Forex Trading System: Knowing How to Trade in Forex

Do you want a very good career that has a potential to make you earn a lot of money? Do you want to enter a particular financial market but don't know which one to choose?

If you answered yes to either of these questions, then the Forex market is right for you. If you want to make a lot of money, the Forex market can provide for you.

You have to realize that the Forex market is the largest and the most liquid financial institution in the world. With trades that go on for 24 hours a day, you will have an opportunity to make money any time of day you wish to. It is also a fact that the Forex market generates currency exchanges that amounts up to trillions of dollars each day.

With these kinds of feature, who wouldn't want to trade in this very large financial market?

Forex trading is not as complicated as it may sound. With the right knowledge and skills, you can instantly trade Forex for a minimum of 500 dollars in a mini-Forex account. The Forex trading system is very simple.

Basically, Forex is the exchange of currencies of the world. You should realize that all the currency of the world is involved in the Forex market. It may be confusing to choose which one to trade but all you need is to know the major currencies that are frequently traded. Here are the major currencies that you can choose from to trade:

� US Dollar (USD)
� Japanese Yen (JPY)
� British Pound (GBP)
� Swiss Franc (CHF)
� European Union Euro (EUR)
� Australian Dollar (AUD)
� New Zealand Dollar (NZD)
� Canadian Dollar (CAD)

These are the major currencies that you should consider trading. With these trades, you can be sure that you can maximize your money making potential.

The basic thing that you need to know when trading in the Forex market is that you should buy low and sell high. And, since you will be trading with different countries currency, the economy and the government stability of a particular country can literally affect the value of the particular currency.

The next thing you need to know is that Forex trades are done by trading currency pairs. Currency pairs are the simultaneous buying one currency and selling the currency of another. So, basically, Forex is in fact trading.

Aside from knowing how to trade currencies of the world or at least the major currencies, you also have to know about the different strategies used when trading in the Forex market. You have to realize the fact that knowing how to trade in the Forex market isn't enough to get you that money. You also need to know the different strategies that are used in the Forex market.

An example of a Forex trading strategy that is used in this market is the leverage strategy. This will enable you to trade 100 times the amount of money you deposited in your Forex account. This means that you can earn a potential of 100 times more. With this kind of strategy, you can really maximize your income opportunity.

You should also consider the stop loss order strategy. This strategy minimizes the risk of losing money. The stop loss order works when you choose to stop trading at a specific price. If the currency reaches that point, you will automatically stop trading.

There are other strategies that you can use in the Forex market that you should be aware of. If you want to be successful in the Forex market, you also have to realize and accept the fact that you will lose money in the first few months when you trade in Forex. This is why it is also important to remember that you should invest what you can afford to lose in the Forex market. If you can't afford to lose the money you plan on investing in the Forex market, then it is recommended that you should never trade in this very large and very risky market.

Now that you know how to trade in the Forex market, all you need to do now is decide whether you really want to trade in this trillion dollar industry. If you do decide that you want to trade, then all you have to do is open an account with Forex brokerage companies and start using their Forex trading software to trade.

Forex Ebook V 1 0 Comming Soon

As you may have noticed, I have been selling a preliminary version of my ebook on automated trading and expert advisors for the past two weeks. I write this post to tell you that next week I will be releasing version 1.0 of the ebook which will include a few more expert advisors (both free and commercial) updated trading statements and a little more insight on expert advisor types and the like. The expert advisor ebook new release will cost 9.45 USD as it will be the first final edition. All the people who have bought and will buy the preliminary version before the day when I publish the new version will be receiving the new edition for free ! I would also like to thank everyone who has bought the ebook for supporting my work and sending feedback !

Trading like a Couple Correlation in Trading

Through the last few months I have noticed that several of my customers are interested in the use of correlation in their forex exchange trading. Correlation, which is the statistical pairing of two random variables can be used in trading as it can tell us which instruments move together, which ones move opposite to each other and what percentage of the time we can expect the correlation to be true. However, there is usually an overestimation of the power of correlation in foreign exchange trading which can many times lead to invalid conclusions and the formulation of unsound trading strategies. Through this post I will talk about correlation, specifically about how it can and how it cannot be used in automated trading. I will try to discuss the usual ways in which correlation is tried to be exploited and why such uses of correlation usually generate strategies with extremely high draw down potentials.

If you do a small google search for correlation in the forex market you will find a huge wealth of websites that describe currency pairs and their relationships with each other. Of particular informative character is this website which accurately describes the meaning of correlation and how it is usually exploited in trading. Usually correlation can be used as a mean to diversify risk and to avoid the entering of contradictory positions. As per their example, if you enter a long trade on both the EUR/USD and the USD/CHF you are likely to go out with a loss as both currencies move in opposite directions. However, if you enter a trade on the GBP/USD and the EUR/USD you will diversify risk as both currencies move in the same direction, although not in exactly the same way.

So what are the ways in which correlation is exploited in automated trading ? Many people try to use correlation as a "standard" market conditions which must be returned to upon breakup from the relationship. For example, if the USD/CHF had a -90% correlation with the EUR/USD in average for the past 5 years and on a 4 month period this correlation changed to -40% people would take opposite positions on each currency until they regain their -90% "standard" relationship. This trading approach has many problems which lead to an uncapped market exposure. For example, what would happen if the extent of "decorrelation" reached levels far beyond 40% ? What precisely makes a currency unable to "decorrelate" from another ? Clearly the case can be made that while two currency pairs can remain correlated for a long time, they can quickly lose correlation because of fundamental changes.

