Cutting Through The Noise To Find The Most Profitable Trading Strategies. Forget the Hype - Read It Here First

Wednesday, August 29, 2012

Kagi Capital Growth Review

In a divergence from the norm I will do a review of a trading system for stocks available on Collective2 called Kagi Capital Growth. On my page I have selected for systems which have been around for at least 1,000 days and have a maximum drawdown in and around 20% or less.

What made it attractive was its performance history since its launch in October 2010, boasting consistent if modest returns.

It also boasts a maximum drawdown of just 15% which occurred between July 8th and August 22nd of last year.  It's one of only a handful of systems on Collective2 which doesn't exhibit a "wipeout" period.  The strategy does suggest some level of underperformance over the summer months as shown this year relative to the S&P.  Adapting the time-old mantra of Sell in May and Go Away would alleviate this.  It's possible the Publisher tries to hard to manage positions perhaps while on vacation?

The strategy has so far traded a core set of stocks, namely Apple (AAPL), Altera (ALTR), Amazon (AMZN), Salesforce (CRM), and F5 Networks (FFIV).  The only low price stock in the mix was a once off - and small - trade in Nevsun (NSU), so this is a strategy built around reputable stocks.

The largest individual loss was a Netflix trade which shed nearly 20% in a couple of months.

The biggest win was a Salesforce trade which returned 25%.

All bar one trade are buys. The strategy has generated 62 trades which are held for about a month. The average loss if -5.7% compared to an average gain of +5.4%.  Losses were skewed by three trades which each lost 18%-19%, excluding those trades gave an average loss of -3.9%. Taking out the 24% Salesforce winner dropped the average gain to +4.9%.

However, with 58% of trades profitable the strategy manages to return an average of 0.7% profit per trade including the outliers.  So while the performance graph may be somewhat distorted by the larger investment put into winners versus the losers, it still manages to be a profitable strategy which has outperformed the S&P.

At $49 a month it's a relatively cheap entry player.

Friday, March 30, 2012

FAT Forex System v2 Review

This a review for the FAT Forex System v2 is available for $47. Unlike other strategies reviewed here this is an Expert Advisor which works more as an indicator, not as a fully automated strategy.  This gives it a built-in safety valve on all trades, but the downside is the need to manage trades manually.

According to the company's literature, the FAT Forex System's goals are:
  • FAT-Profits-v2 indicator shows trading session range
  • Gives breakout price levels for BUY and SELL trades
  • Helps to determinate the right Stop Loss price level
  • Alerts you with sound when a new breakout price detected
  • FATv2 Trade Robot does almost everything automatically
  • Easy to use: quickly install and trade
  • One Time Payment - Updates included - No monthly fee
  • Works on any account type, standard and mini accounts
  • Works On All Brokers
The download file includes an Install Wizard in addition to help documentation to help you get started. The Install Wizard worked fine and kick started MetaTrader at the end of the process.

The document also runs through an example using GBPUSD on a 15-minute timeframe, but the software supports any Forex pair on any timeframe.

FAT Forex System offers a template which is available on a right-click on a MetaTrader chart.  The template clearly details the Buy and Sell Breakout level on the chart for your selected product. For example, the current picture for GBPUSD on a 15-minute timeframe is with a price buy stop of 1.60367 and a sell stop of 1.59805.

According to the author:
This system works with an automated alert component designed to sound an alarm when a breakout is imminent. Not only does this give you more freedom, and let us face it that is why we trade Forex anyway. It cuts down on the time that you need to spend studying charts and technical analysis.
The Price Buy Stop also acts as Stop Loss level for Short trades and the Price Sell Stop level is the Stop Loss level for Long trades.

An Alert is triggered when a Breakout level is hit.  The Breakout levels also adjust as time passes.  For example, the GBPUSD Buy Stop adjusted from 1.60367 down to 1.60147.

However, it wasn't all plain sailing.  Unless I had my configuration wrong, the price cross of the Sell Stop did not generate a warning Alert or record an Alert in the log.  I would also assume the hit of the Sell Stop would offer a new Sell Stop price; but this was not the case as shown below:

Although it did record the Sell trade in the Trade Log.

Note: A New Sell Stop was generated after a new bar was added

The Help document does offer guidelines on how to use the system.

The system builder recommends using this system on days there are a large number of economic news releases to maximize market volatility.  Breakout systems like this do work best when there are powerful directional trends to guide them.

The author recommends placing two Buy Stops and two Sell Stops. If these values change and you have no filled orders then your Buy or Sell Stops should be adjusted to the new values.  If you have filled orders, then the adjusted Buy or Sell stops are ignored in the direction of the trade (although the flip side protective stop is adjusted accordingly).

There are two profit targets to take profits (for your two lot trades).  The first profit level is set at the same distance to the stop loss and the second profit level is 4 times bigger.  The profit targets are marked on the chart as a hashed red line.

When a trade reaches its first profit target the first of the two lot position is exited and the remaining lot has the stop raised to breakeven.

As the trade develops, the trailing stop may offer 'locked' in profits as it surpasses the breakeven price.  However, in this environment it may be more prudent to exclude an order to switch to a counter trend trend when there is strong momentum in the primary trend.  It is in such areas a trader's discretion is advised.

