Trading Update after 10 Years – some lessons learnt!
So after my last message, I felt I owed you more.. I get exhausted typing up too much.. pictures tell a thousand words as they say but I want to try and bring you up to speed. The 10 years hiatus from my blog was party also because I became a father.. my eldest is 10 now which coincides with the time that I’ve been away. As a parent, your priorities change.. you do what you can for the kids but trading was always a passion which is why I explored the automated trading route.. if I could build something which would in effect run itself, then I could still achieve what I had hoped to achieve in trading but with less effort but of course, there is immense effort to start with as it’s a new world that you now have to learn with computers and new skill sets. So I learnt how to evaluate trading robots on the Metatrader Marketplace… this is MQL5.com.. the official site for Metatrader and there are a heap of trading robots available here to purchase. It looks likes this and you can purchase and they will download directly into your terminal for use.
You can download a demo of any one of these at no extra cost but you will not be able to trade using the demo. So what’s the use of this you ask? Well, the demo allows you to run your own backtests to see how it would have traded historically. Now this is the problem.. it’s historical data and some of the authors had learnt how to manipulate the results. Generally, too good results are too good to be true! So what should you look at instead? The live results, some authors have live real money accounts trading their systems which is great.. are there caveats here? Yes, there are! Authors can have systems which generate positive results for a set amount of time before the markets change and when the markets do change, they are losing money… then these authors remove their results and set up a new one… so every time you look at the results, you will be positive accounts.. the trick here is to see if there are any which have been running for a long time.. not just a month or two.
Then there are other trading systems which have been running for a reasonable amount of time and have fantastic yield curves.. however, they use what is defined as dangerous trading techniques.. these can be one or a combination of a few type of high risk systems… the first one is martingale type system where it will bet larger the next time if you have a loss and keep betting larger and larger.. hopefully the markets will turn and you’ll be ok but sometimes the markets don’t turn and you find that your whole margin in your account has been taken up with these increasingly risky bets and then your account is blown.. and you’ve lost everything in one swoop! I’ve been systems make money for 5 years only for it to all go in a matter of days… check out this video, it was called North East Way and there was $20Million USD of funds trading it and it just went poof in a puff of smoke!
There are grid systems too.. these can be combined with martingale systems for a double whammy of risk. Grids are systems which will keep opening trades as you go deeper into drawdown.. this means that should the market turn, it should take less movement to bring you back to net zero. Of course, if you don’t have enough margin in your account, the same thing will happen as in the martingale scenario.. you get margin called and your account will go poof!
Then you have the other trading systems which target a tiny number of pips or points for a profit and have a huge stop loss. For example, a trading system may have a target of 5 pips and the stop loss is 100 pips. Just on the law of probabilities if the markets are totally random, you are far more likely to hit the 5 pips take profit than the stop loss…. so it could look great for an amount of time.. you see the system is making many profits.. however, just for the 100 pip to hit would undo 20 times the time it it the take profit!
So after this.. I’ve been looking for trading robots which I can optimize.. this means that I can find my own settings which work. I’ve also been able to make a few too and will share how these have been going!