A perfect example would be the EUR/USD and the GBP/USD which for the past few years have had a correlation above 80%. Nonetheless, after the market crisis in 2008, these pairs lost a lot of their correlation with the EUR/USD rallying towards 1.50 while the GBP/USD stayed in a very wide range from a yearly high it was unable to break. So would it be wise to always assume pairs will return to correlation ? No. Can we say up to which extent pairs will lose correlation ? No. As a matter of fact, all the systems I have seen which use returns from deviations in correlation as a trading strategy have ultimately failed. If you remember your sound training in trading you will remember the old phrase : The market can remain irrational more than you can remain solvent.

Is correlation useful ? Sure, it can be used to diversify risk and to understand and avoid the use of contradictory positions and systems. Does it have a "higher than usual" chance of success as an automated trading system ? No. Is it guaranteed that a system based on correlations will be profitable ? No. As a matter of fact, systems that are traded based on correlations often neglect the use of a stop loss or other order closing mechanism which usually makes them very dangerous and uncapped in their market exposure.

If you would like to learn more about automated trading systems and how to evaluate them and trade them profitably 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 !

Creating Profitable Forex Trading Systems in Five Easy Steps

One rule of thumb that every aspiring entrepreneur should remember is that to make huge profits, you should know how to do it by yourself�and not rely on other's efforts. Being independent from other people will help you determine what things are best for your business.

Such rule applies on all types of investments, including foreign currency trading, or mostly known as Forex trading. It cannot be denied that Forex is the largest existing market around the world, which is estimated to have an excess of 2 trillion U.S. dollars worth of foreign currencies are traded each day. It is larger than the magnitude of the New York Stock Exchange, which is approximately 50 billion U.S. dollars. Thus, Forex market exceeds all combined equity markets around the world.

With such huge wealth circulating around the Forex market, one of your financial goals is to grab a major slice of that $2 trillion average daily turnover in the market. How you will be able to get a substantial portion of that average turnover if you do not know how you will handle your Forex business? Although you cannot live in the market alone (you need business partners and/or financial advisers to help you along), only you can determine what the best Forex business there is for you.

To get huge profits out of your Forex trading career, you need to build your own profitable system�a trading system that will bring your not just hundreds but thousands of dollars worth of Forex revenues. Such trading system is available on the market, but as previously mentioned, you need to be independent�and you need to have your own Forex trading system that will help you achieve your financial goals.

For new traders, it is difficult for them to device their own trading system since they do not have too much knowledge about the Forex market. However, even a neophyte trader can device a trading system that will fit on his personal preference and needs�in just five easy steps!

Before we discuss the five easy steps towards a profitable Forex trading system, you need to learn first the three main characteristics of a successful Forex trading system. These are as follows:

1. A successful Forex trading system is simple. There is no need for a complicated trading system with too many rules. It is a proven truth that simple systems work better than complicated ones, and they have higher chances of success despite of the �brutal� characteristic of Forex trading.

2. A successful Forex trading system cuts losses and runs profits. Keep in mind that you need a trading system that gets the huge possible profits and eliminates losses quickly, if not instantly.

3. A successful Forex trading system follows long-term trends. You will never cover your losses if you are just generating small profits. Keep in mind that the Forex market is worth $2 trillion U.S. dollars, thus there is no point in trading in exchange for just small profits if you have the opportunity to make trades for larger revenues. Focus on long-term trends and you will be able to see better results.

Now, here are the five easy steps in building a profitable Forex trading system:

1. As previously mentioned, your trading system must be as simple as possible. Integrate few yet essential rules and an extensive investment management system.

2. Always look for long-term trends (preferably on a weekly basis), then shift to daily charts and to time entry. This will help you analyze market trends efficiently.

3. The ideal way of trading foreign currencies is through breakout method.

4. Always watch for any break that you will note on your chart, which is commonly confirmed by stochastic crossed with bearish divergence. This will be your great timing tool whether you will enter a certain deal or not.

5. You must integrate effective time management within your system. Time is gold and is one of your precious resources. Design a trading system that is time efficient�where you can maximize the potential of your time resources to generate huge profits.

Get away with complicated systems; it will just ruin your entire Forex trading career. Build a simpler one and see for yourself how profitable it is.

Overconfidence

Under the paradigm of traditional financial economics, decision makers are considered to be rational and utility maximizing. The assumption of rational expectations is simply an assumption - an assumption that could turn out not to be true.

Behavioural Finance has the potential to be a valuable supplement to the traditional financial theories in making investment decisions. For the past few weeks I have introduced several behavioural finance concepts including: Availability Bias, Representative Bias, Anchoring Bias, Mental Accounting and Framing Effect. Next, I’m going to tallk about “Overconfidence”.

Overconfidence is a very common behaviour whereby investors tend to think that they know more than they actually do. They often overestimate their predictive skills and believe they can time the market. One classic example is listening to rumours. Investors who make investment decisions based on listening to hearsay rumours tend to be overconfident about the situation. Personally, I know a lady who listen to rumours got lucky the first time, she invested RM100,000 in a particular stock based on rumours from her fund manager friend. Her RM100,000 later became RM300,000. The next time she became greedy and invested RM300,000 into another stock recommended by the same fund manager, however, there was bad news regarding the company’s product and her RM300,000 became RM100,000.

Hence, being overconfidence may bring us good fortune at times, but it may also cause losses in our portfolio. To overcome this mental bias we need to follow our investment plan, practice diversification and always remind ourselves not to fall prey to those mental biases.

Finally, wishing all a Happy Chinese New Year! May the year of Rabbit be a prosperous one for all stock investors.


Happy investing,
Pauline Yong

Trading and Family Telling your Loved Ones About your Trading Goals

It is not a secret that most of us are not alone in our lives and that whatever decisions we make to change our work, investments or live style will affect other people around us. One of the most important aspects of trading - which often goes unnoticed in most websites and books - is dealing with your family when getting into the forex market. This is not as easy as it may sound and it is often approach in the wrong way by people who want to start a path to earn a living or a retirement income from forex trading. On todays post I will try to tell you what I believe is the best way to approach your loved ones, how you should make them picture forex trading and what parameters you need to agree upon so that you can treat for forex trading as a serious business endeavor.

