Financial Planning Q A

Recently I wrote an article for a womens magazine - Citta Bella. Perhaps some of the questions addressed here are your concerns as well. Heres the article:

Q & A For Citta Bella

Case: 30-year old Single Office Lady

1. I have 20K, how do I invest my money?

According to your risk preference, you may invest in fixed deposit, shares or unit trust. Fixed deposit is the safest investment however it generates only 2-3% per year return. As for shares and unit trusts there is certain investment risk involved but the potential returns are much higher than the fixed deposit, in general the gains are usually around 7-12% per year.

For a 30 year old single office lady, you can tolerate much higher risk than those who are married with children and those who are nearing retirement age, hence I would advice a 25:75 asset allocation for you, which means you may put aside RM5000 (25%) in the fixed deposit and invest RM15,000 (75%)in blue chip stocks.

Asset allocation is how much money you put into different asset classes—the percentage of your assets that are in stocks, bonds, cash, real estate, and commodities. Believe it or not, the choices you make in this regard are the most important part of your investing. A good mix of asset allocation will enable you to achieve sustainable profits from the stock market over the long run.

I usually recommend people to invest in blue chip stocks as blue chip stocks are good investment, not only you can gain capital appreciation, every year you’ll receive attractive dividends from these companies. Some examples of the blue chip stocks are: Maybank, CIMB, Genting, and Public Bank. However, if you are not comfortable investing directly in the share market, you may choose to invest in unit trust from a reputable fund management company.


2. How much savings do I need? I’m a 30 yr old single OL (office lady).

Assuming your retirement age is 55 and you live until 75 years old, you should set aside minimum RM500 every month into your retirement fund preferably in stocks or unit trust which will give you RM1,500 every month during your 25 year retirement period.
After deciding how much we need in the future, now, let’s see how we can achieve our retirement goal. Many people have the wrong attitude towards savings, they will choose to pay their monthly expenses first, whatever the balance (if any) will then turn into their savings. Sometimes, they may have impulse buying on branded handbags or hand phones, and they will not hesitate to withdraw from their savings to purchase them.

The right attitude should be to pay into the retirement fund before any monthly expenses. In addition, you should try not to withdraw from the fund for any impulse buying. A good way to help you to achieve your retirement goal is to set up a unit trust regular saving plan with a reputable unit trust company with initial RM1000 investment, followed by auto-debit instruction from your bank account to invest RM300 monthly into an equity fund.

However, if you notice, I did not include the EPF into this retirement fund. The reason why I didn’t include is because most of us, before the retirement age, we have already used up at least one third for purchasing property, and the remaining upon retirement the money is usually used for children’s university expenses, hence, the remaining may not be significant. However, if you do have money left from the EPF that will be a bonus for you.


3. I love traveling to different parts of the world, but I’m afraid I might spend too much on trips and not saving enough for my retirement, what should I do?

As Malaysia is moving towards becoming a developed nation and our society is becoming more affluent, overseas trips has become part of our lifestyle. However, these trips are not cheap, they may cost up to about RM2000 to RM6000 per person. If we lose focus we may ended up spending too much and not saving enough for our retirement fund. My advice is that you need to be disciplined enough to set aside the required amount, say RM500 monthly for your retirement fund first, the remaining you may allocate according to your other needs such as your overseas trip. Hence, it is very important that we must have proper financial planning to safeguard our hard earn money so that our retirement goal can be achieved.


4. Medical cost is getting too expensive, is it advisable to get myself covered with insurance? What is the right amount for my insurance coverage?

Medical expenses are rising faster than the costs of any other service. They are climbing at rates that very much exceeding the inflation rate. On top of that, with the hectic lifestyle and bad eating habits, the chances of contracting terminal illness have increased tremendously in the recent years. Hence it is very important that everyone should buy a medical insurance for protection.

How much medical coverage is enough depends on the following factors: your ability to pay the premiums, your health condition, your family history of terminal illness, your debt obligations and your family commitments and other personal objectives such as whether you need some investment component in it.

In general, for a 30 year old woman with good health condition would need minimum RM200,000 for a lifetime medical coverage. However, if budget allows, you may consider increase your coverage through other add-on benefits such as hospitalization, disability benefits, income benefits, and regular saving feature in it.


5. I am still young, do I need to write a Will?

It’s never too young to write your Will. As soon as you have turned 18 years old, you may start to write your Will. What is a Will? A Will is an important legal document that contains your instructions and wishes for distributing your property and assets after you die. This document contains the names of the people you want to benefit, your beneficiaries, as well as details about your home, land, vehicles, bank accounts, investments, jewelry, artwork, and other possessions. Your Will also allows you to choose a personal guardian to care for your children if you should die when they are still minors. Your Will should be written carefully, correctly and in compliance with the laws of your state to be sure your beneficiaries will be taken care of when you are gone.

In order for your Will to be valid, and accepted by the court, it must be in writing, signed with your signature, and witnessed by at least two witnesses who are neither relatives nor beneficiaries. Otherwise, the court may not accept your Will, and it may be unenforceable. If your Will is found invalid, the court may distribute your assets as if there were no Will (or intestate), and the court will distribute your asset according to the Distribution Act 1958 (amended 1997) and it may take up to seven years for the whole process.

Playing with Bollinger Bands A Likely Long Term Profitable Strategy

Last week I wrote a post about the Bollinger Bands indicator and how I thought it could be exploited to achieve good profitability levels in forex trading. After doing a full analysis going through a visual 5-6 year backtest, a mathematical expectancy analysis and the final coding and testing of the strategy I can tell you that I have come up with a likely long term profitable system based exclusively on Bollinger Bands. Asirikuy members would definitely want to checkout last weeks video in which I explain the whole development process in detail showing you all the steps necessary to go from an idea to an actual, coded expert with great possibilities of long term success. On todays post I want to give my regular readers a look into this strategy and the results it finally achieves.

My first idea for coding this Bollinger Band system was taken from the thoughts I had a week ago regarding this strategy. I based the making of this strategy in the fact that when a bar closes above a certain number of volatility adjusted steps outside 2 standard deviations an important "signal" is given that predicts long term movements in that direction to a good extent. As I pointed last week, this strategy also signals a retracement in conjunction with the trend following aspect but definitely I wanted to explore the trend following aspects of the strategy first.

The mathematical expectancy analysis of this strategy wasnt disappointing at all with positive results for almost all period perspectives on the one hour charts. However - interestingly enough - long periods of time revealed a great characteristic of this system which is the predictive power over a singificantly long amount of time with almost no moves into unprofitable territory. This means that the strategy would definitely lend itself to the making of a system that could use an extremely favorable risk to reward ratio. Designing my systems money management around the conclusions of the mathematical expectancy analysis results I came up with a strategy that held a risk to reward ratio of exactly 1 : 4 meaning that the system can take four loses for each winning trade. For me this is quite unprecedented sine most strategies I coded have a risk to reward ratio oscillating from 2 : 1 to 1 : 3 but I had never been able to achieve such a high expectancy for winning trades with success. The results I achieved for a 10 year backtest (2000-2010) on the EUR/USD one hour chart are shown below.
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I have to say that I was very impressed to see that such a simple strategy with absolutely no internal closing criteria besides the TP and SL could achieve such an incredible performance. This strategy definitely shows that it is not complexity what determines the success of a trading strategy but true understanding of the underlying price action. Once you have some idea of how the market behaves and how indicators can be used to exploit an inefficiency a likely long term profitable system from a very simple set of logic can arise. It is important here to say that the above shown results are unoptimized and simply the variable settngs are the result of the mathematical expectancy analysis (for those who are wondering, yes, I tried a trailing stop but a solid TP works much better)

Simulations of this system are also bound to be quite accurate since the average value of the TP is well above 200 pips, meaning that this EA has an incredibly large take profit value that could not be faked by any type of simulation interference. Moreover, the EA only enters trades based on last bars close and therefore explicitely controls bar opening, something that is bound to make trading systems more reliable and back/live testing consistent. Of course, we would need to test this expert to find out but I believe that this system can be improved a lot more before actually releasing it as a Watukushay EA. It is however important to say that GREAT part of this straegys success is based on its volatility adjusted money management that allows it to adjust to changes in market conditions. Using a fixed SL or TP leads to incredible loses showing how adaptive money management is VITAL to achieve profitability.
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As you see on the above image, the success of the strategy is based in the fact that trades are taken almost always after a successful bollinger band breakout. However the fact that we are not focusing on the actual contraction/expansion of the bands but on the statistical meaning of a highly deviated price result makes us enter only meaningful breakouts while others that might have been entered on a contraction/expansion criteria (which is also hard to define) are avoided. The strategy does take a lot of loses (strategies with high reward to risk ratios are often very hard to trade psychologically because of this) however the great thing is that losing trades become evident after only a small move against us, allowing us to preserve the great 1:4 risk to reward ratio.

