This posting is an update on how the automated trading system, FXCM’s Forex System Selector, has performed to the end of the third week of a four week trial.  In previous postings, I’ve gone through the process of selecting trading models and provided some details of how the trading has gone each week.  Over time, we should get a more realistic view of long term system performance.

Read on to see the results to the end of the third week and find out something interesting that happened this week.

In summary, this hasn’t been a good week for the Forex Systems Selector.  Last week, the profit to date was $3,795.70, but this week profit to date is only $2,255.  So what happened?  Well there were 10 bad trades in a row.  This is unusual because to date there has been about a 50/50 distribution of winning and losing trades, which would make 10 losing trades in a row unlikely.  

What has happened is the big weakness of Forex System Selector - opening multiple trades simultaneously with one trading model.  Looking at the log shows that multiple trades have been opened within one second of the previous trade.  Both trades were losing trades.  This was repeated three times (that is, there were six trades that were duplicated).  You can see this in the following table:

This is extremely poor practice because it is doubling the risk.  You wouldn’t do this if you were trading yourself.  You would be disciplined to keep to one position at a time.  True to my previous experience, it has wiped out a large amount of trading equity.

I thought that they had eliminated this disappointing “feature”, but obviously not.  

After these bad duplicated trades, the majority of the equity still remaining comes from a single winning trade.  This is not what we are looking for in a trading system.  We want steady, consistent profits from trades, not one big win, ten losses in a row due to poor risk management and other trades that win and lose.  We want a smooth equity curve and no dramas, otherwise we might as well buy a t-bond.

If FXCM doesn’t allow users to restrict operation of trading models to have one position at a time, I would question the value of Forex System Selector.  Chances are that the risky and dangerous practice of opening nearly simultaneous positions will continue, impacting the value of this as a trading tool.

I’ll continue to monitor performance over the next week and do a final evaluation of the tool then.

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Tags: automated forex trading, forex, forex system selector, FXCM

This entry was posted on Saturday, November 8th, 2008 at 2:08 am 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.