First of all you have to understand that your loved ones are not into forex trading, probably dont know what it is and - in most cases - your family will not be very knowledgeable about investments, financial instruments, day trading, etc. The first big mistake people make is to approach their loved ones with a "dream" instead of a business. If you tell your partner and close family that you will be trading for a living most will give you a look that is better described as "keep dreaming". It is not that your family dont want you to prosper, it is merely that you are approaching them with something that they know is not so easy to achieve and that few people ever get to. Even if your family has never been involved with trading it is common sense to see that if it was so easy everyone would be doing it and well, this is simply not the case.

In order to approach your family and even more in order to approach your spouse -which may have a financial say in the matter - you need to tell them that you will start to learn how to trade and that your goal is to achieve a consistent long term profit. Perhaps the first question your family will ask you is how much you plan to make and your answer to this will be a simple : I dont know if I will be able to make any money but I will not lose more than X. The best thing you can do when you begin is to focus ENTIRELY on financial loses when you talk to your family. Tell them that MOST people lose money in this market and that your first goal will be survival.

Of course, some of your family members will probably raise an eye brow and wonder why the hell you want to try this anyway and you will tell them that you want to start a business and that the first goal is simply to make money in the long term and have controlled loses. That whatever you do you will never lose more than a set initial capital (1000 USD is a good place to start) and that if you lose that you will quit. Making you trade with such restricted capital will make you think a lot about your trading decisions and use small cent accounts in the beginning, however there is no rush, you are starting up a business.
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Another very important thing you need to do is to talk about the time that will go into this since it is an additional thing that can be extremely time consuming so you will set a given time every week that will be "forex business time" a time when you will not be disturbed and when you will concentrate on trading, system development, etc. It is a time to learn about forex and trade the market. There are systems that can be traded only once a week or automated trading systems that can be maintained and analyzed in a few hours, there is no need to become a "full day trader" you just need to come up with a trading schedule that works for you. Remember that right now there is no pressure to make 10000% or whatever, in this phase the only important thing is that after a few years you will be profitable (any amount) or at least you will still have trading capital.

After a few years you will now have something to show and something to talk about from where you can build true expectations not a "fluffy dream" that your spouse will internally laugh at when you talk about. You can then sit down and say : look, I have made X% the past few years and I have never lost more than Y%, I now know how to control risk and be profitable in the long term, I want to increase the investment to A amount of money and my stop-trading level will be B. Your family is now going to look at you like you are really onto something, that you know what can be done because YOU have done it and that you can actually control your risk and be a serious investor.

Truth be told, the only way you will convince your family about forex trading being worth doing and pursuing is through your OWN personal results on an account they have seen you trading for a given period of time. If you tell them "that guy made a fortune" or "I can become a millionaire" they simply wont care since they dont know this can be done and they havent seen it done. When you come to them after a few years with a 15% average yearly return and a 7% maximum draw down they will think - this guy/gal knows what he/she is doing, he/she controls risks and he/she can now paint a long term picture that is more realistic.

So to sum it up, my advice is simple: In the beginning just tell your family youre after something that may or may not work out but - in the worst case - you will only lose X amount of money and then after a few years show them your results and what you achieved and build long term goals from there. It never ends well when you tell your family that you will make a fortune from forex trading only to have them say "I told you so" after you wipe your first account. As I have said a few times, approach it like a business and not like a get rich quick scheme.

If you would like to learn more about automated trading and how you too can design and trade your own likely long term profitable systems with sound 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 !

Expert Advisor Piracy It Will Cost you Money

During 2009 many things have changed within the expert advisor and automated trading industry. We have seen many commercial expert advisors surfacing like megadroid, fap turbo, robominer, etc ; we have seen an incredible increase in strategies with very high risk to reward ratios and of course, we have seen an increased number of people losing money in the automated trading industry. Another very important development within the industry is the surfacing of many expert advisor decompilers for the ex4 files compiled with the metatrader editor.

Of course, the consequence of having a widely available decompiler is that many people started to decompile commercial expert advisors to get a look at their trading logic. This is by no means wrong or illegal as US law and most other countries laws allow someone to decompile software to see its inner working unless a specific EULA preventing this is signed (this is not the case for most expert advisors). My main concern is with the later use and distribution of this code for free for other traders to use.

The distribution of copyright material without permission from the authors is unlawful in every country. Most people say that if they had to buy every expert advisor they would go broke and that is the reason why they prefer to download the full versions for free, illegaly. Well, the fact that you cant buy every car model does not justify going out there and robbing cars, doesnt it ?
The fact that some expert advisor creators are dishonest and are just after the customers money does not also justify software piracy.

What you need to know is to really know how to evaluate an expert advisor and use it. The fact is that if you knew how to do this you would not buy 99% of the experts out there. It makes no sense to get this experts illegally and use them in your live trading accounts. If you do not have a good understanding of automated trading systems you will just lose your money, your trading money, just like if you had bought the original useless software. My advice is that you learn, read, program and know everything you can know about trading and automated trading systems. Do not go out and break the law, just because it fits your lazyness, I tell you, it will cost you a lot of money.

If you want to learn more about free and commercial expert advisors I have bought, tested and 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 !

The Turtle Trading System EA Trading the Turtle System II

After searching a lot for an expert advisor that had the exact same rules of the turtle trading system, I found out that all of the free experts out there that try to trade the turtle system differ from the rules in one or another way. Since this system has the reputation of being profitable and very mechanical, I decided to give it a shot and program my own version of the Turtle trading system following the turtle rules to the letter.

