Graphical analysis of simulated track record of Step Two robots with EUR/USD.

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Written by Forex Automaton   
Friday, 25 September 2009 09:25

Simulated track records of six best Step Two algorithmic traders are studied graphically. For a more numbers-oriented approach to performance, see the article explaining the trading system optimization process whereby the six robots were selected. This post focuses on performance in the EUR/USD market and will be followed by similar posts dealing with other markets.


Money management for the individual markets



Pattern analysis for the individual markets


Step One

You are here: Step Two



Step Three

Table 1. Various modes of the trading system operation. The present report deals with performance of selected Step Two algorithmic traders.

A run of the back-testing program created simulated track-records for just the six independent "virtual traders" (forex robots), each of them being an incarnation of the same algorithm, differing by the setting of the adjustable knobs. The robots had been selected on the basis of Step One vs Step Two performance comparison, and are believed to balance risk with return well while taking advantage of the multi-market capital allocation available in the Step Two algorithm. The algorithm learns continuously, using only data from the past of the time series. Therefore, every trading step, even during the simulated trading, tests applicability of the knowledge about the past to the present moment.

EUR/USD during the simulated time period, including system training 1.1 EUR/USD during the simulated time period, including system training 1.2

Fig.1. EUR/USD bar charts for the period under study. Day scale. 1.1: Full time period, including training time when no trades could be placed. 1.2: Time period when the system was engaged in trading, after the initial training was completed.

As in all other studies posted here so far, the trading is performed on one-decision-a-day time scale, with 1:100 leverage, risking no more than 10% of the trading capital at any point in time. Historical EUR/USD (Fig.1), USD/JPY, GBP/USD, USD/CAD, USD/CHF and AUD/USD day scale data are used, covering the time interval from August 20, 2002 to August 21, 2009, with the actual trading starting in April 2006 (when the initial "training" of the system was completed). This report covers the trading in EUR/USD, for all six traders.

Track record chart. EUR/USD. Traders 510,552,584,588 2.1 Track record chart. EUR/USD. Trader 553 2.2 Track record chart. EUR/USD. Trader 622 2.3


Trader position



Market agrees





Fig.2. Performance track record charts. Day scale. Bars in the charts are color-coded according to the type of trading position held, as explained in the table. Black corresponds to no trading position. The time period is chosen so as to cover all of the trades placed.

Discussion of performance in EUR/USD

As you see, the optimized algorithms "dislike" trading EUR/USD. The trades are placed extremely rarely, reflecting the cautious attitude of the optimized algorithm towards this currency pair. No trades have been placed in 2006 and 2007. In 2008, trades are placed in highly volatile environment: with volatility comes profit potential, and it takes a lot of profit potential to convince the robot to enter a EUR/USD trade.

At the same time, it's hard to call this trading style cautious or conservative: look at December 2008 when the EUR/USD  exchange rate went very fast over 1.46 before falling below 1.40 the next day. A group of successful algo traders (Fig.2.1 and 2.3) goes with this market for three days before turning bearish at the local high and riding the downward slope. Certainly, not a trend-following strategy. Very few people are psychologically capable of doing that. For example, in Speculation as a Fine Art, Dickson Watts gives this specific warning: "Never "Double Up"; that is, never completely and at once reverse a position. Being "long," for instance, do not "sell out" and go as much "short." This may occasionally succeed, but is very hazardous, for should the market begin again to advance, the mind reverts to its original opinion and the speculator "covers up" and "goes long" again. Should this last change be wrong, complete demoralization ensues."

According to the quote, the "hazard" is mainly psychological in nature. Obviously, computers are not afraid of "complete demoralization", while the nature of autocorrelation in forex and LIBOR rates is often such that instant position reversals are indicated.

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Last Updated ( Monday, 04 January 2010 12:28 )