Can mechanical forex systems work?

Please bear with me - this isn't spam.

I'm interested to find out if anyone thinks there are any mechanical forex systems that have actually worked.

There seems to be lots of people trying to sell them and I wonder why - if the system worked surely it would have made you too rich to bother selling it for a few hundred quid to punters - or you would have sold it to a big bank for mega bucks.

However given that statement I am trying to develop my own:cheesy:.

In order to do so I have felt it best to stay away from what others have done and work it out for myself. I have developed a software system over the last six months to do that and it has only really been capturing data for the last six weeks.

I have found a strategy that has workd over that period (4000 odd pips @ 66% success rate). Now it's time to get my hands on data for the last five years and backtest.

Whilst I dream (it will take a week or two to do this) I was wondering if there are success stories out there, or if my dreams are likely to remain just that.

I think so? I have been using my system now for about 2 months and although I have only broke even in this time (+30 pips ;-) The system is still very crude and im sure with some fine tuning I can get it working. The drawdowns are very low and im getting conststant results, which I think is more important than high reterns followed by large drawdowns. What kind of system is it?

Thére are many profitable´systems, but they aint for sell to the public =P

Victor90 said:

Thére are many profitable´systems, but they aint for sell to the public =P

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That's what I expected.

As far as my system is concerned it is completely my own and based on P&F's.

It blew up yesterday (luckily I am trading it manually and only using it to give me entries so I actually came out with a decent profit). So I do still wonder if it will ever be safe to just let a system run - even if backtesting the next version turns out OK.

Yes they can work.

I'd stay clear of system sellers. You have to ask - if its so good, why are they selling it?!

north5 said:

Please bear with me - this isn't spam.

I'm interested to find out if anyone thinks there are any mechanical forex systems that have actually worked.

There seems to be lots of people trying to sell them and I wonder why - if the system worked surely it would have made you too rich to bother selling it for a few hundred quid to punters - or you would have sold it to a big bank for mega bucks.

However given that statement I am trying to develop my own:cheesy:.

In order to do so I have felt it best to stay away from what others have done and work it out for myself. I have developed a software system over the last six months to do that and it has only really been capturing data for the last six weeks.

I have found a strategy that has workd over that period (4000 odd pips @ 66% success rate). Now it's time to get my hands on data for the last five years and backtest.

Whilst I dream (it will take a week or two to do this) I was wondering if there are success stories out there, or if my dreams are likely to remain just that.

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Have a look at collective2.

I'd say its clear they can work, but they wont work forever - forex being more prone to this.

Put some effort into how you will decide when your system has stopped working. It will happen and unless you do this, you'll give up all you've gained before you've realised it.

UTB

I'm convinced that most who buy these systems are subconsciously well aware they are being sold a fantasy.
What they are paying for is the 'sugar hit' of a boost to their dreams of the panacea.
Harmless escapist fun I suppose, just like going to an Arnie flick..

Have a look at collective2.

?Could you point me to this a bit more clearly, not sure what you are talking about?Thanks.

north5 said:

Have a look at collective2.

?Could you point me to this a bit more clearly, not sure what you are talking about?Thanks.

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sorry......Collective2 - The Trading System Authority.

Cheers,
UTB

Cheers. That site is F'ing Cool. Could easily add a web call to send my trade signals to it. Once i've ironed out the kinks and done the back testing (see above) I may just join it up to this.

north5 said:

Cheers. That site is F'ing Cool. Could easily add a web call to send my trade signals to it. Once i've ironed out the kinks and done the back testing (see above) I may just join it up to this.

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no problem, just send me 25% of your subs as a finders fee.

UTB

As long as you cover 25% of my losses when it blows up you got a deal!

I think the basic flaw with systems is that they are based on back-testing and curve fitted to the data. It's not a sound assumption that the market will behave the same this year as it did last year. Back-testing over more years just gets further away from current market conditions. There is a relatively small difference between success and failure when you consider that buy or sell is close to 50% both ways (less spread). This means that 40 monkeys out of 100 would show a profit but it doesn't mean that those 40 are good traders. 40 out of 100 humans wouldn't show a profit though because they have enough intelligence to doubt themselves and cut trades short or fail to open them.

It also means that most systems will work well much of the time but that doesn't mean they are good systems. Markets change and a good trader picks up on this and changes his strategy. The only benefit with a mechanical system is if it succeeds in taking away the emotional input of the trader.

However, given a strict set of rules, most traders will not rigidly stick to them anyway. That brings us back to the truism that a good trader will make a profit with a poor system but most will lose money with the best system there is.

The ultimate mechanical systems are the EAs but if one existed that really made a decent profit, it could be sold to the institutional investors for a lot more than the prices they are being sold at!

In fact, some of the multi billion dollar trading companies already use computerised systems but they don't make huge percentage profits. The holy grail doesn't exist and everyone should stop looking for it and work on learning to trade well. Methods for making a profit exist but people fail because of their psychology interferring with the technique.

So, your choice is: buy a monkey, buy a system or actually learn to trade.

Right I've come to a decision today .... My answer to my own question is going to be NO.

Not because it's failed - some tweaking has worked wonders.:cheesy:

More because I've tried to load old data and it has proved a nightmare with my custom system. So I have decided that I won't worry about the past. The more I think about that the more I wonder what it would have proved anyway. I need it to work in the future and no amount of testing will give me that answer.

