Shaltrade.com - Effective Trading Concepts

Hello Folks - here’s more update on the Alpha Expert Advisor( the Alpha EA). As of my last post, I was working on putting in more risk and money management into the Alpha EA. Many readers had expressed interest in the EA. I wanted to add some of the risk management features before I could comment on it. It took me a while to put in the features and removing the bugs. Now I am on to version 1.59 (the version from my last post was 1.1) – and most of the features seem to be working as intended. Version 1.1 had caught a 100 pips since the last post. However the forward testing got interrupted due to server issues. I got them fixed last week.

I have just started forward testing this version on the EURGBP pair. I am interested in the British Pound pairs because the British economy is having a particularly tough time. Overall, I feel that there are going to be quite a few trends in the currency markets because of injection of funds ($,€, Yen, yuan) into the IMF and using that to bailout flailing economies. Today the British economy is looking for an IMF bailout. As these large scale movements of currencies continue, the currency markets are going to show nice waves and wavelets as each movement settles down. I expect this to continue until the energy markets start showing some life, or the major economies get stabilized, whichever happens earlier.

In the meantime, here are the results of some my backtests for the latest version of the Alpha EA, run since the beginning of 2009. I found the EUR/GBP pair quite responsive to this EA, particularly in the H4 timeframe. It gave 96% return since the beginning of the year. I like the lower drawdowns and the high win rates. No more than 5% of the initial account is risked on each trade.

Symbol		EURGBP (Euro vs Great Britain Pound )
Period		4 Hours (H4) 2009.01.01 20:00 - 2009.04.10 16:00 (2009.01.01 - 2009.04.11)
Initial deposit	10000.00
Total net profit	9663.80	Gross profit	16442.89	Gross loss	-6779.08
Profit factor	2.43	Expected payoff	107.38
Absolute DD	295.08	Maximal drawdown	2848.84 (16.07%)	Relative drawdown	16.07% (2848.84)
Total trades	90	Short positions (won %)	58 (79.31%)	Long positions (won %)	32 (75.00%)
		Profit trades (% of total)	70 (77.78%)	Loss trades (% of total)	20 (22.22%)
Largest		profit trade	2742.34	loss trade	-374.37
Average		profit trade	234.90	loss trade	-338.95
Maximum		consecutive wins (profit in money)	16 (4764.85)	consecutive losses (loss in money)	4 (-1492.83)
Maximal		consecutive profit (count of wins)	4764.85 (16)	consecutive loss (count of losses)	-1492.83 (4)
Average		consecutive wins	7	consecutive losses	2

The GBPUSD pair backtest also showed a 90% return over the 1^st quarter of the year. Here trading on the 1 Hour timeframe gave better results. Here too, I limited the risk on each trade to 5% or less of the account. The four hour timeframe on GBPUSD, though profitable, was giving more losses. Since the GBPUSD moves faster, I think the 1 hour timeframe catches the swings faster.

Symbol		GBPUSD (Great Britain Pound vs US Dollar)
Period		1 Hour (H1) 2009.01.02 05:00 - 2009.04.10 19:00 (2009.01.01 - 2009.04.11)
Initial deposit	10000.00
Total net profit	8928.43	Gross profit	29223.98	Gross loss	-20295.55
Profit factor	1.44	Expected payoff	23.01
Absolute drawdown	1907.70	Maximal drawdown	2832.48 (22.11%)	Relative drawdown	22.11% (2832.48)
Total trades	388	Short positions (won %)	179 (71.51%)	Long positions (won %)	209 (77.99%)
		Profit trades (% of total)	291 (75.00%)	Loss trades (% of total)	97 (25.00%)
Largest		profit trade	1340.00	loss trade	-252.50
Average		profit trade	100.43	loss trade	-209.23
Maximum		consecutive wins (profit in money)	36 (3287.21)	consecutive losses (loss in money)	7 (-1543.36)
Maximal		consecutive profit (count of wins)	3287.21 (36)	consecutive loss (count of losses)	-1543.36 (7)
Average		consecutive wins	8	consecutive losses	3

These tests are done on data from a standard account on the Interbank FX platform with 90% modeling quality. I am also testing it on the FXCM platform with straight through processing, and I should be able to share them in my next post. In the meantime, I am planning on adding a feature that manages partial fill conditions on the Alpha EA, since Metatrader currently lacks partial fills for large lot orders. I would be interested in your opinion on that. Feel free to respond here or email me at shaltrade@gmail.com

Disclaimer: Posts on this blog, including the current one, are for education purposes only. Nothing in this presentation is a recommendation to buy or sell currencies and I, the author of this blog, am not liable for any loss or damage, including without limitation, any loss of profit which may arise directly or indirectly from the use of mentioned tools or reliance on such information. Trading in the off exchange retail foreign currency market is one of the riskiest forms of investments available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose

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Folks – I have been forward testing the Forex Alpha EA (Expert Advisor) version 1.1 – which is a trend following trading robot. I have been forward testing an earlier version of the Alpha EA for a month now. I have been testing it on the EURUSD, 5minutes – and so far it has had a profit of 1050 pips, with 60% win rate. Here is the performance graph for a month till today:

What does the alpha EA do?

This EA looks for trends in a smaller timeframe, and enters each trade with a tight initial stop loss (based on price action) and a percentage trailing stop.

So far this strategy has been able to catch most of the big moves, while keeping losses to a minimum during sideways markets.

I am currently working on a newer version of Alpha (version 1.5-5) – which uses

better money management
better risk management
multiple entry orders that can be scaled out using different exit strategies
multiple exit strategies and
filters for staying out of sideways markets.

I am going to forward test this newer version on currencies expected to make big trending moves in the next couple of weeks:

EURUSD - The Euro is likely to break down below 1.31 for a 200-300 point move. Technically it’s at a 50% retracement of its December highs and Early March lows. Fundamentally as well, the Euro looks weak in the short term as because of that European Central Bank is going to reduce interest rates this week without any increase in spending by the major Europe economies.
USDJPY – The Dollar yen is also at a 50% retracement between August 08 highs and January 09 lows. Both the Dollar and the Yen are seen as safe-haven currencies, though the Yen is likely to be perceived as stronger in the short term since the US automakers have been hardballed. Also, Japan is a trade surplus economy, and the Yen is generally stronger.
EURJPY – The weak vs. strong arguments apply, with extra power behind them. So the trend is likely to be downward.
GBPUSD - The trend is very much downward – though there may be a reactive bounce since the trend is somewhat overextended, with quite a few technical divergences. Lots of news events this week (US unemployment, British Manufacturing) may provide excuse for that kind of bounce.

Overall - this is an exciting time in the Currency markets - since trends are going to be stronger and last longe. Breakout systems like Double Eagle are likely to do well on shorter time frames (hourly, 30 and 15 minutes) while trend following systems are likely to do better on longer timeframes (H1, H4, daily).

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