Well, I programmed an expert advisor to follow the rules of what the turtles called the trading system number 2. My ea does exactly what the turtles say it is supposed to do. It enters trades on 50 day breakouts, places stops at 2N and then enters an additional of maximum 3 positions in 1/2 N intervals with the N equations defining lot sizes so that the amount of capital risked is also adjusted to volatility (as the system says). The system exits trades based on a 20 day breach as it is also described by the system.

Now, I would have expected this trading system to lose most of its trades and then show tremendous recoveries on a few trades each year. That is exactly what I observed in backtesting with the small difference in that the big wins experienced during the trending periods were not enough as to compensate for the huge loses suffered from all the false breakouts experienced by the system. My ea newsletter subscribers will have access to this ea from today, so make sure you join my newsletter if you would like to test this ea yourself.

Right now I am trying to find additional criteria that can be added to the ea in order to prevent the ea from losing most of its profits on false breakout trades. My best guess is that breakouts need to be further filtered out by the use of an additional indicator which reduces the number of false signals experienced by the system. Make sure you leave a comment if you have any ideas !

I found out that the lack of profitability I was observing was due to some programming glitches, make sure you read my latest post to see the first 10 year profitable backtests of this system !

If you would like to learn more about this ea 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 !

Investmen Policy Statement

I always tell people to invest rationally and prudently. Then you may ask: “But how?” To be honest with you, I was once ‘lost’ in the stock market before, I found myself investing aimlessly, invested in one counter then sold quickly when I heard some bad news or when I was not sure about the stock; or sometimes I found myself buying into a counter without any research at all like I was buying into a hurry, worried that if I delay the stock price would rally further! Then I realized I was not investing at all, I was simply speculating, ‘hoping’ the price will go higher after I bought which in fact it usually didn’t because I bought when everyone else were buying too which was already in an overbought position.

So I finally looked into what all the experts have been saying: “Create an investment plan first”. I’ve heard so many times but I never followed this important step. I hope by sharing with you will help you to be a wiser investor. Below is a copy of a sample investment policy statement. An investment policy statement defines your goals and objectives and sets the guidelines for your investment activities. Most importantly, it provides the necessary disciplinary function of the investing business that any rational investor needed most. It is by far the most important step of the investment process however, most investors fail to recognize it.

Investment Policy Statement for Mr. Market, aged 40

Objective of Portfolio
The objective of this portfolio is to provide steady growth of capital until retirement and an inflation-adjusted of RM50,000 every year for 20 years in retirement.

Return Expectations
Return expectations are: 3% for cash, 8% for unit trust, 10% for stocks. In which the returns for unit trust and stocks include dividend yields.

Time Horizon
My target retirement date is 2030 when I am 60 years old. My initial investment is RM200,000, supplemented by annual periodic investment of RM12,000 per year or RM1,000 per month for until 2030.

Asset Allocation
Cash – 20%, Malaysia Equities – 30%, Singapore Equities – 40%, US Equities – 10%

Rebalancing
The investment portfolio will be rebalanced to the target asset allocation when new money is added. The portfolio’s asset allocation will be checked once every 6 months on June 1st and Dec 1st. I will rebalance back to the target by selling whatever has gone up and buying whatever has gone down.

Investment Vehicles
Cash will be held in either Fixed Deposit accounts or Merdeka Bonds if applicable. Local equities and foreign markets equities may include direct purchase from the relevant stock markets or through unit trust/ mutual funds run by well reputable fund managers. My portfolio will avoid: investing in options, futures and other derivatives, illiquid companies with average daily volume below 500,000 shares, and companies without proven track records.

Benchmark and Review
The benchmark for Malaysian equities – KLCI; Singapore – Straits Times Index (STI); U.S.- Dow Jones Index(DJI), Hong Kong- Hang Seng Index(HIS)


Note: This is just a sample investment policy for illustration purpose only. You can customize based on your goals and needs. A good investment policy will be as detail as possible.

The Micro Account Stimulation Project A True Commitment to My Fellow Traders o

Those of you who are newsletter subscribers may have already read about the micro account stimulation project on the newsletter sent to you on last Sunday. I wanted to dedicate todays post to disclose this project to everyone else so that website visitors as well as ebook customers can learn about it and give any comments or suggestions on the subject. Through this post I will discuss with you what the micro account stimulation project is about, what inspired it and what I expect to get from it through the following years.

So what exactly is this micro account stimulation project (from here called MASP) ? (I really like to give things weird names, right ? ;o) ) A few days ago, while I was doing all my weekly analysis for my weekly newsletter as well as planning for all the trading that would go on next week (both on my managed and personal accounts) I realized that the amount of testing that was going on at the website was not enough to actually test all the systems, projects and ideas that will be going on in 2010. I also realized that I was going to need to open a dozen or more trading accounts and that opening such a large number of micro accounts would not be possible due to the current number of accounts I own on all the different metatrader 4 brokers. Therefore, doing all the testing that I wanted to do for my subscribers on 2010 would become almost impossible for me to do in a reliable fashion, with the brokers I wanted with the quality I wanted, etc.

Then I had a great idea ! :o). What if I give people the money to fund their micro accounts ? This way well be able to have a lot of testing information and theyll be able to have funded micro accounts in which they can experience long term profitable systems themselves while we all analyze and see their live trading results. Since the number of subscribers is enough to cover my VPS expenses then why not give the money back to subscribers in a way in which we all can enjoy the tests and results ? Why not build a community with a lot more testing going on ?

