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Putting Forex Auto Trading to the Test

By: DailyForex

As our last article in the auto trading series, we thought we would bring you some concrete examples of what we did, how we traded, and what the outcome was. We will go through the steps we outlined in the previous articles and explain how we implemented them. It is important to emphasize that in accordance with DailyForex's general policy, what we write here is based on our personal experience and not our recommendation. We would recommend to follow the principles mentioned in the previous articles but you need to decide on your specific system and strategy and how to implement the tips we provide.

When we started this series, we decided to use the AvaFX Auto trader to test out their services. We initially deposited $500 on June 15th, 2009 and automatically received a $50 bonus, leaving us with $550 in our account before we even started our Forex trading.

According to our previous article, the first step to take when using an auto trader is to decide what kind of Forex trader you are. We did exactly that and chose the “safer” path. We decided we were willing to take the chance of making smaller profits, with the benefit of taking lower risks. Once we made this decision, it was time to get down to the details of our filter.

The first criteria we decided upon was the system's maximum drawdown in one position or what is the maximum amount of pips this system lost in one single position. This is important as it is a sign of stability. Per our decision to be a “solid” trader, we were more interested in systems that have not lost more than 300 pips in one trade. If we were extreme solid traders, we might decide on a maximum drawdown of 100 pips, but 300 seemed pretty reasonable to us.

Next step was to decide on a minimum trading period and number of trades for our system. After analyzing statistical information, we came to the conclusion that a system that has not traded for a minimal 3-month period or has not opened at least 30 positions can not provide sufficient information in order to be properly analyzed from a statistical standpoint.

Although it might be obvious, it is important to mention that beyond all the above and below filters that we applied, we also verified that the system we choose was profitable overall. Any system that has lost more than it has gained is clearly not the system we wanted to use to trade.

After we decided on the above filters, it was time to implement them. Here is how we did it. When filtering out the irrelevant systems, you can choose to do it using the Ava Auto Trader system or using Excel. Since we were familiar with Excel we decided to export the information to an Excel sheet and apply the filters there.

From the initial number of over 1,000 available systems, we were left with less than 30 relevant systems after applying our filters. At this point, the decision was obviously much easier. The next step was to sort the remaining systems by win percentage, as in the number of winning trades divided by the number of losing trades during the selected time frame.

What we did next was an in depth comparison of the remaining systems. We compared the following criteria:
  • Highest percentage of profitability: If one system has made 400% and another 200%, we obviously went with the former.
  • Sum of all the pips profit over the time period we defined: The system with the highest number pf pips made was obviously the one we chose.
  • Maximum drawdown between the systems: Even though all the remaining systems were under 300 pips drawdown, we preferred to take the systems with the lower drawdowns.
  • Maximum Allowed Positions: Some systems trade 5 positions simultaneously while others have a limit of 2. We chose the systems with a number of allowed positions that did not exceed 4.
We then selected the systems that were most suitable based on all of the above filters. At this point, we looked at the graphs of the remaining systems to ensure profitability and stability. This was our final check in order to determine which systems would be the ones we used to trade our account.

Once we selected the systems, we applied some basic money management skills and chose the minimum allowed fixed lot, which in our case, was $10k, composed of $50 of ours and a 200:1 leverage.

The above process, although long, is crucial and should be repeated every defined period of time. We decided to repeat this process once a week to ensure that the systems we chose are still relevant and still meet our requirements. Alternatively, our weekly check examines if there are systems that did not meet our standards the week before, but do now, whether due to number of trades or profit.

As mentioned, we started this auto trading on the 15th of June, and as of now, the 16th of July, we have made 700 pips or a total profit of $747.64. For a detailed view of all of our positions, see here. Once again, we would like to emphasize that this was based on our personal experience and we in no way guarantee identical results for other traders. We felt strongly that we wanted to see for ourselves if and how these auto traders work, and we have concluded and continue to conclude that they do indeed produce positive trading results.