Currently I have created a forum post within the asirikuy community forum so that we can start improving this strategy and making it become a solid Asirikuy contribution. Of course, the system lacks any internal closing criteria and coming up with relevant ways to improve the systems closing of positions should be vital if this system is to be released for use in the future. If you would like to learn more about automated trading and how you too can come up with and design systems with long term profitability in mind 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 !

Money Management The most important most neglected aspect of automated trading

It is funny how people in forums and people who program expert advisors in general seem to address the problem of finding a profitable system and making it profitable. It seems that most of the time, most of their time and testing is spent on evaluating the entry and exit strategies of the trading strategy. People seem to think that the actual money in the forex market is gained by getting perfect entries and exits all the time, or most of the time.

I have seen people in forums go around for months trying to modify their strategies to make them profitable, they will add filters, add indicators, change the rules, optimize the variables, the indicator periods, add volatility filter, to sum it up, they will do everything they can to further perfect their entry and exit strategies. To further worsen things, most of their efforts are concentrated in the entry to the market, which is the most trivial and unimportant part of forex trading systems (see more on this on my ebook).

I have found out that the most important part of a trading system is not the entry or the exit of the strategy, but the money management. What ? Many people will just be awed by this fact as this is hardly even spoke of and people always neglect its importance when they program an automated trading system. When people buy an EA, they dont really care about how the EA actually manages their money, which is, as I have already said, the most important aspect of the system.

Usually people will use a money management system that just trades a fixed percentage of equity or a fixed lot size. They couldnt do any worse. Trading like this only relies on your account balance, not on the market and any money management system that makes sense, gauges the market to know how much money should be invested. For example, would you invest as much on the stock market now as you did last year ? The answer is NO. Why is this the answer ? Because how much you trade depends on how the market is behaving, is it a "good time" or a "bad time" ? Your money management must depend on both your account balance and market behavior, this is the way professional traders manage their trades. They dont trade X percentage or a fixed lot size, those money management strategies are just naive and precarious.

As I have shown previously, I have been able to take several systems that showed no profit at all and simply by removing all the additional filters that had been added and adding a money management system that made sense I was able to make them profitable. This is something you should NEVER neglect and something in which your attention should be focused. A money management that makes sense will make a system that makes sense and that trades according to how the market actually moves.

If you would like to learn more about automated trading systems, how I evaluate them, test them and how you to can build and program your own long term profitable automated trading strategy please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Forex Brokers: Assisting You with Your Trading Needs

If you traded in the Forex market before or if you're still trading now, you may have heard the term Forex broker a lot of times. However, as an individual trader, you may want to know what is a Forex broker and what they do.

Forex brokers are individuals or companies that assist individual traders and companies when they are trading in the Forex market. These individuals can really give you that extra edge you need in order to be successful in the Forex market. Although they will be trading your funded account, all the decisions are still yours to make if you want to.

Forex brokers are there to assist you with your trading needs in exchange for a small commission from what you earn. Here are some of the services that a Forex broker can give you:

� A Forex broker can give you advice regarding on real time quotes.
� A Forex broker can also give you advice on what to buy or sell by basing it on news feeds.
� A Forex broker can trade your funded account basing solely on his or her decision if you want them to.
� A Forex broker can also provide you with software data to help you with your trading decisions.

Searching for a good Forex broker can prove to be a very tedious task. Since there are a lot of advertising in the internet about Forex brokers, Forex traders get confused on which Forex broker they should hire. With all the Forex brokers out there that offers great Forex trading income and quotations, you will find it hard to choose a good and reputable Forex broker.

With a little research, you can find the right Forex broker who can be trusted. If you lack referrals for Forex brokers, you can try and do a little research of your own. The first thing you need to find out about a particular Forex broker with the amount of clients they serve. The more clients they serve the more chances that these brokers are trusted. You should also know the amount of trades these brokers are conducting.

Knowing the broker's experience in the Forex market is also a great way to determine if he or she is the right broker to hire. Experienced Forex brokers will increase your chances of earning money from the Forex market.

If you have questions or complaints, you should call or email the company and ask questions regarding their trading system. You should never be uncomfortable doing this. Besides, they will be the one who will manage your money. And, it is your right to know about what they are doing with your money.

When choosing a Forex broker, you should also consider their trading options. You should also know that Forex brokers are different from what they can offer you. They differ in platforms, spreads, or leverage. You have to know which of the trading options is very important to you in order to be comfortable when you trade in the Forex market.

Most online Forex brokers offer potential clients with a demo account. This will allow you to try out their trading platform without actually risking money. You should look for a demo platform that works just like the real thing and you should also determine if you are comfortable with the trading platform.

Look for the features you want in a trading platform in order for you to know what to expect if you trade with them. If you are comfortable with a trading platform, you should consider trading with them, and if you are not, scratch them off your list. This is a great way to test their trading platform and not risk your money.

If a Forex broker is not willing to share financial information about their company, you shouldn't trade with them because they are reluctant to share company information. They should answer your questions regarding on how they manage their client's money and how they trade that money.

Always remember that if you see an offer that's too good to be true by Forex traders, it probably is too good to be true. The Forex market is a very risky place to trade and Forex brokers must tell you that there are certain risks involved when trading in the Forex market. Avoid hiring a Forex broker who says that trading in Forex is easy and a very good money making market with very low risks.

These are the things you should consider when you look for a Forex broker. If you find that right broker, you can be sure that you can really earn money.

Forex Expert Advisors Forex Maximizer an Unbiased Review

Today I will be revieweing one of the new trading systems which has been released over the past few weeks. This trading system - called Forex Maximizer - promises you will be earning an income every month in no time, with consistent results that will "not make you a millionaire" but will allow you to "quit the search for a new 9 to 5 job". As always I will analyze the evidence provided by the author and I will see if they are truly able to backup the claims made on the website. By analyzing the evidence I will also be able to tell you the soundness of the trading systems tactics and whether or not the system has a high like hood of being long term profitable. In the end I will give you my fully unbiased opinion of whether or not this trading system is worth buying and testing.

The Forex Maximizer website starts with the usual marketing hype that we have come to love so much. It talks about the mighty and mystical gurus that dont want you to know their "secret" to profit from the forex market. What particularly bothers me are the statements that follow this guru talk which are just bluntly misleading and which are simply marketing phrases pointed to make people believe that "getting profit in forex is easy", "even if youve never traded", etc. Then the author goes on and on about how most forex robots "suck" and will lose your money but his trading system - which is not a scalper - will have you banking up consistent profits in no time.

However, when it comes to backing up his claims of consistent profitability and actual real earning capabilities this author simply fails bluntly. What we have as evidence of profitability is simply some hand-picked screenshots of trades -which could as well be made by hand- and some pieces of backtesting results and a screenshot of the strategy tester resuts of a one year backtesting statement. We dont have even access to the backtesting statement or the simulations results to adequately know how the simulation turned out.