The idea of the MASP is exactly this. Once each month, at the end of the month, I will give away 100 USD to one my newsletter subscribers (chosen randomly, feel free to suggest selection mechanisms !!). The only condition is that this 100 USD are used to fund a forex cent account on Alpari US, IBFX, Fxclearing or LiteFX (these are the brokers I know who offer nano lots (one cent per pip with 0.01 lots on the EUR/USD)) and this account is run on a VPS and trades an automated trading system the person chooses amongst different options I give him/her. The account will have to be traded for at least 2 years. After this period of time, the money and any profits will be owned by the subscriber. I am effectively giving away this money so that we can all have a far more varied broker/system/instrument repertoire than what I could obtain by funding micro accounts personally. Add to this the benefit that one subscriber each month will get the experience of running a system "risk free" (in the sense that I gave the money to fund) on a live account. This is a true and effective way of giving back and really helping the profitability of a fellow forex trader. Truly helping someone become profitable in automated trading for the long haul.

Of course, nothing prevents people from taking the 100 USD and running away with them and never opening the cent account or doing the tests. However I will try it for the first few months and see if the idea works. My opinion is that my subscribers are honest people who really want to be profitable with forex automated trading and they will welcome the chance to participate on the tests and open the live account with the money I give them. When a person is chosen I will obviously send him/her an email to ask them if they agree with the conditions and would be willing to carry on the tests, if they dont have the VPS or would not like to make the commitment to trade the account with the selected EA for the next two years then I will pass the offer onto another subscriber. If the idea goes well I will increment the number of accounts funded each month as the number of subscribers increase, hopefully by the end of 2010 I will be able to give away 300 or 400 USD every month :o) (hopefully if more people start to see the value on all the services offered with the newsltter and decide to join)

So what do you think about the MASP ? Do you think it is a good idea ? Do you think it contributes to people becoming long term profitable using automated trading systems ? Please leave any comments you may have abou this, I am really interested in hearing out your opinions ! However if you would like to learn more about all the systems I have programmed as well as how you too can become long term profitable using reliable automated trading 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 !

The Asirikuy Index A General Performance Indicator

Yesterday while writting all the material which is added weekly to asirikuy and doing the weekly video additions I started to ask myself if there was any way in which I could measure the current performance of asirikuy as a whole. That is, I wondered if I could come up with a given statistical tool which would measure the performance of all the trading systems of asirikuy simultaneously. Then, after a lot of thinking time, I realized that there was a very simple solution to this measuring problem. Todays post will be dedicated to the communication of this new measurement tool called the Asirikuy Index.

So what is the deal with measuring Asirikuy perfomance as a whole ? In asirikuy we use many different trading systems which I have coded (partially or totally) and we have many live accounts currently running these trading systems on different brokers, settings, etc. We know how all these trading systems are working separately but there was no way for me to communicate the joint performance of all asirikuy systems to the world without disclosing the tests. Moreover, there was no way in which members could get an idea "as a whole" of how asirikuy was doing (all the joint trading systems) but they had to go over all the tests to know what the "global performance" was looking like.

Then I had the idea to come up with a number which could be a global indication of the equity production of asirikuy, a number which could be disclosed to everyone to give people a feeling of how asirikuy was doing. This number should be simple enough to give anyone a straight forward idea of how the tests on the website are doing in general - without needing access - while providing a tool for current asirikuy members to understand how asirikuy is performing as a whole. The number I came up with is what I call "the Asirikuy Index".

What is the Asirikuy Index ? It is a measure of the joint performance of all the live accounts traded on the website. The index is simply the sum of all the current equity percentage gains or loses of all the trading systems being traded. The index simply tells you "if you were trading your capital with the exact same systems within the same brokers and with the same number of accounts (of the same size) this would be your current profit/loss". It is a true measure of Asirikuys performance as a whole and lets the world know how we are doing, something which may be something people want to know before joining the website.

For example, if asirikuy currently had only 3 live accounts and their results were +20, +12 and -25% then the asirikuy index would be 7% (20+12-25), meaning that if you had opened three accounts, funded them with equal amounts (for example, three 1000 USD accounts) , on the same brokers and with the same settings you would have gained 7% (of a single accounts investment) up until now. Of course, the Asirikuy index could be manipulated by removing bad accounts from testing but I guarantee that this wont be done as if any accounts are removed from testing their current draw down will be kept as a part of the index, as it was a realized capital loss.

The current Asirikuy Index is 95.18% and it will be updated each week to reflect changes on the weekly profits and loses of all the live trading accounts. Of course, the measurement is not perfect and it has a lot of room for improvement but it is a very basic view of the overall performance of the trading systems. It also provides us with a glimpse of the effect of broker and system diversification since the index is the result of the combination of several brokers and expert advisors. In the future we will also be able to do cool things, like plotting the Asirikuy Index as a function of time !

If you would like to learn more about the trading systems used in Asirikuy and why I consider them to be long term profitable 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 !

The Testing Time Problem For How Long Should I Demo Test

When people start to get into the world of automated trading systems they soon find out that there is a sort of "general protocol" established by most of the online user community to use forex expert advisors. People are generally told to get an EA, demo it for a certain period of time and then, when if the demo gives satisfactory results, run the expert advisor on a live account with real money. Where did this idea come from ? It came from the notion that regular people have that a minor test of a demo account will most likely mimic trading on a live account later on. Todays post will focus on explaining why this criteria to evaluate profitabilty is wrong and why most of the time it will only lead to the discarding of profitable systems and loses on forex live accounts.

What is wrong with this testing approach ? You take an expert advisor you want to test, run it on a demo account for X weeks, then you are sure it is profitable so you run it in a live account. What ? From where did people get that a profitable or unprofitable period of a few weeks or months on demo is any indicative of the experts profitability on a live account ? I certainly do not know. A demo test of a few weeks or months is only going to tell you if the expert is profitable under a very narrow window of market conditions, these conditions are bound to change once the market starts to evolve, leaving the actual usefulness of your demo period in the trash.

