Traders Secret Library

FX Robot Man Readers!

I am sure most of you are already following the “Surefire Trading Challenge” and their new membership site called “Traders Secret Library“, but I just wanted to give you a heads up just in case.

They just went live today, and every two months they will be releasing their highest performing systems from their forex trading challenge competition. Most of these systems will be manual trading systems.

I am going to go ahead and signup for the membership for at least a a couple of months to see what they have to offer – my bigger motivation is that I might be able to take these manual trading systems and program them into Automated Trading Robots. By programming them into EAs I will them be able to back-test them over a longer time period than they currently have been.

Right now we are only told that system X made 1,000% in 30 days. As I already discussed in FAP Turbo Return Expections, Part 1 there are many systems that make claims like this, but the bigger question is “How would this system have performed month after month over the last 5 years?”.

Once I automate each of the systems I will be running some back-testing and sharing the results with you.

You can check out the membership yourself here:

Surefire Trading Challenge

As always…good luck with your trading and may the pips be with you,

-Ben aka FX Robot Man

FAP Turbo Return Expectations, Part 1

A couple of weeks ago I received the following email from a reader that is representative of many of the questions I receive about FAP Turbo and other EAs:

I have a question for you.  I saw on a blog that a good forex trader using a system and/or a robot can realistically get an annual return of 30-100 percent.  It seems that the claims of FAP Turbo and even your website (I appreciate the caution on the settings….I am conservative when it comes to risk as well) are a good bit higher than that.  I haven’t bought the FAP Turbo yet, but am just curious what your expectations are.  I am sure it would take huge risk and know how to make the doubling returns they claim, but what could someone conservatively expect? i.e. is it possible to double, say, twice a year or three times a year, rather than every month that they claim?  Anyway, thanks for any response and for all the useful information on the site.  That is a cool thing to do.

This email inspired me to dig a little deeper into my analysis of FAP Turbo and to find some way of answering the question: “What can someone conservatively expect? i.e. Is it possible to double, say, twice a year or three times a year, rather than every month [as] the claim?”

Claims in the Forex World

The reality with the retail forex market is that there is a lot of garbage out there with all kinds of people claiming all kinds of things. It is not unusual for systems to claim 1,000% return per year (doubling 4-5 times). This should set off a red flag because that is pretty extreme for most systems that are actually sold to the public.

On the other hand, trading robots can do amazing things. The creators of the Metatrader platform sponsor an Automated Trading Championship every year to showcase what is possible. The winner this year turned $10,000 to $170,000 in less than 2 months time. You can see more results here: http://championship.mql4.com/

I have a few rules of thumb for quickly identifying sketchy systems, but generally saying that you can double your money every month is not that big of a deal because I personally have both doubled accounts in 1 month, and blown accounts in 1 month. It all depends on the level of risk that is being taken per trade and the probability of hitting several consecutive wins or losses.

So what should you be looking for when evaluating a system:

1. Back Testing
   I like to see a system provide back test results if possible (multiple currency hedging systems can’t do back testing). But, if they do provide back test results, they better provide at least 5 years worth. If they just cherry pick the best time period to make it look good, then that is a huge red flag that they are hiding something from you. Also, back tested results can be fabricated using a method I like to call “Curve Fitted Hard Coding” where the programmer optimizes the robot for 3 months at a time, and then hard codes the settings in for that time period. Thus, the back testing looks amazing, but if you just used the same settings for all 5 years the system would tank. Thus, back tested results are never enough – but only reporting 1 year is a red flag that they are hiding something.
   
   
2. Forward Testing
   This is what I am trying to do on fxrobotman.com. I purchase a system or obtain a demo, run the system in real time on a demo account, and then publish the account statements every 5-30 minutes for the whole world to see. Legitimate systems will report and provide you with ongoing performance statistics either on a daily or monthly basis. If they don’t, then you should email and ask for those results – and if they still won’t provide them – then hide your wallet and move on. Let me say that again, if you don’t see live or demo forward trading results, then you need to be cautious.
   
   
3. Pricing Matches the Results and Your Budget
   Although it can be difficult to formulate an expectation for how well a system will perform, at the very minimum it should at least pay for itself within about 3-6 months. Preferably within about 3 months. Why 3 months? Well, most professional money managers, hedge funds, private equity firms etc. charge a performance fee on the order of 25% of their profits. Because 3 months is 25% of 1 year, this would basically mean that the EA takes 25% of your annual profits for 1 year. If it pays for itself in 6 months, that is like paying 25% per year over 2 years.
   