As shown above and in the examples given in the author's help document, for situations where price falls outside of one of the defined Buy or Sell stops then the cue to set an order at the exceeded price is ignored.  So in the GBPUSD case above where 1.59805 was exceeded to the downside there would be no Sell Stop order set until the 1.59655 level was defined.

The final point of the system is to sell all positions (in GBPUSD) at the end of the regular trading session - effectively the beige highlighted area in the chart.  

The system offers a cheat sheet of steps:

1) Check if there are any economic news on trading day for GBP
2) Wait for European/London session to begin
3) Place and manage STOP orders at Breakout levels
4) Once in the BUY trade, dont place BUY STOP anymore
5) Once in the SELL trade, dont place SELL STOP anymore
6) Move Stop Loss with the opposite Breakout level
7) Set new Take Profit levels when Stop Loss is changed
8) Close all trades at the end of European/London session

The Robot component automates many of the aforementioned processes EXCEPT it won't know when news announcements are expected or close a trade at the end of a trading session. The author recommends not entering a trade twice in the same direction on the same day, although I would think in a strong trending market it would be preferable to trade in the direction of the trend rather than take a counter trade (Or perhaps limit to just one trade per trade per currency pairing?). The author also recommends to use the system on the M15 timeframe, probably to ensure sufficient historic data is feeding into the analysis.

Other recommendations including starting the EA about 15-30 minutes before a big news item to reduce false breakout levels and increasing the risk of whipsaw.

The EA includes as part of its settings a slippage variable to increase the likelihood of order fills and the capability to adjust the Profit Target settings from x1 and x4.


Because of the structure of this EA it wasn't possible to run a cross-comparison with the other Meta Trader EAs.  However, the system does offer a very clear process and interface which will appeal to breakout traders.

I like the systems lack of hoopla or disguised risk-to-ruin stop losses (like Aver4Sto or GPS Forex Robot); everything you need is presented on the chart and the robot component handles all entries and stop adjustments bar the end-of-the-day trading session exit. This is a system is designed to encourage good trading behavior rather than offer a silver bullet profit system; it works off swing highs/lows as the basis for trade entries or exits and it executes well in this regard.

At $47 it's certainly one of the better value EAs out there. As someone who likes to trade equities I could see a stronger application for this system on equities, but this falls outside the remit of a typical MT4 trader. All-in-all, I liked this systems' approach.

You can grab a copy here.

Thursday, March 1, 2012

Rubberbands_2 Expert Advisor Strategy Review

This month's strategy, Rubberbands_2, is available for free from MQL4 Code base and is offered by StJojo.  The strategy is an enhancement from version 1.  It trades long and short and works for any currency pair, commodity or time interval.

The strategy downloaded and compiled successfully and I was able to start back testing straight away. The strategy uses a conservative Lot size of 0.02 (a positive) and allows for no more than 10 orders in any one session. However, the strategy does not employ a stop and those who like to tinker around with their EAs may wish to add a stop loss.

Expert Advisor Setup

A Starting account of $10,000 using 0.1 Lots on a 15-minute timeframe for EURUSD.  The strategy is already built to go Long/Short, but Optimization was switched off from the default 'On'.

Comparative Test Period

Three 12-month periods randomly selected between Jan 1st 2000 to January 1st 2010 are used for all Expert Advisor tests to offer a standard which one EA can be compared with another. These  were:

March 31 2000-2001
June 29 2003-2004
May 17 2001-2002

Comparative Test Period

The Expert Advisor performed admirably, if a little erratically. While it enjoyed a significant advantage in Profit/Trade over Forex MegaDroid, it wasn't able to compete on other metrics.  For example, the Relative Drawdown of Rubberbands ranged between 5% and 37% compared to the more consistent 17-21% of MegaDroid over the same period.  Much of this is to do with how the Backtest exits positions at the end of the run, but the lack of a stop loss - even a large one - does hurt.

A positive aspect to this strategy is its lack of overtrading.  There were only a handful of trades (with mixed results) over 2003-2004, but even in a busy year it wasn't over committing.

The Cash-Equity curves for the three, 12-month period show the vulnerabilities of the strategy as existing holdings exit at the stop point.  Remember, the strategy can hold up to 10 'separate' positions at any one time; some of these will be profitable, others not.

When Optimization was employed there was no difference in the results. For example, in the May 2001-02 period, net profit was $214 Optimized vs $207 non-Optimized.

Random Test Period

For the purpose of robustness, a further three 12-month period set was selected. The following dates were randomized:

Feb 19 2004-2005
Dec 17 2010-2011
Nov 10 2008-2009

Random Test Period Results

The Random results were not as good as the Comparative period.  Two of the three test periods reported a slight net loss.

And the Cash:Equity curves show how the losing strategies generated very few trades. While the one winning period only showed a modest profit from 219 trades.


Rubberbands_2 is not the worst EA out there. As a free strategy it offers the beginner something to start with and perhaps build on.  It runs a relatively consistent 70% win percentage, so if the losses can be managed more effectively it might be able to turn the minor losses into consistent - if small - gains.

As it stands, Forex MegaDroid hasn't been knocked off its perch, but it's still early days.

Our Current Strategy Leader is:

P.S. Updates to this blog have not been as regular as I would have liked, but it's a goal of mine to build a resource pool of EA reviews from the freebies to the robot scamsters. Perhaps one day I delve into building strategies of my own on MT4.  If you are not familiar with my long-standing (equity markets) blog of 7 years, you can find it here.