The System should work, it doesn't, maybe it can be fixed
thank for your share strategy. I will try read more and more
I don’t think there is any near-perfect robot, system, or indicator that will do the work for you. This is why I call myself a trader and not a coder or an investor.
This post is about a losing EA that could be made to work if it is used as a tool and not a substitute for a trading plan.
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If it is a nail, hit it with a hammer. If it is not a nail, try a different tool.
These are all just my opinions but I have been trading a long time. Older traders are a lot like older electricians—they know how not to be shocked to death.
Good luck.
Although I certainly understand and appreciate the message you are trying to convey to Newbie traders and coders out there, I have to say that it is rather an over simplified explanation for those that already have a slightly better understanding of things.
For an average coder and/or trader, the problem you describe is more than easily corrected and made to work. For one, your "solution" that you have just described (with the faster MA) is in the essence the simple Moving Average Cross-over, which is known by many a newbie trader.
Also a possible solution and known by many traders (and even built in to MT5) is the Adaptive Moving Average that obviously "adapts" to the market as it slows down or speeds up.
Yes, obviously, your message is correct in saying, that those "tools" (MA, MA-Cross, AMA, etc.) are only as good as the trader wielding them and his/her knowledge and experience about and with them. However, that does not mean that an experience trader and coder cannot translate that into a working EA that is completely autonomous (I certainly have several such EAs myself).
What I am trying to say, is that the message should be, that it is possible to automate an EA to make a profit, but that to do so, one requires many years of skill and experience as both trader and coder alike and that one does not attain such a level very easily; requiring great dedication, commitment and effort as well creative thinking, so as to be able to do so.
Hi Fernando,
I agree with a lot of what you say but you are right that I focused on the questions new people have because that seems to be a big group here. Questions like please give me an EA that will make my $10 into $10 million dollars. Alternately they buy or commission an EA all on the hope to getting the "money making machine" advertised.
Most of the people here (the new ones) seem to be preoccupied with better coding than being a better trader.
As you say, ... success really takes a great dedication, commitment, and effort as well as creative thinking... for any kind of trading.
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There are many repetitive questions and pleas for help on this site asking what is the no-brainer automatic way to make a fortune without actually knowing anything (i.e. What robot or signal will do it for you.) We all read and then ignore the warning that “past performance is no guarantee of future results.” Unfortunately, the statement is true. Fortunately, there is another answer.
I don’t think there is any near-perfect robot, system, or indicator that will do the work for you. This is why I call myself a trader and not a coder or an investor.
This post is about a losing EA that could be made to work if it is used as a tool and not a substitute for a trading plan.
This is the back test of EURUSD using a typical moving average cross (D1, 7 fast MA, 60 slow MA, using the HL/2 price.) I add a slope direction line that alternates red and green for moral support (settings, 60 periods, close price).
This post will discuss how a trader can turn this losing robot into a handy tool to make money. One way is to use it as an indicator and not a robot, but this article will presume you use it as a robot and comment about how to approach the daily chart to turn around the results. I picked this robot, chart, and period to illustrate the trading ideas and not to recommend the specific robot.
Unfortunately, I don’t have a chart with the alternate reality on it so some of the things you have to take by word that this works FOR ME most of the time and if you find the ideas useful MAYBE it will work for you.
Starting with trade number 19, why did it make so much money?
And the short position keeps on going from mid-May 2014 right off the chart to the next chart
The trade ends a year later in early May 2015. Who wouldn’t love this trade.
This is the good news but you already know bad news is coming. What about what happens next? See below.
More bad news…
To show all the losing trades I had to un-shift the chart and expand the width.
If this was happening on an M or H chart there is no way to fix this problem without a lot of work. On the Daily chart, there is an opportunity to look, consider, and reason out a strategy that turns of the almost 28 losers above into a winning system, but not by following the rules of the robot. The robot will get you into a lot of trades that look good at the beginning but hold onto them until they are losers. Using a few tools, it is possible to cut short the trade at a profitable level—use manual exits.
Why use a robot at all? There is no one answer to this. I use robots to get me into a trade that gives me an indication that it could give a profit. For me, the big Blue or Red arrow focuses my mind and I consider the possibilities.
How to fix this?
Consider this chart from the same back test. I cleaned it up to briefly discuss the moving averages.
Another way to control exits is to use a separate trailing stop system. Reversing a moving average cross does not really work because you don’t want to be in the market 100% of the time. I use TrailingStop 4 EA because it gives me options for different trailing systems and the ability to change the setting on-screen. I have to add a separate chart to run it and it is my backup. See below.
Stay in only as long as the fast moving average is moving with you. See Red Arrow and the Yellow Arrow.
This is a case where the robot got you into a good trade but let the profit slip away by waiting until a complete reversal of the trading rule. Use a different exit rule. Sometimes this will get you out of a trade early, but if you wait for both the cross against the fast moving average AND the moving average changing direction you will have a reasonable reason to exit that gives you a sensible trading rule to conserve profits. As a general practice, never let a profitable run until it becomes a loss. Check out how this applies to other trades as well.
The caption in this chart is important. There are times you simply cannot use a system. A moving average system might work minimally in a ranging market if you reduce the timeframe and pay 100% attention. The same rules for exiting a trade might get you some profit instead of a loss, but there are other ways to trade, such as using Renko charts, which do not rely on moving averages at all. Renko moves only on price action. (Renko is a separate topic but remarked extensively on my profile page.)
There is an old saying, if your tool box only contains a hammer then everything looks like a nail. If you have only one trading technique you cannot apply it to all markets at the same time. It simply does not work that way. But if you think about the 1 trade that netted $3000+ that you could hold a year, how many additional positions would you have added in that year to increase your profits to $XX,XXX?
Another exit can back you up running on other rules, such as this trailing stop running. You just have to open two charts—one for getting into a trade and one as a backup to get out. I use it along with my manual exits and not as a substitute.
However, my main way to control exits is on the DAILY chart and it is easy to manage since you only have to look at it once a day. The Trailing Stop is looking after the situation should a huge move against you take place while you are away, sleeping, or just not paying attention.
Don’t expect 100% profitable trading. The old rules work:
Don’t overtrade your account.
Enter markets progressive when longer trades develop and don’t risk everything all the time no matter how confident you are. You could be right today but very wrong tomorrow.
Try never to let a profitable trade turn into a loss. A position that reverses and takes profit back is telling you something.
Don’t try to catch falling knives unless you find a system for that and it works, some channel trading works but only if you do the same kind of trade management and can admit when you are wrong and get out of a trade. The breakouts kill profits made on a ranging system much faster than the ranging system can make them.
If it is a nail, hit it with a hammer. If it is not a nail, try a different tool.
These are all just my opinions but I have been trading a long time. Older traders are a lot like older electricians—they know how not to be shocked to death.
Good luck.