   Just knowing that it needs to pay for itself in 3 months is not enough information. You also need to have an expectation of how the system will perform, and also what your starting account balance is. One system I follow has a money back guarantee based on a 20% per year return…but the system costs $3,000-5,000. This means that you probably need a pretty substantial starting account size in order to purchase such a system. The math would go as follows: If you expect to earn 20% per year, then 25% of that is 5% every 3 months. In order for you to justify purchasing the system for $3,000 this means that $3,000 should represent 5% or your starting account balance. Thus, your starting account balance should be  $3,000/0.05 = $60,000. Unless you have $60k to trade, you might want to reconsider purchasing such a system.
   
   Similarly, if you were considering buying FAP Turbo for $150, and you thought you could earn 5% per month (there is about an 82% chance of earning at least 5% per month using conservative settings), then $150 should represent 15% of your account size, or $1,000. If you expect to earn 10% per month (about a 70% chance with conservative settings) then you would only need $500 to start.

Realistically shooting for 20-100% per year in forex is a pretty decent range as a conservative trading plan. These types of numbers should certainly be possible with several automated and manual/mechanical systems. The trick is never to take on more risk than the system can handle and you should be able to reach those returns without too much draw down.

What About FAP Turbo

Now as to FAP Turbo. On one hand, they pull the same marketing strategy of claiming that you can double your money every 30 days. But, they actually prove that FAP Turbo can do it, and many users in the forum are actually coming close to that – so it isn’t like they are lying about it. The trouble is, that those accounts that they are doubling every month are taking on huge amounts of risk. Perhaps as much as 30% of Free Margin for trading the EURGBP alone – not to mention the other pairs. Personally I recommend no more than 20% on the EURGBP and that is only for traders that like taking risks. In general, most people should keep the risk per trade between 5-10%.  I have found that a reasonable balance between performance and risk is around 0.1 lots per $100 in a mini account, or  0.1 lots per $1,000 on a standard account.

The reason I initially started covering FAP Turbo, was because it was obvious to me that the system was legitimate. The live forward testing results are for the most part unedited and realistic. They report the winning trades right along with the losing trades, they have a great user forum, they are constantly improving the system and working with brokers etc.

Unfortunately, FAP Turbo has ended up being a little too popular and influx of scalping orders during the quiet market session that it trades were contributing to higher than normal spreads at the brokers. Some reported spreads as high as 20 pips on some pairs at IBFX. The reason this is problematic is that when you are shooting for profits of 7-15 pips per trade, you almost have to make two times that if the spread is too high.

If you are considering trading with FAP Turbo, I would steer clear of IBFX for now, and perhaps try FXDD, Forex.com or FXCM.com.

How Much Can You Make

In Part 2 of this article I will be explaining a Monte Carlo Analysis I have conducted for FAP Turbo using the trade history from my own demo account. This is actually a pretty cool method for analyzing expectations for any system with a reasonable trade history.

Just to give you an idea of what I mean, my analysis indicates that trading 0.1 lots per $100 in a mini account, and only updating your position size at the end of each month, you could expect a 70% chance of earning 400% or more over the course of 12 months.

Distribution of Fap Turbo Returns Over 12 Months

Look forward to Part 2 for the full description of my FAP Turbo Monte Carlo Analysis. Until then…

May the Pips be with you,

-Ben aka FX Robot Man

I’m Back

I apologize to all my readers for disappearing for a couple of weeks. I was working on a couple of different EAs, back testing, running Monte Carlo simulations in Excel for FAP Turbo, and also running a highly intensive Monte Carlo program in Matlab for my dissertation – I was doing all of these things back to back for a couple of days. Unfortunately, my laptop couldn’t take it, overheated, and literally fried the motherboard and fans. I can’t believe how dependent I am on my computer for the work I do, and it basically shut me down.

It took about 2 weeks to get my laptop back from Dell and even longer to recover data and get up and running. I also decided to build my own desktop PC using the new Intel i7 Processor. Let me tell you, these new i7 processors from Intel are just awesome. If you are thinking of buying a new PC and have the budget for it, I highly recommend the Intel i7 Processors (such as the Dell Studio XPS). This new desktop PC will become the backbone for my EA development and backtesting.

My new custom built PC using the Antect Nine Hundred Two case and the Intel i7 920 processor.

In the coming days I will be posting the results of my Monte Carlo analysis I conducted for FAP Turbo to help me assess the returns you can expect from FAP Turbo, and the probability that you will actually lose money. This analysis is really pretty cool.

I am also working up a recodmendation for a trading system I came across that has quite a bit of promise. As it stands right now, the system is a manual/mechanical trading system but I think I could quite easily program an EA to help trade it.

Good luck and good trading,

-Ben aka FX Robot Man