Graphical analysis of trading system's simulated track record. Step Two algorithm, USD/JPY.

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Written by Forex Automaton   
Monday, 28 September 2009 08:00

This USD/JPY back-testing analysis continues the series which began with EUR/USD. 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 which led to the selection of these six robots.

 

Money management for the individual markets

separate

joint

Pattern analysis for the individual markets

separate

Step One

You are here: Step Two

joint

test-only

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. In Step Two mode, co-existing trading opportunities in markets other than the market under study may influence which trades are placed. There is a competition between the markets.

USD/JPY during the simulated time period (2002-2009),  including system training

Fig.1. USD/JPY bar charts for the period under study. Day scale. The chart includes training time when no trades could be placed.

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, USD/JPY (Fig.1), 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 USD/JPY, for all six traders.

Forex trading system track record chart. USD/JPY. Trader 510 2.1 Forex trading system track record chart. USD/JPY. Trader 552 2.2 Forex trading system track record chart. USD/JPY. Trader 553 2.3 Forex trading system track record chart. USD/JPY. Trader 584 2.4 Forex trading system track record chart. USD/JPY. Trader 588 2.5 Forex trading system track record chart. USD/JPY. Trader 622 2.6

 

Trader position

long

short

Market agrees

yes

   

no

   

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 to begin right after the initial "training" of the trading system is completed.

 

Forex trading system Track record chart. USD/JPY. Trader 552
 

Trader position

long

short

Market agrees

yes

   

no

   

Fig.3. Performance track record chart showcasing T552, arguably the most successful robot trading USD/JPY. 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 range is chosen to highlight the episodes discussed in the text.

Discussion of USD/JPY performance

As you see, the algorithms "dislike" trading USD/JPY. The trades are placed rarely, reflecting the cautious attitude of the optimized algorithm towards this currency pair. (How much intelligence is behind this is currently an open question.) No trades have been placed in 2006. 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 USD/JPY trade.

On October 24, USD/JPY made a downward movement from over 97 to below 93. This was the fifth consequitive day of Yen rising against the USD. T552 (Fig.3) sold USD/JPY on October 23 and closed the trade on October 25.

It is noteworthy that the robots refrained from taking part in the USD rally which began on January 23, 2009, until after another big drop in USD/JPY, which happened on March 19, 2009 when USD/JPY went down from over 98 to 94.7. This drop was apparently taken by T552 and some other robots as the signal to buy USD/JPY (see Fig.3), which turned out to be a successful trade idea for the next two weeks.

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Last Updated ( Monday, 04 January 2010 12:27 )