job Part No 2

On yesterdays post we talked about the disadvantages people have when they attempt to become full time forex traders or even simply successful traders when they have full time jobs and families that take up substantial amounts of their time. Near the end of the post I pointed out that patience and a long term look are bound to be absolutely important to the success of a person in this situation and I also said that exploiting strengths and reducing weaknesses was also an important part of this journey. On todays post I will elaborate on the more practical aspects of this advice and I will lay out a plan that you - as a person with a full time job and family - can follow to become successful in forex trading in the long term.

Many of you may be asking how I came up with such a plan if I dont have a full time job nor a few kids to make my life a lot more complicated. The truth is that even though this is not the case my advantage is that I know what has to be done to become a successful trader even if I did not do it from the above mentioned situation. This has allowed me to extrapolate what I learned to device a plan for people in such a situation. Of course, I would not bother to tell you this plan if I had not put it into practice before, something I have been doing for a while with a friend who has a wife, two kids and a full time job. For the past year this friend has been executing my plan to the letter and his results have been very good - a positive evolution towards a long term profitable trading outcome. Certainly he is not even close to quitting his day job but he made profit this year and did not wipe his account (a true achievement for having such a small amount of time !).

What was the plan he followed ? When he asked me to help him become a successful trader I told him about all the disadvantages I talked about in yesterdays post and I said to him that he had to approach trading in a very particular way to achieve success. Since I knew he had no clue about what he needed to do I laid out a plan for him so that he could go towards long term success in trading with under 5 hours of work each week. This is what I advised him to do :

Forget about short term trading, to trade one hour charts you need to stay at least 5-8 hours a day in front of your computer, to trade even smaller time frames you need even more time. If you attempt to trade short term charts when you get home tired at night you will definitely only get frustrated and lose.

Learning is the top priority, understanding what you are doing is the most important part of trading success. I told him to dedicate 2 hours each week to go through learning material and through its application. I encourage him to read classical book in currency trading and technical analysis and to actually PUT that knowledge in practice over visual backtests of at least 5 years of data. Often people read a lot but they fail to apply the concepts and knowledge they acquire.

Daily trading systems, perhaps one of the most important things I told him to do was to start trading daily systems and STICK with them. I encourage him to do evaluations of several different daily systems and to stick to those that had profitable long term results. He ended up trading a very simple MA cross based system on the EUR/USD. One pair, one decision each day, efficient, trend following trading.

Keep a journal. I told him that keeping a detailed journal of his trades was VITAL. Since the system traded once every few weeks it was actually quite easy to do this and visual backtesting analysis of his systems became CLEAR.

Learn to program. I said that evaluation is a significant part of success and that coding was an important thing to speed up evaluation. I insisted that he spent one "learning session" every month to learn how to code on mql4. The result was that after a few months he was able to start coding and backtesting his simple daily trading strategies.

Profits, for now, do not matter. When you start trading everything seems to be about the profits. I told him that profits are the reward for learning and that the first thing you wanted to do was learn and then profits would come. I advised him to just trade the systems he designed and evaluated without concerning himself with "last trade was a winner or a loser" or "I have lost all the trades".

So to sum it up, what you need to do is to approach trading in a way that exploits your strengths (your willingness to become a successful trader) and diminishes your weaknesses (lack of time). Putting a very strong emphasis on education and focusing on the evaluation and trading of daily strategies seems to be the best way for people who have "very busy lives" to start to become successful traders. Certainly it will take a few years to get there but the road is much easier, much clearer and much more rewarding than attempting to trade at a play field where you will most likely lose. By using systems that require little baby sitting and just a few quick minutes of analysis my friend was able to go from not trading at all to becoming at least a person in a clear path towards long term profitability in forex trading.

I hope that the above article has been helpful to all of you who are facing this situation of wanting to become successful trades with little time to do so :o) If you would like to learn more about automated trading systems and how they can be used to achieve profits in trading through understanding and sound design please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

Diposting oleh Unknown 13.15 0 komentar

How to Treat Forex Like a Business Ten Things You Need To Do When You Trade

The internet is filled with people who advice and give their opinion about how others can succeed in forex trading. Many times this advice is extremely vague and does not have any practical implications with it that can actually help newer traders succeed. One of the most common examples of this is how more experienced traders tend to tell people new to the market to "treat forex like a business" while they give absolutely no specific advice on how you are supposed to do this. Sure, for successful traders this is obvious and the advice needs no further explanation - since they are already treating forex like a business - but for new traders the advice is totally meaningless since they do not know how to trade forex like a business or the steps they need to take to make this a reality.