Why are simulation results limited to only 2009 ? Why arent 10 year results included ? Why isnt the backtesting statement shown ? These things are all supicious because showing more evidence only makes up a stronger case for the seller and the absence of evidence usually points out that this is simply not the case. Additionally, backtesting statements from commercial EA sellers CANNOT BE TRUSTED because there are simply almost infinite ways in which these results can be manipulated to produce profitable results.

In the end, the maximizer trading system has absolutely no proof of profitability with some very limited backtesting results being the only piece of available evidence, since the backtest is not validated this information is also pretty much useless. There are absolutely NO third party investor-access verified live testing accounts needed to proof the systems profitability and to show actual back/live testing consistency. Why in the world would this guy refuse to show us his statements if his system was so profitable ? Even more, why doesnt he show us his statements if he has - as he says- been trading the system for a while ? It is absolutely amazing that someone with so little proof of profitability is even willing to try to sell a system as if it was profitable.

The fact that there is a willingness to hide evidence shown as an absence of backtesting statements and 10 year backtests and the fact that there is simply no third party investor-access verified live account to backup any claims of profitability and validate the backtests shown tell us that the Forex Maximizer system is simply NOT worth buying and testing. If the seller puts up 10 year backtests and shows a 6 month investor-access verified live test with at least 50 trades (and a backtest of the same live testing period) I will redo this review to include the new evidence. Meanwhile, this trading system is nothing but a part of the usually over-hyped trading systems with little -if actually any- evidence of profitability.

If you would like to find an education about automated trading and how you to can develop systems based on sound trading tactics to achieve realistic risk and profit targets 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 !

What A Fantastic Year 2013!

WD Gann once said, "Everything moves in cycles as a result of the natural law of action and reaction. By a study of the past, I have discovered what cycles repeat in the future." 

How amazing, by studying the historical price data, we look at the statistics and generate the probabilities of how price action repeats itself. After all, thats the most important assumption of technical analysis that "history repeats itself".   

Now, lets take a look at the following chart that I published before in May this year.

Gann was able to forecast the 1929 stock market crash accurately in advance and he shared his secret in his publication that in order to forecast for that particular year, all you need to do is to look at the previous years that end with the same number year. For example, to forecast for 2013, you may study the price action of year 2003, 1993, 1983 and so on. 

Unlike the Dow Jones Industrial Average that has 100 years of history, KLCI only has less than 40 years of data. So I go to this website: Tading Economics to get the required data.

From the data, I see that the year ending with 3 is always a bullish year for Malaysia, the chances are 3 out of 3 bullish. This findings help me in planning for my investment into the stock market this year.

In one of my previous article I mentioned that August to November this year would be volatile and it would be suitable for shorter term trading because I saw that the 1983 chart showed that the second half of that year the price action was zig-zag in a horizontal trend. In addition, there were some important fundamental reasons such as the Fed tappering, our Malaysian Budget and other fundamental reasons that help me to come to that conclusion. 

So if you are wondering whats the market outlook for 2014, let me show you the next chart:

Looking at the chart above, we know that 2014 would be different from 2013, we do not have a clear-cut bullish trend. Investing in the stock market will be more challenging but Im still optimistic about the Malaysian stock market as over the years we have proved that we are less volatile than the regional markets, as we have strong support from the local institutional players.

Below are some thoughts that may affect the market in the near future:

1. Construction and Property Sectors

According to the BMI (Business Monitor International) review on the Malaysian construction sector, they believed there will be some slow down in the construction sector in 2014 due to the falling demand for residential and non-residential buildings. They have maintained their construction growth forecasts for 2013 10.1% and 2014 to be 6.7%.

The property sector will experience some slow down as well due to the cooling measures by our government to curb speculative property activities. I believe this pull back is healthy for our economy as the property market need the necessary consolidation phase to digest the excess supply in the market.

2. Low Interest Rates

With a ultra low interest rate environment globally, the chances of running into a financial crisis is low. Unless there is inflation problem that force the Central bank to raise interest rate, otherwise, we are likely to enjoy this until 2015.

3. Excess Liquidity in the Economy

Ironically, quantitative easing is the biggest driver to drive the financial markets to the ceiling and yet it is currently the biggest risk posed by the financial markets.  In this quantitative easing process the Central Banks from the EU, US, UK and Japan kept pumping in the liquidity into their banking system. In fact JP Morgans Nikolaos Panigirtzoglou, an expert in global monetary flows and liquidity, said the current excess liquidity is the most extreme ever as compared to the past 3 major episodes of excess liquidity namely: 1993-1995, 2001-2006 and 2008-2010. These were periods of strong asset price inflation suggesting that excess liquidity could have been a factor supporting markets at that time.

Since the 1990s the Fed has been playing the money game by pumping in money each time after a financial crisis instead of long term investment in real products and education. The excess liquidity is doing the economy no good as it merely drive up the asset prices and not protecting our purchasing power parity. 

In order to play along with the music, everyone has to dance regardless whether you like to dance or not. Just like in this money printing world, we are losing purchasing power with our fiat money, we are force to invest in this risky asset environment regardless whether we like it or not, as long as we know the Fed is pumping money into the system, we have to participate in the equity and property markets to protect our purchasing power. If we do not dance with the music we will be losing out. 

At the end of the game, we need to win the game beautifully but the problem is how? Because we never know when will the music stop. Right now, keep investing as the music is still playing around the world.

Forex Expert Advisors Forex Profit Hunter an Unbiased Review

Todays post will also be focused on the review of yet another automated trading system (just when I think Ive reviewed them all !). I found this trading system a few days ago while I was searching the web for expert advisors to review on my website. This expert advisor is called forex profit hunter and it is supposed to be a great trading system. In the word of the author :

"The Secret to Automatically Selecting Winning Trades & Depositing $5,000---$10,000--$15,000 + in Profits Even If You Know Absolutely Nothing About Trading Right Now”

Now after reading all this hype you must think that he may have some very convincing proof to be able to make such bold statements. Well, the truth actually is that this expert advisor creator, as most expert advisor sellers out there, has absolutely no reliable evidence to backup ANY of his claims.

Through the whole sales webpage, the author goes on and on about the reliability of his system and why it is supposed to work for people making money while they sleep. The truth is that he offers no evidence at all to proof that his system can achieve any profitability at all. The only thing that remotely resembles evidence is just a half screenshot of a backtesting statement with some trade pictures after that. What the hell ? I can make those trade pictures myself on metatrader in 5 minutes. I think this guy, as many other trading systems salesmen out there, is treating us like if we where retarded. Guess what ? We are not !

I cannot help to feel some anger everytime I come across a webpage like this. Loads of claims with some extremely bold statements about the profitability of a trading system when there is absolutely NO evidence to prove that. When there is no evidence, you should never believe what sellers tell you. Again, when I say evidence I mean evidence for every claim they make. If they say youll double your account each month, they should have a one year statement showing you can do that, if they say their broker independent then you should expect tests on at least 15 different brokers to confirm this beyond any reasonable doubt. But we dont see this, why ? because systems like this forex profit hunter are just pure hype with no substance whatsoever.

Of course, this system is absolutely NOT worth buying or even looking at. If you would like to learn more about why commercial expert advisors lose money so often and how you can become profitable too using free long term profitable expert advisors please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed this article !

How the Market Changes Adapting Against Market Conditions Part Two

Yesterday we talked about the definition of a "market condition" and how systems can try to adapt against changes in this conditions my "making themselves ready" for the appearence of an "ideal type" market state. I gave you an explanation based on an analogy with a camera an trees placed at different distances which makes the ability of the camera to focus the systems adaptability and the type of tree the actual result. Today I am going to talk about the "lens" which may allow a trading system to prepare itself for changes in market conditions and the evidence I have found of this actual adaptation technique being simple and valid to adjust our systems to ever-changing markets.

