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MellyForex October Update

Halloween PumpkinDespite recent unsettling effects on the markets caused by global economic woes, and the unending advice suggesting that automated trading systems should be turned OFF completely until after the dust has settled, the number of profitable EAs in forward test at MellyForex has increased over the last month, from seven at the end of September to no fewer than twelve by the time everybody was out 'Trick or Treating' over Halloween.

Admittedly, I've got more robots in forward test now than I had a month ago, but I find it particularly refreshing that there are a couple of EAs which I've reviewed previously that backtested well, but hadn't been performing in forward test. This month they've made it into the top part of my leaderboard!

The point here is, I believe, that it's very difficult when you look at a 10-year/3,000 trade backtest curve which has been condensed into a relatively small 820 pixel wide GIF image, to fully appreciate that the backtest might show the EA having endured periods lasting 6 months or even a year during which it may not have been profitable. It's understandable, therefore, that the best EAs aren't always going to return a profit immediately they come out of the box. This is highlighted by the Monte Carlo simulations that I conduct within my reviews which suggest most EAs only offer a 30% or 40% probability of an account balance never dropping below its initial deposit. In other words, as many as 60% or 70% of EA users are going to have to suffer a bit of pain before they get the gain!

For what it's worth, I sometimes get the impression that a lot of people just look at the start and end balances of a backtest equity curve, but don't look closely enough at the shape of the curve in between. This leads to systems being dismissed unfairly after two or three bad months, simply because the average EA user doesn't fully appreciate either the risk involved or quite how much patience is needed to trade successfully.

On the subject of patience, readers might like to wind the clock back a couple of years and take note of this news article about Man Group, the world's largest hedge fund which manages assets worth in excess of $40bn. At the time, their AHL division which specialises in automated trading had just posted a 16.9% trading loss.

It just goes to show that these things happen to the best of us.

Of the EAs which have made it into the top part of my leaderboard during October, I'm particularly pleased to see the Steady Winner EA and Forex Combo amongst them. I've previously reviewed both of those EAs in a favourable light and I hope to see them both stay high up in the leaderboard. I'm also pleased to see the Forex Real Profit EA strengthen its position, as it also endured a difficult time at the start of its forward test, but it moved into profitable territory a month or so back and has continued to perform well since.

Anyway, by way of a reference for posterity, here is the leaderboard as it stood at the end of October.

MellyForex October Leaderboard

The euphoria of the winning EAs aside, things are not looking so hot at the moment for one EA, namely Forex Gale, which I put into forward test towards the end of September, as it barely lasted a month before blowing the entire account. For anybody who is unaware, Forex Gale is a grid trading EA and it opened too many positions which went the wrong way forcing a stop-out. This is always going to be an occupational hazard of this type of EA, but I am worried that I may be partially to blame for the problem, as I started my forward test in the knowledge that I may have been trading the EA at excessive risk.

To explain a little more, the minimum lot size of raw spread, true ECN brokers such as FXCC (with whom the Forex Gale forward test was being conducted) is 0.1 lots and, putting it bluntly, my $5k account deposit was too small to trade Forex Gale at this lot size. I'm all for using forward tests to expose a system's strengths and weaknesses, but I don't really feel that anything productive has been learned from my little escapade. The only thing I've discovered is that I was over-trading (which I already knew anyway), so I've decided to try Forex Gale again and have restarted the test on a significantly larger FXCC demo account of $50k. The EA will still trade fixed 0.1 lot sizes, and I'm hoping it will survive this test in the hope that readers can get a clearer picture of the maximum drawdown, and find out what minimum account size is needed to run the EA.

I should say at this stage that I expect Forex Gale to behave in a completely different manner in this new test to how it performed previously. It banks profits when a basket of trades reaches a profit of 0.35% of the account balance. On my earlier test, it started banking profits once the profit reached $17.50 - now it won't bank its profits until the basket reaches $175.00, representing a far greater price movement within the various markets and leading to a completely different basket trade structure. As mentioned previously, Forex Gale backtests are totally worthless, and I've got no idea whatsoever how the forward test will go.

The one thing I would suggest to anybody who decides to use this EA on a live account is that they regularly withdraw any profits until they get to the point that it is using 'free' money. For now though, I'm going to leave the original 'blown' test in place on my leaderboard as a warning so that readers can witness the dangers of this type of EA, and I'm publishing the new forward test result to MyFxBook on this link and hope that it fares better than its predecessor.

At the time of writing this article, everything seems to be kicking off in Greece. What will be the result of their referendum? What question will be asked of the people within that referendum? Do they have enough money to survive until the referendum? And if the government doesn't survive its pending no-confidence vote, will there even be a referendum? It's impossible to predict what effects the constantly changing scenarios will have on the markets so, on that note, I'll say αντίο which (Babelfish tells me) is Greek for goodbye.

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