On todays post I want to share with you 10 practical things you need to do to treat your forex trading like a business, after you do these ten things you will find that your trading will be much more organized, your goals will be much clearer and you will be on your road - or at least a much clearer path - towards long term profitability. Definitely treating your forex trading like a business is extremely important but what does this mean ? What practical decisions can you take to change the way in which you trade the forex market ? Keep reading to find out !

1. Think in terms of goals and expenses. The first change you must make is around the way in which you look at forex trading. If you are going to treat this venture like a business you need to think about it in terms of goals and expenses. In trading goals are profitability targets and expenses are both trading costs and losing trades. A great part of your success will fall into being able to look into your trading as a set of goals and expenses.

2. Determine your plan. This is perhaps the most important part of trading which is to determine how things will be done in your business. If you were opening up an aluminium can factory you would have to figure out how you are going to be making the cans, who will buy them and who your suppliers are going to be before you even think about starting your business. Forex is the same thing, you need to have a trading plan which is merely a set of rules (either mechanical or discretionary) that you will follow in your business.

3. Determine your goals based on your plan. Your plan provides the anchor which allows you to determine realistic profit targets. After you come up with a plan you need to deeply evaluate it - through reliable simulations - to obtain a given set of profit targets that you will be able to use. If your profit targets are not what you want they you can change your plan - and reevaluate it - to make them better. When you are happy with your goals, continue.

4. Determine your expenses based on your plan. The next important thing you need to do is understand what your expenses will be. What percentage of your account will you be losing in average every year before reaching your goals ? For how long will you lose that capital ? Accurately determining variables such as the maximum draw down, the average draw down period length and the probability to have a losing month are key aspects of your forex business plan.

5. Determine your capital requirements. Since you now have a plan with goals and expenses you now need to determine your capital requirements which is simply the amount of money needed to execute your plan. Certainly different trading strategies will require different amounts of money to be tradable. This also depends on the amount of money you want to make, if you are aiming to make 20K a year and your goal is 20% then investing 100K might be necessary while if the only thing you want to do is execute your strategy with the minimum possible capital you might only need 200 or 1000 USD.

6. Draw best and worst case scenarios based on your simulations. A very important thing you need to do is to come up with how future scenarios might look for your trading strategy. If your simulations were done in a reliable manner then you can use 10 year backtests to get a picture of how best and worst cases might look like. Your next year might be as profitable as the most profitable year of the past 10 years while it can also be as bad (or worse) than the worst year. Having these pictures is vital since it will allow you to see where your plan is going and if what you are experiencing is or is not normal.

7. Come up with a worst-case scenario. As in every business there can be a point when the expenses are way beyond those programmed by the plan and a change must be made in order to survive to the future. In your trading business you need to come up with a worst-case scenario so that - in case your strategy becomes too risky - you will know well before hand when to change it. I generally use two times the 10 year historical maximum draw down as my worst case scenario, something that has worked well for me.

8. Do monthly, quarterly and yearly evaluations. Another important aspect of treating trading like a business is evaluating how your business has performed in a monthly, quarterly and yearly manner. Just like all other business do you should generate reports and analyze how your strategy has performed during these time periods. It is always important to know if your expenses are what you expect from your plan (within the bound of normal draw down periods), if your goals have been met and if you have reached any of your worst case scenarios. Staying on top of your plan by evaluating it frequently is a vital part of survival.

9. Do not change your plan when it is working as planned. A big mistake - perhaps one of the biggest - new traders make is to jump away from a trader system just because profitability goals are not being met. If a trading system is losing money within the programmed expenses and the 10 year simulations you have made then there is no reason to run away from your trading plan. While your draw downs remain within what you planned when you evaluate the strategy your business is actually working as planned.

10. Do not increase your goals or your expenses. Another very common mistake made by traders who are not yet experienced at treating forex like a business is the change of their goals and expenses along the way. When a system performs well they increase the risk (to increase their profitability goals) and when it is doing badly they sometimes increase their draw down tolerance to allow the system "to recover". There is a reason why you have set goals and expenses and worst case scenarios and you should NOT change them just because of short term performance. Every change in the business plan needs a total reevaluation of goals and expenses which should always be done if any detail is changed. Committing to a set of goals and expenses and sticking to them is a big part of success.

Although the above advice is only a small part of treating forex like a business it does gather all the most important aspects you need to take into account when you want your trading to be something serious, more predictable and less emotional. Treating forex trading like a business with adequate planning, goals and expenses is a vital part of trading which most people new to the market simply ignore or are too lazy to develop. If you follow the above advice and develop a trading plan with an idea of what the behavior of your system might be then you will be miles away from the large majority of new traders.

If you would like to learn more about system evaluation and how you too can develop mechanical systems with reliable simulation results please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach automated trading in general . I hope you enjoyed this article ! :o)

Diposting oleh Unknown 13.15 0 komentar