What if the demo testing period only generates draw down ? Does this mean the expert is unprofitable ? No, it doesnt, many long term profitable systems go through long periods of draw down (even one or two years) before the very profitable periods which generate most equity gains. Then you are bound to discard long term profitable system when using this demo testing small periods because long term profitable systems are always most likely to be within a breakeven/draw down period than within a profitable one. Now what if you have one year of demo testing ? good enough ? No ! Again, forward testing is not the only thing you need to take into account. Some systems with terribly unsound trading techniques can generate a lot of money on periods of even one or two years before wiping everything out. This is the case for some Martingale systems, you can also be using a curve fitted system which then goes out of date and starts to wipe your account.

So is there any amount of time you can have in demo testing which will inevitably ensure you that you will not lose money on a live account ? No ! Long story short, there is no substitute for analysis and sound evaluation of trading systems. No forward testing period, no matter how long, can cover for the testers ignorance about the system or its potential for long term profitability. How can you be sure then that a system is going to be profitable in the long term ? You cannot ! However you can ensure that there is a high probability for your system suceeding in the future if you ensure that the system uses sound trading techniques, is able to adapt to varying market conditions and performs in a satisfactory manner in long (ten year or more) simulations with consistent results in live testing.

If you would like to learn more about my criteria for the evaluation of long term proftability and how you too can start your journey in profitable automated trading with realistic profit and draw down targets 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 !

The SDS or Simple Daily System A Free Worth Testing Expert Advisor

Readers of my newsletter have known about this trading system for a little bit more than a month. The SDS or Simple Daily System was created conjunctively at forex-tsd.com . I, in particular, have been using a version of this ea programmed by a person whose online alias is Derek.

The expert advisor is programmed to follow long term trends based in part on the PSAR market indicator. What I like a lot about this expert advisor is the fact that it uses a money management technique referred to as DAlembert money management. This tecnique simply increases lot sizes linearly with loses in order to ensure faster equity recoveries. It is ideal for expert advisors that rarely suffer from large streaks of consecutive loses but are likely to have several win, loss, win, loss sequences and several profitable trades.

Almost every expert advisor may be extremely improved by additions of proper money management and this is a great example of this. Without this system, the SDS ea would be a practical loser since its winning trades do not overcome its loses by great numbers and even sometimes fall behind as per backtesting. However, introduction of this money management greatly increases the odds of this expert making substantial profits.

You should also take into account that people at forex-tsd.com often overtrade their systems. Most of them have tested this expert on several currency pairs at the same time when this is a sure way of losing with this system as you risk about 25% equity draw down for each 5% of consistent monthly profit you want to make.

I have forward tested this expert (EUR/USD daily) for the past month and up until now, it has fulfilled my expectations. The current rangy EUR/USD market is sure to let us know whether this expert will or will not be considered likely profitable. If you want to take a look at the trading statements or learn more about this and other free and commercial 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 !

The 8and8 EA A Hopefully Profitable Expert Advisor

During this past few days, I had been implementing the 8and8 daily trading system into a forex expert advisor. When I finished coding the system and started back testing its daily trading results, I realized that the system is unprofitable as an automated trading system due to the excessively large amount of mixed signals generated from the cross of two indicators. As it usually happens with crossing systems, whipsawing becomes a very hard problem to solve. On this months daily chart, which is shown below, I tried to pinpoint the places that caused heavy loses due to intense crossing of the EMA and the RSI indicators.
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The system does much better manually because trades are taken in a very discretionary manner. For example, you would not take a trade against the main trend when there is an important support/resistance level ithat has to be reached in sight. These things are not visible to automated trading systems (that easily), so it becomes very problematic and the experts fail when they have fixed SL and TP orders.

My first attempt was to try to fix the stoploss and take profit problems by making them ATR adjustable (hey ! its my flavour of the month and it really works !). Sadly, the whipsawing problem absolutely killed the idea as too many bad entires happened due to the intense crossing of the two indicators (still it was much better than the original).

I then started to think about the expert advisors I know that are at least likely profitable, Gods Gift, Simple Daily System, etc. I realized that their logic often involves some sort of volatility/range condition filter so that positions can only be entered when strong trends happen.

After struggling for several days with the idea and doing a ton of optimization with several range and volatility filtering ideas, I came up with the expert advisor I am presenting you now. The result ? A very clean equity curve in backtesting from 1999 to 2008 (EUR/USD). The expert advisor does a great job at filtering range conditions and just trading when the conditions are "right". Although the rules changed a little from the original 8and8 system, you could say that the main idea "daily trend following" is alive inside this modified trading system. The main modification is a simple filter based on the ADX indicator which makes the ea not to trade in raning market conditions. Lot sizing adjusted to volatility was also added.

Below you can see the backtesting image of the expert (from 1999 to 2008, modeling quality is n/a because of several mismatch errors in my 1999 and 2000 data but becomes 90% once you test from 2001 (2001 to 2009 is exactly the same anyway)).
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Now, you may be asking yourselves if I intend to sell or give away this ea for free. Of course, it is available to anyone who buys my automated trading ebook or subscribes to my newsletter but feel free to buy me a cup of coffee and email me if this ea is all you want (a link is available at the bottom left for this). The ea is profitable according to backtesting although its maximum draw down and yearly profits are almost alike, so you could expect a 50% yearly profit with a 40% maximum draw down. It will be forward tested from next week.