So what does the "lens" actually do ? Imagine that you have a system that trades a very simple entry like a moving average cross with a stop loss value of 50 pips and a take profit value of 50 pips. The perfect setup for the system is when there is a moving average cross and the market moves 50 pips towards the favorable side before moving 50 pips into negative territory. This is what we could call the systems ideal trading condition. However if you analyze any moving average cross for the past 10 years and you determine the mathematical expectancy in terms of pips, youll notice that the actual movement varies greatly as market conditions change. Sometimes the system would be able to capture 100 pips, other times 20, other times 50. In the end, you find that the "ideal" condition for the system is fairly rare and when it appears it seems that it is failing to achieve its true potential. What we want to do is implement some type of adaptation technique such that those 50 pips do not remain constant but that they change with market conditions such that the probability of reaching an "ideal" condition becomes higher.

But how does the market change ? What makes a moving average cross in 2004 give only 20 pips and in 2008 give 300 ? What fundamental characteristic of the market changes ? Of course, this is not an easy question. An analysis of market properties over time related to the extent of movements reveals that the size of movements such as moving average crosses increases as volatility does. This means that if volatility grows, then the extent of our TP and SL should grow too to show us the "ideal" condition under current market conditions. This is the technique used on many of my trading systems which adapts a systems parameters against changes in market volatility. This allows the systems to remain efficient and fit to the current markets ideal trade while maintaining a very good degree of simplicity.

So the "lens" of a trading system can be market volatility, with this tool systems are able to "focus" on current market conditions and get a clear picture of what an ideal trade under the current market status would be. This adaptation proves to be vital for systems to survive to changes in the instruments they are trading as systems which maintain fixed parameters are like a camera with a fixed focus, once the picture changes they arent unable to determine what the image actually is.

It would be naive to say that volatility is the only actual parameter of the market that changes with changing market conditions but it is the easiest parameter we can measure that allows us to generate an adaptability criteria. Of course, other ways of adaptation which measure other aspects of the market such as "pattern shapes", "length of trends/consolidations", etc are also possible but their measurement is far more complex and doesnt necessarily generate better results than those that arise from a simple volatility adapting criteria.

If you would like to learn more about adaptability and how you too can learn to build systems which adapt to changes in market conditions using volatility 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 !

SPREAD BETTING IMPACT MACROECONOMIC DATA TO THE LIQUIDITY OF CALENDAR SPREAD

         

         Time to enter the macroeconomic data is always an important moment for all market participants. At that time, the market for which the specified concerned, there is a significantly increased volume of orders. On the market there are the banks, hedge funds, corporations, speculation companies and individual traders. During the shows the important data outrights (ie the underlying - for example, oil and S & P500 ) carry significant moves. Not once they reach 100 pips in a matter of seconds or minutes. Sometimes its directional movements - only one way. Other times you can watch the traffic up and for a moment the same downward movement. Scenarios can be different.
     

           For Future Traders on calendar spreads time of economic data is also very important. Frequently at this time on the market begins to significantly increased liquidity. It is very important that, despite the increased liquidity, market volatility has not increased significantly. This is very good information for traders and speculators.
          Experienced trader on the spreads markets during the shows of macroeconomic data puts the orders in the market trying to take advantage of liquidity, which increases at this time.They not running away from the market before the fear that the market will perform big moves up or down. Most movements are small - market is still trading in narrow rang and trader using the using the high volume turns futures bid/offer.
   

            Due to the rise liquitity significantly increases the chance of entry into and exit from the positions. When a calendar spread continues to move in the range of 3 - 4 pips despite the enormous growth in the volume, on the market we can place large orders to turn contract with one pips profit. Frequently during major economic data specific instrument can be turned several times within a few minutes of increased volume. The most favorable situation is when spread trading in the two points. Then the trader places the orders bid / offer and waits when liquidity will allow him to get the bid and offer (or vice versa). Turning the instrument several times a high lots can be very profitable.

           The picture below shows the orders window (without queue).
         

Why I trust the Gods Gift ATR Expert Advisor

I have always said that one of the main requirements to succeed with an automated trading system is to be able to trust the system and trade it through all market conditions with the assurance that the system will be able to recover from temporary loses. Trusting and knowing how a system works also enables you to know your systems strengths and weaknesses, something which makes trading with it much easier.

One of the systems I have been working on and testing for a while is the Gods gift ATR expert advisor which I programmed based on the original Gods Gift 7c programmmed by Matt Edmonds. Now, after being involved and watching this system trade live for more than 2 months I can start to say why I certainly trust this expert advisor. So why do I exactly trust the way the Gods gift ATR expert advisor trades ? Well, because the experts traiding fulfills some of the most important aspects any profitable trading system should (at least in my opinion).

Adjusts itself to the market : This ea uses the ATR indicator in order to adjust its position sizing and market orders to match a certain percentage of market volatility. This somewhat guarantees that the expert will remain profitable under many market conditions since it is able to adjust itself to the different amplitudes of market movements.

The trend is your friend : The gods gift ATR expert advisor is able to follow trends when they develop by using a trailing stop which lets the expert take advantage of very long trending markets without getting stopped out.

Cut your loses short, let your profits run : The ea is able to cut loses by using an internal closing mechanism which follows many different indicators. This lets the ea exit the market before hitting the stop loss either when the price goes against the trade or when the stop loss is trailed after that price has moved in favor of the trader. This has the clear effect of increasing the ability to follow trends while minimizing the loses generated when the market is not with the trader.

Realistic Profit Expectations with Adequate Risk : The gods gift ea is able of producing 50-100% a year with a draw down not exceeding 20-50% (per back and forward testing results), this is a realistic profit expectation which reflects the conservative way in which the expert advisor trades. The equity curve generated by the ea is globally linear with a neat increase in equity under very varied market conditions.

I consider that the above reasons make the gods gift expert advisor a very unique and sound trading system. The ea has up until now proved to be robust and consistent, something which is a must have for a long term automated trading system. If you would like to learn more about this and other free and commercial expert advisors please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Another Financial Crisis

In 2006 I wrote an article titled “Another Financial Crisis ?” illustrating the possibility of one in the US, and it happened 2 years later. Now I’m writing for the same title but this time the target is CHINA!

In my recent talk in KL, one participant from China came to me and told me that in China there are more real estate investors than stock investors. Indeed the Chinese investors have seen real estate as the best investment because of its spectacular yields in the recent years.

Due to the Chinese government’s capital control, investors must pay a price to invest overseas, which compels them to invest domestically. In addition, the bank deposits and bonds have low to negative real yields, coupled with volatility in the China stock market, many have turn to real estate instead. In fact, China’s increasing inflation rate has helped housing price bubble growing even larger. More and more millionaires and billionaires are created in China every year. Recently The China Daily reported that there are close to one million millionaires in China with a personal wealth of US$1.5 million or more. Of them, 60,000 are considered super rich with 100 million yuan or more. Hence, no doubt they have all the money to drive the property prices in China and the rest of the world!

On the other hand, can this rising property prices be sustainable? According to Time magazine, many gigantic malls in China are virtually empty. One such example is the Kangbashi in Mongolia which is dubbed as the “Ghost Town” with 95% vacancy rate!

Usually the real estate price bubble comes from the artificially made difference between the price and value of housing. Capital competitions bid up prices that in turn induce builders to build more housing. Eventually, prices differ excessively from values of housing and an apparent overproduction will exist. Overproduction of housing relative to the affordable demand forces prices to fall into line with values. The debt-sustained buying would cause precipitous fall in prices and the loan default would make the bubble burst.

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Happy investing,
Pauline Yong

Forex Autopilot Expert Advisor Unbiased Review

A few weeks ago, I started to feel curious about this new expert advisor everyone seemed to be talking about. I went to its cheesy marketing web page filled with marketing tactic ( where they say things like "75% discount, prices will come back to normal in three days!", date which always seems to be the same one after three days) and I took a try for this expert advisor which sells for a mere 89 USD.

