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EP126: Automated FX Strategies: How Quickly does Its Edge Lose?
In this episode of Truth About FX, Walter digs into automated forex strategies. According to him, there is no exact answer to the question “until when?” Instead, he dives deep into your trading strategy, signals, drawdowns, and historcal data. Walter also shares an interesting story about a friend and some of the most useful lessons you might learn from him.
All this and more in this episode of Truth About FX…
Download (Duration: 05:24 / 6.19 MB)
In This Episode:
00:25 – how quick?
01:33 – game type system
03:40 – crazy system
04:47 – more palatable
Tweetables:
You have to be wary [Click To Tweet].
It depends on the strategy [Click To Tweet].
It will go through drawdowns [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. How quickly do automated forex trading strategies lose their edge?
Walter: Boy, that’s a great question. I don’t know. I mean, it depends on the strategy. It’s like saying, “How soon before when I start trading I’m going to hit a drawdown?” Well, depends on what your system is.
For example, if you have a system that has a really high win rate so you’re trading one of those robots that has like 97% win rate. Typically, what those will do is that you’ll just wake up one day and you’re broke. You know what I mean?
Hugh: Yeah.
Walter: Whereas, if you’re trading a system that has like a 51% win rate, that’s more likely to be an extended drawdown because that’s kind of closer to what I call “real system”. So, it’s just kind of depends.
Let’s say you have a 50% win rate, you might be trading some sort of trend trading system and so it needs a trend to lock into and then it will add more positions and take advantage of that trendy move.
It doesn’t even matter if it’s the H1 chart or the M5 chart. If it’s a trend trading system, it will go through drawdowns and then occasionally it will just stack on a lot of winners and move the equity curve up.
But, if it’s like a martingale or some kind of gaming, it’s almost like a game type system where it has a really high win rate. Typically, what you’ll see is you’ll see brilliant statistics. You’ll be really impressed on those signal services.
You can go to those signal services. We can link up some of those to the show notes here. Those signal services you’ll find like typically, the ones that are the highly ranked ones.
They’re usually gaming the system by doing some sort of Martingale. Or, the other thing they do is they have a high win rate system but they keep pulling money out of the account when they have winners.
So, what does it does, it artificially inflates their percentage returns. You’ve noticed that too. You know what I mean? They’ll have like a $100 account on the signal service.
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By Walter Peters (FXJake) and Hugh Kimura (Trading Heroes)In this episode of Truth About FX, Walter digs into automated forex strategies. According to him, there is no exact answer to the question “until when?” Instead, he dives deep into your trading strategy, signals, drawdowns, and historcal data. Walter also shares an interesting story about a friend and some of the most useful lessons you might learn from him.
All this and more in this episode of Truth About FX…
Download (Duration: 05:24 / 6.19 MB)
In This Episode:
00:25 – how quick?
01:33 – game type system
03:40 – crazy system
04:47 – more palatable
Tweetables:
You have to be wary [Click To Tweet].
It depends on the strategy [Click To Tweet].
It will go through drawdowns [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. How quickly do automated forex trading strategies lose their edge?
Walter: Boy, that’s a great question. I don’t know. I mean, it depends on the strategy. It’s like saying, “How soon before when I start trading I’m going to hit a drawdown?” Well, depends on what your system is.
For example, if you have a system that has a really high win rate so you’re trading one of those robots that has like 97% win rate. Typically, what those will do is that you’ll just wake up one day and you’re broke. You know what I mean?
Hugh: Yeah.
Walter: Whereas, if you’re trading a system that has like a 51% win rate, that’s more likely to be an extended drawdown because that’s kind of closer to what I call “real system”. So, it’s just kind of depends.
Let’s say you have a 50% win rate, you might be trading some sort of trend trading system and so it needs a trend to lock into and then it will add more positions and take advantage of that trendy move.
It doesn’t even matter if it’s the H1 chart or the M5 chart. If it’s a trend trading system, it will go through drawdowns and then occasionally it will just stack on a lot of winners and move the equity curve up.
But, if it’s like a martingale or some kind of gaming, it’s almost like a game type system where it has a really high win rate. Typically, what you’ll see is you’ll see brilliant statistics. You’ll be really impressed on those signal services.
You can go to those signal services. We can link up some of those to the show notes here. Those signal services you’ll find like typically, the ones that are the highly ranked ones.
They’re usually gaming the system by doing some sort of Martingale. Or, the other thing they do is they have a high win rate system but they keep pulling money out of the account when they have winners.
So, what does it does, it artificially inflates their percentage returns. You’ve noticed that too. You know what I mean? They’ll have like a $100 account on the signal service.