Other, expert advisors like Gods Gift (specially my ATR modified version if you read the last post !) and the Simple Daily System are free expert advisors that do make profits and will most likely continue to do so in the future, if you would like to learn more about them and their settings 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 Expert Advisors Forex Monster an unbiased Review

I have to say that it is very hard to keep up with everything that comes out everyday on the forex expert advisor market and I would really like to thank you guys for telling me about new experts that come out so that I may check them out and review them. Of course, I always hope that one of these systems will be able to go through my criteria for long term profitable profitability but I am still waiting for that to happen ! Now, I am going to review an expert advisor called forex monster, suggested to me by a person who left a message on the chat (it is on the bottom left of the webpage if you would liket o leave a message).

Well, forex monsters webpage greets us to what seems to be a part of a backtesting summary with a huge sign on top saying it can make you 500% profit, not mentioned the time it requires to do so. You should also look at how conviniently the part of the backtesting summary that shows the modeling quality is ommited, very convinient ! Also, why is there no access to the actual backtesting detailed statement ? Things are starting to look a little bit suspicious already.

Now this guy shows us 20 days of trading and calls it "proof" that the system can make a certain amount of profit, which is of course, completely absurd since first, we dont know if that is a backtesting statement, a forwards testing or a live testing statement. We dont know the rest and we certainly do not why the testing stopped there if that testing was done 8 months ago. I mean, if I was an EA seller and I wanted to sell my product, assuming Im telling the truth, I would want to have as much evidence as I can to support my claims. So why doesnt he show any more backtesting or live testing since at least January 2009 ? When this testing statement was issued ?

Looking at the statement there is nothing notoriously obvious about the trading logic that could make this system wipe your account. I could say that it would eventually fail when the market changes as position sizing and stop loss and take profit are rigid. However, this system is most probably geared to take profit of breakouts in high volatility environments, which is why I guess it worked at the beginning of the year when the market was terribly volatile because of all the market crisis. As you see, the system is obviously not a long term profitable system but saying how risky it is something I cannot do without more testing information.

This system is NOT worth buying clearly because the author does NOT show any information to backup his claims. He could get this information pretty easily if he really traded this expert advisor on his live accounts. Why not show us his account statements ? Well, the thing is that this person probably makes his money from selling that system to innocent victims and has never traded it live. If he has, he can show us all his statements with investor access so that we can confirm them and Ill be glad to say he is an honest seller who just happened to "miss" placing the proof on his website. Needless to say, why am I feeling this wont happen ?

If you would like to learn more about how you can evaluate expert advisors and how you too can profit with automated trading with realistic profit expectations and draw downs 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 !

Liquidity in Forex Part No 1 What it Means and Why it is Important

The term "liquidity" is used a lot in trading and finances since it is a vital aspect of market behavior. However, people often use this term very liberally in forex trading often without understanding its exact meaning and the implications of high or low values of this particular property. On this article I want to explain to you what the term "liquidity" is, what it exactly means, its implications within a given instrument and why it is such an important characteristic of the market.

Imagine that we had 20 people standing on a circle with 19 of them holding empty glasses and one of them holding a glass full of water. Now we want to see how much time it will take for the person with the glass to pour it onto the next one and so on until the water reaches him/her again. What we find is that it takes a long time for the water to be exchanged along the full circle because only 2 players are able to participate (the one holding and the one receiving) while all the others have to stay on the sidelines, waiting for their glass of water. Now imagine that we give half of them a glass of water, the process is much faster since the number of active participants has now increased to include everyone, all the people are actually exchanging water all the time.
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Liquidity on the market is nothing else than the "water" in the above example, it is the amount of volume exchanged of a given instrument over a given amount of time. When there is high liquidity there is a lot of volume being exchanged and when there is low liquidity there is little volume being exchanged. When we have a lot of volume people can get in and out of the market easily (since there is always a buyer for every seller and vice versa) while when there is low liquidity the market gets "stuck" as people have to fight to get in or out of their positions. When there is low liquidity you also get harsher price movements since a person holding a position may be forced to drastically change the offering price to match what the other end - which is very scarce - wants. So while under high liquidity exchanges are easy and swift, under low liquidity prices move more erratically since the offered and accepted prices tend to have larger gaps between them. The consequences for the little trader are unpredictability and spread widening while for the large players the consequences are mainly not being able to get in or out of positions due to the lack of available exchange capacity.

Liquidity in the forex market is extremely difficult to read and study since the market has no central exchange but it is handled over a wide variety of banks worldwide in an over-the-counter manner. The volume of a given contract that has been exchanged during a certain period of time therefore becomes hard to read since it depends on the particular provider you are talking about. Even though the market is praised as being extremely liquid and huge, the fact is that this is only be true if you can access to all - or a lot - of liquidity providers (banks). If you limit yourself to just a few you will see that the liquidity you have access to is nowhere near the trillions of dollars people talk about.

When we are going to trade the foreign exchange market, knowing the liquidity levels of the instruments we want to trade is important since currency pairs with higher liquidity tend to be "easier to trade" since they show more inefficiencies characteristic of crowd behavior while instruments with low liquidity tend to show a more random walk much more characteristic of individual investor behavior. Therefore, instruments that are very liquid tend to be easier to exploit using mechanical trading systems while those that dont tend to be much harder to trade. However, as the time frames get bigger liquidity starts to become a less important factor and crowd-based inefficiencies still arise. This is the main reason why you should look for strategies based on larger time frames and longer period indicators when attempting to design systems for illiquid instruments.

On tomorrows post I will discuss the inner aspects of liquidity in the forex market a little bit more, I will discuss some of the currently available literature about the subject in economics and the liquidity characteristics of different currency pairs. If you however would like to learn more about automated trading and how you too can start designing and programming your own systems based on realistic and sound 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 !