At first, let me say the things that attract forex autopilot customers. It is a very cheap expert advisor compared to most of the profitable ones, which usually cost between a 250 one time fee and a 90 dollar monthly subscription. The webpage is also filled with unneeded ways to shove the idea of richness and desire into peoples minds, you see champagne, cars, etc.

When it comes to putting their money where their mouth is, they still have a long way to go. I must say, I still dont have enough testing data to ensure whether it is a profitable system or not, what I can tell you is why I would never trade this expert advisor in my live accounts.

First, there is the way this expert trades. It opens roughly two trades per day, which seems normally selective, and trades on the EUR/USD one minute timeframe. It then opens orders based on some indicators and lets them run after they either hit the take profit or some indicator based exit signals. This is where we have a conflict. Indicator based exit signals ? As I have seen in forward testing, this expert advisor is comfortable with a 400 pip draw down, as seen before last weeks FOMC meeting. If you put a stoploss on the expert advisor, it fails dramatically.

I am very skeptical about expert advisors which tolerate open draw downs like this, specially this ea. It is reasonable when you have pyramiding expert advisor like Pipforia or Pointbreak that close profits at the end of market cycles, and even these expert advisor have never actually seen an open draw down above 20%. The fact that the autopilot expert advisor doesnt use a stoploss and is quiet conformable with a 400 pip draw down without showing exit signals gives me the creeps.

Well, I have given you the facts I have experienced with this expert advisor. An expert which is tolerable to large open draw downs and that also lacks a consistent money management system. I would have to say, I would never trade it in a live account. Would you ?

Dont Trade Alone ! Making Profits in the Forex Market

Almost all the people that start trading forex are aware than more than 90% of all retail traders wipe their first accounts clean. If you have read any web page or book about this market, that statement should not surprise you. Taking a profit in the foreign exchange is like trying to grab a golden coin that sits at the bottom of a pool full of piranhas while a million other people try to do exactly the same thing. It is not easy, not even with the right education. The forex market has wiped clean economists, finance specialists, stock brokers, you name it, they have killed their accounts using forex.

What makes everyone that starts in forex think it is so easy ? Well, human nature for one. You never think that the bad things that happen to other people happen to you, even if chances are highly against you. What makes you better than the other traders ? Another important thing you must think about is that the 90% that lose their accounts are by no means stupid. They are, as or better prepared than you. So again, what makes you so special ?

In fact, nothing. The most important thing in the forex market is knowing how to handle your own psychology and as you know, most traits that make you successful in life, make you wipe accounts in forex. For example, being stubborn and having perseverance, holding on, being ambitious, etc. This personality traits are most certainly going to take you down, sooner or later. That is, until the market baptizes you with your first account loss, then you should have taken a lesson.

But how do those 5% that have managed to make some profits out of the forex market do it ? What in the world made them so different from the rest ? Well, most of them did not trade their first account alone. Of course, if you have someone by your side to tell you "hey, that is stupid", "hey, dont take that position", "hey, stick to the system", then things will look much better for you since you are being walked through your first experience on the market. So for all those forex newbies out there, find someone who has traded for a while and start trading with them, side by side, chances are you will both be profitable.

In my experience, a team of three people is ideal for trading. You get three different analysis plus you get two safes against stupidness. It is much harder for three people to become emotional and act erratically than it is for a single person. When you get more than three, things start to change a little as group emotional factors start to kick in and another type of stupidity arises (like a mob mentality).

So go out there, find a trading buddy and start your profitable forex career. If you would like to learn more about automated trading systems (expert advisors for the metatrader platform) in order to trade without any human intervention please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Weekly Chart Update 23 5 2014

This week we look at the GDP figures across the Asian countries. For the first quarter 2014, while Singapore and Malaysia tops analyst forecast with GDP growth of 4.9% and 6.2% respectively, Indonesia +5.2% slowest growth in 4 years, and Thailand -2.1% qoq.

Analysts at first were worried about the Thai Baht and its stock market earlier this week due to the political unrest in Thailand, but turned out to be quite stable as the military coup was no stranger to its people and the rest of the world. Since 1932, this is the 19th times that the army took over the Thai government! 

Despite so, analysts are still concern about the stability in the Thai Baht and its equity market as they want to see whether the military can eventually hand over power back to its people. Otherwise, the country cannot function well and by next quarter, if the economy continues to contract, then it would be in recession and the neighbouring countries in the South East Asia would be affected in terms of investors sentiments.

US Market

On Friday, S&P 500 closed above the 1890 resistant attempting to breakout from this rectangular chart pattern. Next week we shall see if the US market would test the 1920 resistance level.

STI Market

The STI is likely to move higher next week to test the 3300 resistance level. Technically speaking, the STI is still within the medium term bullish channel. We need to see some consolidation as depicted in the chart before it can move higher. Support at 3225, resistance at 3300 level.

KLCI Market

This week I would like to present a different interpretation of the KLCI chart. There are many ways of interpreting a chart, different people will have different interpretation of the same chart, there is no right or wrong answer to it. To me, chart reading is a form of art, I can be creative in drawing those trend lines.

In the following chart, I drew a step-up trend line pattern on our KLCI. The reason for this is because I notice the KLCI for the past 5 years, there was a repetitive pattern of a series of consolidation phase, then followed by a step up in price. According to my chart, if KLCI successfully steps above 1860, the next level to reach would be 1960 provided if we do not have major bad news such as political unrest, or US stock market crash or war in the Asian region.

For next week, the last week of May, we shall see the KLCI consolidation within the 1860 - 1890 level.

George Soros When I see a bubble Ill buy and I see a flaw in the bubble Ill sell!

Runaway Bull Market The Dow Jones

In the beginning of 2013 hardly anybody will predict that the US market will experience the so called "Runaway bull market"! Runaway bull market means that the market is rising without a 20% correction. If we look back at the history, the last >20% correction was in 2011 August - the debt ceiling crisis. Prior to that was the 2008-2009 prolonged bear market that the DJIA was wiped out by more than 50% from its peak of 14,000. 

Nobody can predict accurately when is the next major market correction but there are a few factors that will determine the direction of the market: the Fed, the interest rates and the slowdown of the Chinese economy. To a lesser extend, some may even think that there could be a commodity crash but I think the possibility is low, but I would not rule out completely as 120 years ago in 1893 there was a stock market crash sparked by the Sherman Silver Purchase Act that caused massive bank failures during that time.

Malaysia market so far has been quite resilient without much affected by the recent Asian market sell down by the foreign funds. If you have been following my articles, you will know that I recommend the timing for entry into the market is February, May, August and November as these are the cycle low months of the year statistically. However,  I would advice investors to be cautious from August till November as these months are more volatile historically with many stock crashes happened before.

Moving forward to the second half of 2013, my stance still holds that generally this year will be a bullish year with some minor corrections of not more than 10% each. Support is 1600, resistance is 1840. And my favourite sectors are properties, construction, oil and gas.

Good luck to your investment, remember to take profits, lock in your gains first as therell be plenty of opportunity to buy low sell high. 

Happy investing,

Pauline Yong 

Why Trading With Expert Advisors Requires More Education Than Trading Manually

Reflecting upon all the different aspects of both manual and automated trading systems I realized that educational factors are some of the most important topics of both forms of trading. In fact, most traders lose money in the market when weak psychological factors couple with a lack of education and knowledge about both the systems and the inherent nature of financial markets.

First of all, there is a tendency to think that the forex market can be traded with an automated system without any knowledge of the market or trading. This is totally wrong, and specially for automated trading systems because not only do you need to know how to trade and how the market works but you also need to know how automated systems behave. Now I know you may be asking yourselves "why do I need to know all that information if the system trades by itself ?", well, it is obviously not that simple.

While most people believe that trading an automated trading system requires no knowledge of the market whatsoever I am going to say the complete opposite, it requires even more knowledge than to trade manually. Why ? Because of several psychological and rational factors. First, you need to choose an automated trading system. What is your criteria ? If you have absolutely no knowledge of the forex market your criterias will be wrong. Let me say that again, they will be wrong.

