Forex Robot Trading Performance March 2011

How was last month? Is it safe to trade today?
A client asked me that question today and the thought kept coming back the rest of the day.
Well, I would not choose last month as my favorite month ever,
Apart from the non-stop human tragedies and the completely overwhelming grief one feels with the loss of so many lives - as a trader a month such as this last one really puts you to the test.
Earthquakes, revolutions, air strikes, nuclear threats - it seemed as if the term "geo-political events" wasn't even fit to describe what was going on worldwide this month.

We are fine in general - what started out as a promising month has seen some set-backs, but we are still ahead for the month and I find that to be no small achievement.
The robots were performing fantastically and were actually doing quite well - we may have inadvertently been too cautious and decided on a few non-scheduled no-trade-days being swept away by the contagious panic trading in Wall Street. Always a bad idea. If in doubt  - leave them to trade.

Once again we had the feeling that our robots perform just fine during tumultuous times - that's why we have volatility filters - to rule out unfavorable markets.

The USD/JPY was of course the currency most affected and there were truly a few free-falling days - now of course it is more stable than ever - with the world watching its every hiccup.

So, hopefully you have traded through this month successfully as well and have come out ahead in the end.
Let me know how you did....

The lowdown on drawdown - or - What is drawdown and why does it matter in automatic forex trading?

650% profit in the first 60 days trading!  

Win 100 pips with every trade! 

Never a losing trade! 

Claims like these are plentiful in the world of automatic forex trading - you can barely turn around without bumping into a new Forex Robot claiming sky high returns on your investment. However, rarely are we told what amount of your initial investment was in danger during trading to achieve such outrageous returns. 
The level of risk involved in a trading strategy is what we call its "drawdown".

Drawdown is the reduction of one's capital after a series of losing trades. This is normally calculated by getting the difference between a relative peak in equity capital minus a relative trough. Traders normally note this down as a percentage of their trading account. 

Drawdown is the very feature by which to evaluate the validity of the outrageous profit claims many Forex robots make. Surely, if the robot is planning to be risking 90% of your investment capital, the darn thing better have some hopes of astronomical profit - otherwise why take such an enormous risk. 
But we all know what happens in reality when sound money management goes out the window: One bad trade and your account is wrecked beyond repair.

Sound money management, with reasonable drawdown, in a low risk setting is the only way to make progress. Insane trading, with no sound controls, only to put your account at risk, always being at the mercy of one trade that could end it all, is a sure way to get an ulcer and lose your trading capital. Might as well go back to manual trading, at least you enjoy the gambling...

So, when evaluating your next Forex Trading Robot please, instead of being seduced by great sounding profit promises, take a close look at the risk settings used to obtain these profits.

Oh - and that last promise of "Never a losing trade" is of course completely silly - it is the equivalent of playing roulette and betting on the little ball never landing on "zero" again - won't happen - ever.

The Best Scalping Strategies - Part 2 - EUR/GBP

When it comes to a successful Forex Scalping strategy we need a currency pair that is reliably range bound and lends it self well to scalping. As we have seen in part 1 of this series- not all currencies are automatically scalp-able. As a matter of fact most are not. Most of the Majors: EUR/USD, GBP/USD, USD/CHF are too wild a ride to take the risk. The notable exception is the USD/JPY - which even though it is a major currency pair is still scalpable - why that is so and what the advantages are, we will discuss in Part 3 of our Scalping Strategy series.

But back to the EUR/GBP - the currencies involved are of course the Euro and the British Pound. Since we are again talking about two currencies from the same Economic region there is stability built into the relationship that is one of the main characteristics of this currency pair.
Even though the British Pound was affected heavily by the economic crisis worldwide and in some ways more so apparently than the more stable Euro from a Forex scalping strategy point of view the EUR/GBP is one of our most trusted allies and together with the EUR/CHF the backbone of any successful scalping strategy.
In scalping we are looking for three things:

1. Rangebound - so the losses and risk stay small
2. but not dead - so we do get many daily small entries
3. Stable economies behind the currencies - so geopolitical news don't blow up in our faces

The EUR/GBP offers all three and is therefore a "two-thumbs-way-up" trade recommendation for an automatic Forex scalping trading system.