Yes You ARE Looking for the Holy Grail A Message for People New to Trading

It is very interesting to analyze the answers you get when you ask people what they are looking for and if they think that what they are looking for is the automated trading "holy grail". This mythical piece of code is an EA that does NOT exist which achieves "unbelievable" results. However despite the fact that most people will utterly deny that what they look for is the holy grail - they will always say they know the holy grail doesnt exist - when you analyze the answer to the question "what are you looking for in a trading system?" you will realize that the bast majority are indeed looking for this mythical piece of code. On todays post I will talk about the holy grail and new traders and especially the relative character of the definition of this term and why so many people are looking for it even if they categorically reject to be doing so.

What average yearly profit to max DD ratio do you consider realistically achievable ?

So what is this trading "holy grail" exactly ? Its definition is actually simple and yet very complex. In my mind a holy grail is a hypothetical system which achieves results superior to the highest achievable maximum draw down to average yearly profit ratio allowed by the market in real returns over the past ten years. This means that any system that can do better than how the best REAL trader has done within the past 10 years is the holy grail. The best way to measure this "better" character is by using the above mentioned ratio which compares profit to risk.

When we look at the performance of forex traders for the past ten years -and the best registered traders since then- we notice that any system that achieves an average yearly profit to maximum draw down ratio of 5:1 over a ten year period is in fact a holy grail (check my post on the Barclay index to learn more about REAL long term performance of forex traders). This means that - being realistic - a system that achieves a 100% yearly profit with only a 20% maximum draw down over ten years is a holy grail. A system that is extremely unlikely to exist due to the very nature of the markets and the long term limitations on performance it imposes.

When we then ask new traders what they are looking for the answers are actually quite interesting. As a matter of fact, the above mentioned realistically inferred holy grail becomes the "lower standard" of a given set of return figures that are inferred from short term results and "lore" rather than from actual long term real performance records and realistic expectations. The 100% yearly profit with 20% maximum draw down becomes something that new traders perceive can be "easily achieved" and things like a 20% monthly profit with a 5% maximum draw down start to become the "grail" targets.

As traders start to accumulate more experience and they get to know the market and the inherent limitations of profitability and draw down they start to lower these figures. A trader with one year of experience is bound to give a 5% monthly profit with a 5% maximum draw down as a realistic expectation while it usually takes traders 5-7 years to realize that the before mentioned grail of a 5:1 ratio of average compounded yearly profit to maximum draw down ratio taken from real performance data is actually the real "extremely hard to achieve" target.

So chances are that if you are a relatively new trader you are looking for a system which is quite unrealistic and your actual "holy grail" is way beyond the limits of what the market is willing to let you get. In the end, most traders are looking for holy grails, even if they believe they currently have "realistic" and sound expectations of draw down and profitability for their trading systems. If you would like to earn a true education in automated trading and learn how you too can design and build your own systems with realistic profit and draw down targets 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)

Weird Arbitrage Opportunities in Currency Trading The USD COP Case

Have you ever dreamed about making money with absolutely no risk of loss in the currency trading market ? Did you think that such opportunities did not exist ? Contrary to most peoples belief in the fact that there are absolutely no arbitrage opportunities in currency trading I have personally observed the contrary for perhaps the past ten years in a very weird occurrence that seems to be absolutely particular to the USD/COP currency pair. The COP - or Colombian peso - is the main currency unit of the Colombian government and some extremely weird arbitrage opportunities are presented within Colombia to make substantial profit from USD or EUR exchanges. On todays post I will share with you this very strange case and why it leads to a rare inefficiency which doesnt seem to be present anywhere else.

The USD/COP is what many would call a "strange" currency pair. The pairs spread is usually around 0.1-0.2% of the pairs value and daily fluctuations can go from 2 to 10% of the exchange rate. This sometimes crazy volatility makes trading this pair hard (for anything but long term trading) but it also makes local Colombian currency exchange houses maintain some exchange rates away from the real interbank FX rate when very large fluctuations occur to avoid having strong monetary loses.

What happens here is that a great arbitrage opportunity is created that is actually quite strange. For example in early 2009 the USD/COP went from 1800 to nearly 2600 in a matter of a few months and the local exchange houses kept their exchange rate near 2000-2100 due to the fact that raising the rate to 2600 would cause them loses due to their previous peso reserves against the USD. Since most currency houses lack proper diversification and protection measures they need to eliminate their own loses by keeping exchange rates artificially low (although the time period this lasts is limited).

The opportunity arises since you can go to a currency house, exchange COP for USD at an exchange rate of 2100 then you need to physically take your money to the US (yes, you need to travel) then deposit it into a US bank and withdraw it through a wire transfer to Colombia at the FX rate of 2600. If you think this would have been impossible due to some reason, the fact is that I know several friends and traders who actually did the trip and managed to get 20% profits in a matter of days. I even had a friend who did the trip three times and made a 60% return over his initial "investment". Of course, the arbitrage opportunity is limited by the fact that you can only take 10K USD in cash out of the country legally per trip but it does give you the chance to get some risk-free profit from currency exchanges.

The reasons why this bold inefficiency exists are many but probably both the above exposed lack of proper protection from strong currency moves and the general injection of money from the drug industry into currency exchange houses could make this arbitrage opportunity both a consequence of money laundering and inefficient handling. The fact that a very small percentage of the population has US or EU visas and bank accounts in the US and EU needed to finish the transaction could also explain why this is not exploited to the point where the market is made efficient.

Of course the fact that exploiting such an inefficiency could also be supporting the drug industry has made me refrain from ever taking part in this game but certainly there is an arbitrage opportunity that I know many have taken advantage of to get massive profits when these small windows of opportunity arise every 2-5 years. Definitely a weird occurrence that is worth noting and discussing. If you have any opinions please feel free to leave a comment below :o)

If you would like to learn more about my journey in automated trading and how you too can build your own automated trading systems based on 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 !