Why do you think commercial sellers tarket their systems the way they do ? They show high risk to reward ratios with high winning percentages, to the inexperienced person with no knowledge about forex trading it looks like a great deal. Why do 30,000 people purchased FAP turbo although it has, in my opinion, the characteristics of an unprofitable system ? that is because most people that bought it have a very shallow understanding of the market and automated trading systems, coupled with a deep desire to earn high profits in a short time.

Now, lets suppose you manage to get a grip on one of the few profitable systems out there. If you have no knowledge about the forex market or how automated trading systems work but you have seen the testimonials that most commercial ea sellers bring up then most probably you will think that your system just does not produce enough capital. Well, for me more than 40% a year is outstandng, most new traders looking for automated trading systems are expecting that every month ! Unrealistic. Sadly this feeding of greed is carried on with enthusiasm by most ea sellers out there shoving unprofitable systems down peoples wallets.

Then you have other factors, maybe your profitable system will only win 1 out of every 10 trades and that will be enough to make it very profitable but you are ignorant of this because you lack an understanding of how the system trades so you psychologically feel like a loser after 5 consecutive loses and decide to stop trading the system.

As you can see, almost all of the problems associated with people buying and losing money with unprofitable trading systems is based on people being ignorant and this is a direct consequence of people wating money without effort. Well, as someone said once, if you think education is expensive, you dont know the cost of ignorance. If you would like to learn more about choosing expert advisors as well as commercial and free expert advisors I have reviewed please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Jumping to Conclusions The Neglect of Statistical Significance

One of the most prominent mistakes I have noticed when people try to develop new trading systems or test commercial or free trading systems is their eagerness to jump to conclusions. I believe that the way in which many people evaluate systems and make conclusions about their profitability/unprofitability is actually faulted due to the fact that they dont take into account the significance of their results when evaluating a strategy. On todays post I will write about one -if not the most- important aspect when evaluating any trading system or strategy : Statistical Significance. Through the following paragraphs I will explain to you what this concept is and what its consequences are for expert advisor evaluation and trading system design.

When people design or evaluate a trading strategy they are usually very eager to say something about the performance of a system within a few weeks or a few months. Phrases like - if it works well on demo for a few weeks Ill put it on live - or - it didnt make a profit for 6 weeks - are very common and some of the first things new traders actually learn. The problem is mainly that this short-lived analysis of a trading system usually leads to conclusions which are only representative of short term performance and do not have any validity regarding the long term aspects of a given trading strategy.

I believe that this problem is mainly a consequence of the lack of formation people have regarding statistics - a field which is very important when developping long term performing systems. This science tells us that in order to draw valid conclusions for a given question we must have a big enough sample size. So saying that a system is unprofitable or profitable from a few months of testing is simply not valid because a few months are simply statistically not representative of long term performance. When you evaluate a trading systems performance in the short term you are simply evaluating it under current market conditions and possibly under a temporary draw down cycle which does not appear evident to you due to the short scope of the analysis being done. This is specially important for many systems that have predictably long cycles of draw down which then lead to very profitable trading periods, systems which would most of the time be discarded by people who simply dont evaluate systems in a rigurous manner.

Another problem of this "short term syndrome" is the fact that people quickly jump to conclusions about how to modify a system to make it "perform better". These modifications which are almost NEVER based on an analysis of a statistically significant number of trades may lead to an improvement of performance under current market conditions with a fatal blow to long term trading performance. On the other hand, there will also be a "praise" of systems which perform very well in the short term, often leading to the heavy use of systems that use unsound trading techniques and which put accounts at a great risk of facing a complete wipe out.

So what is a statistically significant sample size ? This question is not very easy to answer since there is no mathematical criteria to put aside a market condition from another. I have discussed this question a few time with a friend of mine who has a major in statistics and we arrived at the conclusion that - according to volatility measures - at least 5 years of analysis are necessary to draw valid conclusions about a trading system. Therefore, when going through system development and the proposal of modifications it becomes necessary to evaluate a modification or performance through the course of a five year period in order to draw valid conclusions.

In the case of systems which ARE back/live testing consistent, five years of live trading are necessary in order to conclude that the adaptability and performance seen in backtesting can effectively be reproduced under future market conditions. If the system is not back/live testing consistent the problem becomes harder as at least an initial 5 years of live trading with no modifications are necessary to make an analysis to propose changes to the system to increase its profitability.

I know that it is actually hard to go through hundreds of trades and evaluate one by one the effect of a certain modification. For most people it is much easier to just evaluate systems for a few months and draw conclusions which are simply not statistically valid meaning that they are not representative of the systems long term performance. Some people even venture to modify systems based on just a few weeks or days of trading, making modification which have an unpredictable effect on long term performance.

It is easy to understand- with such a lack of rigurous analysis and evaluation - why there is an overvaluation of systems that give short-term result and a systematic discarding of some systems that have indeed potential for long term profitability. Most reviewers show little or no knowledge regarding this field and they will be very quick to jump to conclusions without having a clue about the validity of what they are actually saying from a "sample size" point of view. I encourage everyone interested in system design or in automated trading in general to get a basic formation in the field of statistics and particuarly in the field of "hypothesis testing" which evaluates the whole process of drawing valid conclusions from a given statistical sample.

If you would like to learn more about what I have learned in automated trading and how I focus my efforts in the teaching and development of systems which have a high like hood of being profitable in the future 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 !

Looking at the Future Through the Past The Key to Successful Entry Logic Design

When you first attempt to design your own mechanical trading systems you often start with big questions about the way in which this is supposed to be done. The building of the entry logic - which marks the potential of a trading strategy (not its profitability !) - is quite commonly the first obstacle new traders find when attempting to develop a strategy. Generally people who arent familiar with system development will start to develop entry logic based on visual observations - without a true grasp of the underlying market- something which is bound to create significant problems and eventually lead the trading strategy to failure. On todays post I will be writing about how you should address entry development and how you should focus on the understanding of the currency pair and the building of causality chains so that you can truly build entry logic criteria that have a good potential for the development of a long term profitable trading strategy.

When you sit down and start to build the entry logic for your next strategy you have to think mainly about two very important factors. First, you need to think about the underlying market characteristic you want to exploit and second, you need to think about the chain of causality that is bound to bring your trades to exploit this desired characteristic. To do any of these two things, you require an understanding about the underlying price action characteristics of the instrument you are trying to trade. Aiming to do this without a proper understanding of the behavior of the instrument you are trying to trade will bring nothing but failure.

How do you start then ? The first thing you need to do is to ask yourself about the inherent characteristic of the market you want to tackle. For example, let us suppose you want to exploit hourly trends in the GBP/USD. After deciding you want to do this you then need to look for the "ideal trades" you would have wanted your system to get into, when you would have ideally wanted to get in. Once you know your ideal entry you now need to look into the past and see if there were any changes that pointed out that this would happen. This leads us to the second part, developing a sense of causality.

Everything that happens in our world has a cause and so do market movements. When a given market movement develops there is bound to be a cause behind it. By looking into the past and finding certain market behavior that signals that a certain event is likely going to happen we find ourselves with the goal of entry development, a market inefficiency. The idea here is to look at the past and see what particular price behavior has led to our intended ideal entry setup. Once you have pinpointed this past cause that leads to your ideal entry setup you can code the logic and do a mathematical expectancy analysis. As you see here, the key is to find a particular market behavior in the past which leads to a given outcome in the future with a high probability.

