In this episode of Truth About FX, Walter gives insights about trend systems and some of the key factors to look at when studying historical data. How far should you go back when looking at track records? What are the important things to take note when looking at trading systems?

Download (Duration: 04:21 / 4.98 MB)

In This Episode:

00:26 – money manager

02:04 – sideways chop

03:15 – bit shady

Tweetables:

What sort of drawdown are you willing to withstand? [Click To Tweet].

Do I find a new system?  [Click To Tweet].

Look at the type of market.  [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. When we bring the track record of a money manager or a potential copy trading signal, how long of the track record should I look for?

Walter: Yeah, that is a good question. I wouldn’t necessarily put a number on that. I mean, you could say 12 months or 24 months or whatever but I think what you really want to see is — let’s just say that someone is only trading the Euro.

Let’s say, that the Euro has been mostly on an uptrend over the last 12 months and you see his 12-month track record. Immediately, you’ve got to take a look at what’s going on here.

Is this a trend system that does really well in a trend market we had mostly at trend over the last 12 months? Well, that’s going to change at some stage and it’s going to go sideways and then what’s going to happen to this account?

Or, the other thing, we look at how many trades. I have a good friend, Denis, and he was — I do not know if he still is but — he’s the number one signals provider on a certain forex signals platform where you can sign up and lock your account into his stuff or anyone else’s.

He doesn’t trade that often. He did really well for the first year then, he hit a drawdown early this year and he know that’s an issue. That was mostly something that people hadn’t seen on his account.

Now, he backed out a bit and he’s doing well, of course, but that can affect him. That can affect the people that are following his signals. If you have a system that trades once a month then you’ve got 2 or 3 losers in a row, that is a 2 or 3 months of a drawdown and that can be a little bit tricky.

There’s a lot of things to look at. I would look at frequency of trades, I will look at what style of market has this track record bent through. Has it bent through sideways chop? Has it bent through a trending environment? Has it bent through a really tight, tight market or has it been through a volatile market or is it really quiet?

You look back on the NZD in 2003-2004, it’s pretty quiet. You really need to look at what kind of market it is. Beyond that, I really think that what you needed to do if you’re going to follow someone else and lock your account onto their trades, what I would say is you need to decide what sort of drawdown are you wi...