I think the way forward for me is to be able to provide my system with guidance so that what is does is in accordance with my thinking, and also to be constantly looking for new setups that are paying off.

I need some sort of mechanical system because left to my own devices I'm crap (far too impulsive I always enter the trade too early and tend to leave my losses running), however given a decent start I'm pretty damn good (as proved by making a decent profit even whilst my system was actually blowing up that day)!

So a change of focus by me. Thanks all for the input into this thread it has helped move my thinking along rapidly.

Mechanical patterns exist, but systems do not.

Mechanical trading, or rule based trading is flawed.

I find by identifying solid trading patterns and applying a risk model, i am abel to make money

i have been following Nial Fuller, and he is very good with pattern recognition etc. He trades bar formations and high risk reward setups on higher time frames like 4 hour and daily chart.

I am finding his free videos very usefull. if you want to have a look.. the website is

Forex Systems Trading Course | Learn To Trade The Market | Price Action Trading

For the curious, I've been working on a statistical scalping system. Having a nightmare of a time getting the last few kinks worked out of the trading platform to run it, but the algorithm seems fairly sound. Sample output from NinjaTrader of an unoptimised (yes, you heard me, unoptimised; parameters are either calculated from the data directly, or are my best guess at a good number to use) run over the last 6 months:



NinjaTrader seems to like forgetting commission, so you can wipe $3k off that profit figure.

It's not ready yet, though. It's more or less been treading water for the entirety of June, and I can't tell if that's just "Go away in May, come back in September" in action or if Jan-May were randomly lucky. That's also my best run; GBPUSD has similar results, EURUSD makes a profit but not a lot, EURAUD makes a profit but is a nightmare to trade. Beyond that, most other pairs basically break even after commission.

rnicoll said:

For the curious, I've been working on a statistical scalping system. Having a nightmare of a time getting the last few kinks worked out of the trading platform to run it, but the algorithm seems fairly sound. Sample output from NinjaTrader of an unoptimised (yes, you heard me, unoptimised; parameters are either calculated from the data directly, or are my best guess at a good number to use) run over the last 6 months:

NinjaTrader seems to like forgetting commission, so you can wipe $3k off that profit figure.

It's not ready yet, though. It's more or less been treading water for the entirety of June, and I can't tell if that's just "Go away in May, come back in September" in action or if Jan-May were randomly lucky. That's also my best run; GBPUSD has similar results, EURUSD makes a profit but not a lot, EURAUD makes a profit but is a nightmare to trade. Beyond that, most other pairs basically break even after commission.

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wow, that looks great! =D
im thinking about building a fx system, but after the summer. But i will do it in mql4 since i dont have time do a standalone system! =P
anyway, i wish u good luck! :clap:

OK - I've made the adjustments I wanted too - and added some auto money management. The success rate is now pretty high on this system so I'm going to give it a go live. Most of you will have a heart attack when you realise that I'm going to be risking about 10% per trade - but this drops pretty quickly if it starts losing on trades. It averages about one trade per day - but doesn't trade everyday - and some days it trades more (friday for instance it opened 8 trades - 7 were successful)

To give you some idea - a success wins 20 pips and a loss loses 30 pips (again please don't have a heart attack on my behalf) - at the moment with about 80% success.

So I've thrown £2200 into the account and am just going to let it run. I'll update this thread with the results.......

Any thoughts (or predictions) welcome.

north5 said:

OK - I've made the adjustments I wanted too - and added some auto money management. The success rate is now pretty high on this system so I'm going to give it a go live. Most of you will have a heart attack when you realise that I'm going to be risking about 10% per trade - but this drops pretty quickly if it starts losing on trades. It averages about one trade per day - but doesn't trade everyday - and some days it trades more (friday for instance it opened 8 trades - 7 were successful)

To give you some idea - a success wins 20 pips and a loss loses 30 pips (again please don't have a heart attack on my behalf) - at the moment with about 80% success.

So I've thrown £2200 into the account and am just going to let it run. I'll update this thread with the results.......

Any thoughts (or predictions) welcome.

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Hi North,

Whats your current win rate % ? Is it 80% ?

Also, how many losing trades in a row do you expect to see?

The exact win rate is hard for me to calculate now as I've made some modifications from the previous results. I'm estimating it at about 80% based on the pre modified version and my results manually closing trades using the principles now in the system.

I expect 2 losses in a row, will monitor at 3 and panic at 4. But it basically cuts the stake by 30% at each loss, and ups it by 20% at each win. I have seen a couple of winning runs of 12 trades.

It's a bit of a gamble really - the testing isn't as thorough as i would like - but I'm finding back testing hard to do. I've been working on it for so long (about 6 months) that I just want to try the blooming thing properly.

As I think I've said elsewhere I have arrived at a system that I think identifies human behaivour patterns given certain price movements in key price areas. I have been up so many dead ends with just looking for TA signals that I came to the conclusion that they were pretty meaningless for an automated system. I thought I would look for patterns, I also decided that there won't be many patterns that could be found so the best place to look for them would be in areas of stress in the price movement and try to come up with my own indicators to identify any pattern in responses to these. I think I may have done.

It continues to show symetry and also works in all the FX markets I am tracking which is my biggest pointer that it is correctly identifying patterns and is not just random.

Time will tell. I don't expect a completely smooth ride - but I am maintaining optimism for the moment.