The thing you need to understand here is that a given cause is not always bound to give the same effect because market behavior is almost never bound to repeat itself in precisely the same ways. What you are doing is building a "general case" from a very specific setup. Sometimes this general case assumption will not work since your logic "misinterprets" the current behavior as its "general case" while in other instances it will match and you will enter your ideal setup. This is what leads to market exposure and - when potential for profitability exists -to positive mathematical expectancy values.
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Generally your general case will only determine the systems potential but money management (lot sizing plus exit logic) will finally determine profitability. Trying to modify an entry logic to achieve profitability is a wrong approach which usually leads to poorly built systems with very complex entry logic criteria that do not achieve long term profitability. Knowing the mathematical expectancy of your entry logic is vital for success since these data will tell you if there is potential or if your "general case" assumption simply does not work in the long term.

If you would like to learn more about automated trading systems and how you can build systems based on sound trading logic with realistic profit and draw down targets 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 !

Easy Profit in Automated Trading Logical Proof of its Nonexistence

Isnt hassle free profit from the forex market all we want ? Definitely the goal of every person that starts to look for an expert advisor - or most at least - is to find a trading system they can simply "set and forget", a trading system that just collects money from the market in a consistent manner with minimal or limited draw down. A "holy grail", so to speak. However, it becomes obvious after a while of being in this business that if it is too good to be true it probably is and that no trading system can provide the owner with profit without an effort to develop knowledge and understanding. However the fact that the other road seems plausible makes a lot of people continue to search for this nonexistent trading system, a quest that brings nothing but disappointment and financial loss for most new traders. On todays post I will be giving you a logic based demonstration that shows why easy profit in automated trading is impossible and why this search is meaningless and will never arrive at your intended result (a system that easily gets you money without any effort).

First of all we must understand the very basic aspects about logic based demonstrations. When we are faced with a given hypothesis there are several ways in which it can be demonstrated to be true. In mathematics this is done in several ways but one of them is of particular interest to my article. You can demonstrate that something is false if the assumption that it is true leads to absurd results. For example, let us test the hypothesis that the addition of two even numbers gives us an odd number (which is false).

Assuming this to be true :

n, m and k are integers (2n is the definition of an even number, 2k+1, the definition of an odd one)

2n+2m = 2k+1
2n+2m-2k = 1 subtract 2k from both sides
2(n+m-k) = 1 factor 2 out
2a = 1 since n, m and -k are integers their addition is another integer (a)

Since 2a is an even number by definition and it is said to be equal to 1, we have an absurd result. No integer times 2 is able to give us 1 as a result. The hypothesis has been proved false because the assumptions that it is true leads to absurd results.

When it comes to making money from a system without any effort we can do the exact same thing. Let us suppose that there is a system that generates a 200% yearly income which can be traded from 100 USD and used successfully by anyone who buys it. Looking into the sales of the most popular experts we could expect this system to be used by at least 30K people during the first 2 years. This means that 300K USD - assuming each person trades the minimum - will be traded within the first 2 years. After ten years the return of this system would have been 17714700000 which is around 17 billion which is above all other market participants for this same time period. If 300K USD were added each year (of course new sales), the results would be even more staggering nearing more than 100 billion USD.

After 20 years, results become even more absurd and the system is now making a return that would be equal to more than the volume available to be traded. That is, all other market participants would be losing money against this system. This reduces the result to absurd levels since the systems profits surpass the amount of money available from the market. In fact, all the money in the world roughly describes what this system would be making.

The conclusions of this thought experiment are therefore quite simple and straightforward. One of the following things must be true :

• If a successful system exists that anyone can trade then there is an inherent - and quite small - volume limitation to its trading that will thereafter make it lose its profitability or its "tradable by anyone" character.
• If a successful mechanical system exists then there must be strong psychological barriers that make it extremely hard to trade for most market participants
• If a successful mechanical system exists then there is bound to be a maximum compounded yearly profit to maximum draw down limitation that forbids it from reaching the above scenario (a limitation on profits).

Through all my research and work I have found that it is certainly possible to have successful mechanical trading systems and I suspect all the above are in fact true statements. Systems that would be easily available for anyone to use would quickly lose this character as a function of volume and become hard to trade for some reason (psychological, increases in the maximum draw down to average compounded yearly profit ratio) and systems that are already successful are bound to be hard to trade or have an inherent profitability limitation that does not allow them to reach the above mentioned scenario.

In the end, logic is simply undeniable. The scenario portrayed before is an absurd outcome that cannot be reached and therefore limitations to its achievement must be contained within the systems themselves. Systems that may seem to show extremely high results must be volume limited and later become much less profitable and harder to trade while mechanical systems that are profitable in the long term are hard to trade by definition. The above logical reasoning also shows us that there is bound to be some form of profitability to draw down limitation which comes from the simple assumption that the above scenario must be avoided. In conclusion, there is simply no easy long term profit in automated trading.

As you see, the simple power of the "reduction to absurdity" logical reasoning allows us to gain a lot of information about the world of automated trading systems merely by the use of a very simple thought experiment. If you have any comments, suggestions, opinions or other similar reasoning exercises, please feel free to leave a comment !

If you would like to learn more about my journey in automated trading and gain a true education around this type of systems, their uses, limitations and possibilities please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to trading systems. I hope you enjoyed this article ! :o)

Getting Ready for the Future Metatrader 5

Finally on June the first we saw the first official release of the Metatrader 5 trading platform which has the mission to replace one of the most popular and widely used trading platforms in retail forex trading. Definitely the task for Metatrader 5 is not easy since its predecessor is very powerful and has become the "industry standard" when dealing with automated trading systems for the regular investor. On todays post I want to talk to you about Metatrader 5, some of its pros and cons as well as the journey that I will be taking to produce mql5 versions of all Asirikuy trading systems. Is there anything good about Metatrader 5 ? Is it bound to be a great improvement over metatrader 4 or are we talking about a windows vista Vs XP type change ? Keep reading to find out.

I have to be honest with you and tell you my honest opinion about this new trading platform. I think that the people at metaquotes have done a good effort but I think they have neglected some key aspects that needed to be changed which could have brought an enormous benefit to the retail trader and their platform. Definitely there are several features I wanted to see on metatrader 5 that never got to be implemented like renko charts, tick charts, etc but perhaps the most important feature that wasnt implemented was real tick data logging and accurate backtesting.

Certainly the Metatrader 5 backtester has significant advantages over its current Metatrader 4 counterpart. Amongst these are the fact that data is downloaded and update automatically, there is support for several cores (multi-threading) and there is the ability to remotely login into your computer to see the progress and results of your backtesting results. Overall this will make the Metatrader 5 backtester much faster and robust, however the fact that tick interpolation algorithm is still used will make exploitation of backtesting reliability problems still a significant issue, we will probably still see the regular 97 USD expert advisor based on unrealistic profit targets taken from absurd backtests. However I have some hope in the sense that the interpolation algorithm was actually improved with the objective of removing these problems but we are still to see if this will or will not be true. The ability to use multiple pairs on backtesting- something that was previously not possible - is bound to be one of the greatest advantages of the Meatrader 5 backtester over the current backtester implementation.
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I am also excited about the Metatrader 5 new language- mql5 - and the included debugger within the Metatrader 5 platform. Any serious developer out there will tell you that the mql4 editor was a piece of garbage since no debugger was included and an extensive use of the Print function was needed to see where things were going wrong. However, the new debugger will make developing much easier and the actual addressing of problems in coding much easier. However I think that it was a very big and absolutely awful mistake not to include back compatibility with mql4 in Metatrader 5. Even though the new mql5 language is much better, including support for previous code seemed like something important to do since many people already have their strategies or efforts coded on the language of Metatrader 4. People will now have to pay to have their experts recoded or go through the process of learning a whole new programming language to be able to trade with the new platform.

So is Metatrader 5 a huge improvement over Metatrader 4 ? I would have to say that regarding automated trading the answer seems to be - we still dont know. We need to have a few live brokers that will accept this platform so that we can start testing mql5 systems. We will also need to first translate some systems into mql5 to compare backtests and see the actual quality improvements we get when changing from one strategy tester to another. I can tell you that I am excited abou the possibilities and I hope that the Metatrader 5 backtest will be all that it has been promised to be. I think that obviously our evaluation speed will be increased and our ability to use our systems on other currencies will also be expanded.

