Is traditional TA still effective in Forex?

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I have been writing EA's for about a year now, after nearly trading my first account into the ground, I thought automated trading must be the way to go. So I set about learning MQL & the many pitfalls of backtesting...

Anyway, to the point, after backtesting every possible indicator & combination I can think of I just can't seem to find a indicator(s) which gives a signal hit rate of more than about 30%, it does not matter what I do, reverse the signals, use limit orders, sliding losses, breakouts, hedging etc I just can't come up with anything that can make more than about 5-10% a month. I wrote EA's to trade randomly and I got pretty much the same results.

I watch the people in this forum also trying to come up with indicator driven EA's, after a couple of weeks the thread will die as people realize they is no real profit to be made. There is the odd exception like Firebird or the Hans breakout, but as you can see in the MQL trading contest, Firebird is starting to lose as the effectivness of the curve fitting that was done wears off.

I am driven to the conclusion that traditional indicator TA just does not work that well.

There are examples of people making good money in automated trading, but one would have to assume they are using methods which in some way diverge from the 'indicator combo' mentality. So we know that it can be done, but what are we missing...

 

Is it possible that people writing the EAs or whatever just arent good traders to begin with? They may be excellent programmers but that by no way means they can effectively code an EA that will be able to make a profit. I mean you said you have almost traded your first account into the ground, so wouldnt it make sense that no matter what combination you have tried you havent found anything in backtesting that works?

 

You may be right, but I doubt it. During the initial trading attempt I was clueless, I mean really clueless. I am now trading automatically and making money, just not huge amounts, so I like to delude myself that I've made some progress. Being an effective programmer does not preclude somebody from learning to trade. I think your missing the point of my post though, is tranditional TA effective in the context of EA trading? if it is effective, why are not more people making money?

 

i've only been on this site a little while and i know what you mean about threads dying off after a while. perhaps if indicators dont work you can code according to price action, such as candle patterns.

 
Craig:
I just can't come up with anything that can make more than about 5-10% a month....

If your hitting these levels consistently by autotrading, and your system has relatively lowdrawdowns, and you can back up these claims with solid reliable back tests and an audited track record over a couple of years then youve probably just become a very rich man.

In answer to your question, I think TA is applicable, my own manual methods are entirely TA based, and they work, but there is an element of discretion, and general awareness of market conditions that are hard or if not impossible to capture into simple logic. I think the main problem with most EA's that I see posted on the forums is that they have very rigid criteria driving them for example IF RSI > 70 AND EMA5 < EMA8 THEN SELL.

When trading manually, for me at least, TA provides more of a reference framework, Im generally looking for a confluence of signals, and whilst I may be looking for a "high" RSI value, If there's strong supporting evidence from other indicators or price action or Im trading off the back of economic data etc I'll use discretion and take the trade, whereas the EA wouldnt as RSI perhaps only read 68. The failure to address this idea of confluence from a cross section of indicator types really dosnt help EA's perform to their full potential. In my experience the tradable patterns that the market provides arnt crisp and sharp enough to capture using simple if then else statements.

I also think the fact that most EA's focus on TA signals from a single timeframe reduce the chances of success quite drastically.

In my experience the biggest single thing that prevents most people developing successful EA's is that they cant actually trade manually, so theyre spending time trying to automate something they know very little about !, the most basic of things we do as traders arnt even considered by the majority of EA's.

Ive seen quite a few people trade EA's successfully, but those people where all traders, and thats probably the real answer as to why more people arnt making money from EA's. Being blunt, what are the probabilities of someone producing a ridiculously simple peice of software consisting of a few hundred lines of code, that can be used by absolutely anyone to double or tripple their accounts every few months. Its unlikely to happen.

 

"the most basic of things we do as traders arnt even considered by the majority of EA's."

Could you give some examples?

 
 

Thanks for the anwer, I think you are correct in that an EA fails to synthesize the many forms of information available to the trader. See, this is where I see a contradiction in the standard advise given to beginners, which is 'stick to your system no matter what' yet it would seem the best traders take a more holistic approach. So is the question really is, TA any good in isolation?

 

Thanks for posting this. It articulates something I've been struggling with for several months. I've stopped pursuing EAs and instead focus on developing meaningful indicators that alert me when certain objective criteria are met. Then I can add the human analysis to that and take action as appropriate.

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