In previous postings, I tested the FXCM Forex System Selector.  This system automatically trades forex on your behalf using black box trading models that you have selected.  Theoretically this could be like having your own ATM in your living room producing constant trading profits.

Following a comment from a reader requesting an update, I’ve decided to revisit FXCM selector to review my previous findings.  Read the rest of this article to find out about some changes.

Previously, despite my best attempts, I was unable to find a system that was profitable with an acceptable level of risk.  One issue that I found was that some systems opened multiple identical positions within a matter of minutes, multiplying the risk (and increasing brokerage).  I did not find any combination of systems that produced a consistent high profit or smooth equity curve in practice (I traded using a demo account account for one month).

I believe that some systems may work quite well, based on my own research into smoothing, but I have not seen anything useful offered to the public to date.  

The major change that I have noticed is recognition of the difficulty in evaluating combinations of systems.  This has been rectified by putting together “portfolio packages” which are combinations of systems.  You can specify either conservative or aggressive packages and immediately see the equity curve.  In addition, you can select the size of the positions that will be used to suit your account size.  This is expressed as Silver ($5-15K), Gold ($15K-50K) and Platinum ($50K+).

I played around with various combinations of Silver, Gold and Platinum (since my demo account has $100K in it) and also tried the conservative and aggressive packages.  

The overall winner appears to be SilverCDelta, which has both the smoothest equity curve (a small chart is shown next to each package) and the highest returns.  This uses the conservative and Silver settings.  A starting balance of $5,000 in May was increased to $8,749, a 75.79% ROI.  

Interestingly enough, some of the aggressive packages have very smooth equity curves, while some conservative packages show a lot of ups and downs, so whether a package is aggressive or conservative is not a matter of the volatility of returns.  In total, there are 20 packages (with all combinations of conservative and aggressive and account size), of these 12 have a positive ROI, while the others lose money (up to -62.76% ROI).

I think that this highlights the difficulty in choosing underlying systems, even with the benefit of packages, which someone has presumably put a lot of effort into selecting.  The odds are against making a profit.  These profit figures also may incorporate a hypothetical component.  The extreme volatility in the forex markets recently may have skewed the returns also.

Whilst the idea of allowing the user to select risk profile is interesting, there is not a lot of granularity in the selection (either aggressive or conservative).  As noted, neither appears to be related to return volatility that I can see.  I would like to see something that lets you select the desired smoothness of the equity curve (by selecting the maximum peak to valley drawdown percentage).

I’m selecting the SilverCDelta package, and will report back on how it goes.  I am a little skeptical at this point.

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Tags: Automated Trading, Forex Trading, FXCM, system selector

This entry was posted on Tuesday, October 21st, 2008 at 12:50 pm and is filed under Automated Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.