During the next few months I will start the porting of all Asirikuy systems to the new MQL5 language so that we can start to see some of the characteristics of the strategy tester and some comparisons between the simulations obtained with both backtesters. You can certainly expect some hopefully interesting blogposts about this during the next few months. If you want to learn more about automated trading and how you can develop your own long term profitable systems using sound trading tactics 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 !

Can You Write Your Own Will

Yes, you can, but that doesn’t mean you should!

A Will is an important legal document that contains your instructions and wishes for distributing your properties and assets after you die. This document contains the names of the people you want to benefit, your beneficiaries, as well as details about your home, land, vehicles, bank accounts, investments, jewelry, artwork, and other possessions. Your Will also allows you to choose a personal guardian to care for your children if you should die when they are still minors. Your Will should be written carefully, correctly and in compliance with the laws to be sure your beneficiaries will be taken care of when you are gone.

In order for your Will to be valid, and accepted by the court, it must, with some exceptions, be in writing, signed with your signature, and witnessed by at least two witnesses who are neither relatives nor beneficiaries. Otherwise, the court may not accept your Will, and it may be unenforceable. If your Will is found invalid, the court may distribute your assets as if there were no Will (or intestate), and the court will distribute your asset according to the Distribution Act 1958 (amended 1997).


For fast and easy will, please visit my website:
http://www.stocktips123.com/financialplanning/will_steps.html

The Gods Gift ATR Turning a Good EA into a bad one !

I knew it was only a matter of time before the regular forex crowd took a hold of my gods gift ATR expert advisor. For the past few months I have seen an outdated version of my ea appear on several websites and forums and inevitably, they have started to test the system as they test all other forex expert advisors out there. I really think its a pity. The reason why I keep the ea to myself and my customers is because I think that a certain degree of knowledge is required to trade this expert advisor and I like to serve as a guide to the people that buy my ebook or subscribe to my newsletter in order for them to use the system correctly. Below I point out the main differences between how I use the ea and how others have been testing it in order for you to know what the big differences in trading are :

How I use the system :

• I forward tested the gods gift 7c logic for 14 months before placing it on any live account
• I then programmed the gods gift ATR, backtested it on 15 different currency pairs
• I found out which ones the ea worked with and optimized them from Dec 1999 to Dec 2008.
  
• I made several risk projections to ensure that the ea would trade as safely as possible on live accounts.
  
• I then run these settings on four separate live accounts, two different sets of settings for the EUR/USD one for the GBP/USD and one for the USD/JPY.
• I tested the experts on a realiable vps with triple redundant internet connection and made the investor passwords available as well as an ftp with regularly updated results to my newsletter subscribers.
• I trade through draw down and profit and have confirmed several times the consistency I get between live and backtesting results.
  
• I wrote a manual to further help people understand what goes on under the hood
  
• I started the Gods Gift ATR challenge to include controlled third party results into the experts history.
  

How people are now testing it on forums :

• They dont do proper backtesting and optimization from 1999, the few that do use just the last year or last few months, this extremely curve fits the ea.
  
• Most of them dont have the slightest idea of how this system works
• They dont do any risk analysis and just trade it to "see what happens"
  
• Sometimes they trade it on more than 5 currency pairs on the same account (this by all means is a sure way to wipe the account)(I only trade one per account ! for very good reasons)
  
• They trade it on all pairs with the same settings, without any preoptimization. They also test the ea on some pairs for which I know for certain the ea is NOT long term profitable, sometimes not even short term at all.
• They run an outdated version of the ea which they adapted to use five digit brokers but in doing so they corrupted the ATR money management and market order size logics (again, they seem to lack of an understanding of how the system works)

As you can see, the great differences between how I test the ea and how it gets tested in forums is just too great. Inevitably, they will conlude that the ea is unprofitable eventually because they are trading it the wrong way. Why dont I start posting in forums and share all my results for free with everyone and help them succeed ? I am not interested in that. People that go to forums are sometimes arrogant and unwilling to change their mind sets about expert advisors and automated trading. They want you to explain everything to them and somehow, make them profitable in forex trading. I am not interested in fighting with people about how this should be tested or traded, etc. This is why I never asked the forum Administrator to remove the gods gift atr when this outdated version was posted on a forum a few months ago, because I know that even if the ea is out there for everyone, only one out of ten thousand will be able to find the settings and trade it the correct way and with enough discipline.

For this reason, as I outlined before, I just keep the gods gift ATR ea and testing to those people that are commited enough to read my posts, make a very small purchase and change the way in which they think about automated trading systems. Automated trading requires effort, requires knowledge and most of all, it requires commitment, something which I feel the crowd that is looking for everything on a silver plate fail to have. As you see, people at forums can turn perfectly good systems into terrible ones just by being totally irresponsible and incoherent with their testing. Why in the world would they test the ea on several currency pairs at the same time on the same account ? and all of them with the same settings ? I dont know. It is just a consequence of them not knowing what they are doing.

The worst thing about this is that they may get a month or two of profits and someone, somewhere will run that on a live account and lose money because of the irresponsability of the people that test these systems just for the sake of it. In order to test a trading system you must understand what it does and how it does it best, it is not about throwing the system into testing as you see fit.

If you are interested in learning more about the gods gift atr please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article!

Manual Trading With S R Some Pointers for Manual Traders

Thinking a little bit about manual trading strategies and evaluating the way in which I trade support and resistance levels (S&R) it became apparent to me that there were certain modifications I could give to my system that could make it a little bit less discretionary and a lot easier to trade for people new to the trading of support and resistance levels. After a backtesting evaluation of my trading system on the metatrader 4 visual backtester (the strategy is not automated, I just run the backtester on a blank EA so that I could get a "live trading" simulation), I took several notes regarding the way in which the strategy is best traded and I came out with several pointers that will help people who are interested in the profitable manual trading of this strategy.

One of the first things I realized is that taking strictly positions based on a 1:3 risk to rewards ratio often kept me away from positions that could have been profitable and could have increased my profits significantly, for this reason I believe that the entering of positions can be done from a 1:2 risk to rewards ratio although if possible I will still pick a 1:3 risk to reward ratio.

It is also obvious that bounces may occur from support or resistance levels on lower time frames that may cause a bounce towards the SL of our positions and therefore make us end up with a losing trade. I decided that I will move trades from now to breakeven once they reach the first significant support or resistance level in favor of the trade. This will avoid the taking of loses when the market simply bounces of one of this levels towards the SL before reaching our TP which is likely set at a much higher/lower resistance/support level target.

The last thing I wanted to tell you, which is probably the most important aspect I have discovered about S&R trading which is perfectly in line with sound trading principles is that you should NOT trade breakouts of S&R levels. I have found that bounces are the best to trade and the best trades are bounces from S or R levels that end up with a position in favor of the trend. This way you enter the trend at the end of a retracement and therefore with a much more favorable profit potential. I realized that entering on breakouts is usually a bad idea since price seems to bounce from these levels, sometimes a lot, before continuing the trend. So for example, if the EUR/USD has a resistance level at 1.5150, you will not enter on a breakout of 1.5150 but you will enter on a test of a support level that results from a bounce from that support level.
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As the images above show you, you should enter trades on the blue circles, NOT on the red circles. Entering bounces that end up in the direction of the main trend is always the most favorable case. You should definitely avoid entering breakouts as this type of trades generally does NOT offer the best risk to reward ratio and often takes out your SL as price bounces off the support or resistance level. Hopefully this guidelines will help anyone wishing to trade this S&R system, of particular importance is to trade this on Renko charts which offer a crystal clear view of support and resistance levels.

If you are not interested on manual trading systems but in the trading of long term profitable automated trading systems. Especially how you can trade freely available profitable systems or build your own long term profitable systems please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !