System Reviews by DailyFX Course Instructors

Jeremy Wagner · #1 (**permalink**) 09-24-2008, 08:07 PM

The Forex System Selector is popular new product that many traders utilize to be invested in this market 24 hours per day. The FSS is an automated account option that allows traders to choose from automated signals sent from over 40 different system providers while you still control the pair traded, leverage used, and signal provider.

In this thread, we are going to review how to analyze the many different providers and build various portfolios around them. If you have any questions about the content, please ask. If you have suggestions of systems you wish to review, kindly note them in this thread.

Jeremy Wagner
DailyFX Course Instructor

Jeremy Wagner · #2 (**permalink**) 09-25-2008, 03:09 PM

Today we are going to begin looking for systems that trade the EURUSD. Since the EURUSD is the most liquid currency pair, most traders like to follow it as it commands tighter spreads relative to its peers.

To generate the list of possible systems to review, left click on the # TRDS column in the performance tab to sort the list by number of trades generated. We are going to run through this list over the next several days to find a EURUSD system to add to our portfolio.

When reviewing each of the systems, the first piece of data we are going to look at is the MAX DD as this represents the Maximum Drawdown incurred by the system since it has been trading with the FSS (left click on the blue word for further definition). It represents your loss in pips had you entered the system at the highest swing high point, then sold at the lowest swing low point. There are several of these peaks and valleys in each of the systems traded, so this is the largest of those peaks and valleys. Another way to look at it is if you were the most unlucky person in the world, the drawdown would have been your loss in pips if you bought at the high and sold at the low.

Tomorrow we will take an indepth look specifically at Tecnofinanzas_II.

Jeremy Wagner · #3 (**permalink**) 09-26-2008, 03:52 PM

Today, we are going to look at Tecnofinanzas_II simply because it is the first on the list. Some key data about the system:
Max DD : -4905
Profit in Pips : 5264
Start Date : 10/8/2007

Below is the equity curve for this system on the past 12 months. This curve shows us what the equity in the system would have been had you invested in it 12 months ago. Although we have shown a nice profit of 5264 pips, let’s assess on how we got there.

Point 1:
The system did very well and ran up 8,136 pips from its inception of Oct 2007 to the end of Dec 2007.

Point 2:
The system reached its all time high again, but could not sustain. It began its largest drawdown to date of 4905 pips.

Point 3:
The system is trading in a long series of sideways action trying to pull out of its current drawdown.

One measurement of risk is our drawdown. This system is currently in a drawdown of 4905 pips. For example, if I invested in this system $10,000 and traded 1 mini lot each time a signal is generated, then I run the risk of a 50% drawdown. If I were unlucky and started investing in this system in March 2008, then by April my equity would have dropped by $4905 to $5095. (The drawdown would have been larger if I had made larger trades.) Many traders would not be able to withstand that drop in equity. If I were a trader that could not survive that drawdown, then I am left with 2 choices :
1) Look for a system that better fits my appetite, or
2) Look for another system that compliments Tecnofinanzas so when they are added together the blended equity curve fits my appetite.

For moment, we will continue reviewing the other EURUSD systems. Here are some items to note about Tecnofinanzas:

Pros – Ability to produce large increases in a short amount of time, trades frequently (2205 trades in 1 year), has been trading live in FSS for almost 1 year.
Cons – Fairly large 4905 pip drawdown, still trying to recover from a 6 month drawdown.

PIPNEWBIE · #4 (**permalink**) 09-29-2008, 01:51 PM

Hi there,
can you recommend some good systems to trade, have limited funds

Jeremy Wagner · #5 (**permalink**) 09-30-2008, 02:26 PM

Quote:

Originally Posted by PIPNEWBIE

Hi there,
can you recommend some good systems to trade, have limited funds

There are several systems that are good to choose from. On this thread, you will find the Top 10 systems by popularity of live clients:
http://www.learncurrencytrading.com/...elector-5.html
If you don't want to sort through many systems, this will provide a starting place.

Also, several times per week, I will be reviewing several systems on this thread. The goal is to show readers how to interpret the data and equity curves so you are picking a system that meets your personal risk appetite. Currently, we are reviewing those EURUSD systems.

As you consider the Forex System Selector, also think about the following questions:
1) What are my return expectations for the account?
2) How account equity am I willing to lose before I get nervous about the system?
3) Do you consider yourself to be more conservative OR more aggressive in your risk appetite?

By answering these 3 simple questions, you can begin to sort the systems that meet your criteria.

Here is a short video to assist you as well.

If you would like a complimentary review of how to customize the search to meet your appetite, then email systemselector@fxcm.com with the answer to the 3 questions above and we'll respond back to you.

Jeremy Wagner · #6 (**permalink**) 09-30-2008, 03:34 PM

Today, we are going to look at SniperFX as it is the second system listed a few days ago. Some key data about the system:
Max DD : -10,550
Profit in Pips : -4907
Start Date : 4/24/2007

This system has a very large drawdown and has been unable to generate a profit. When we look at the equity curve, notice how it seems to trend down in an orderly sort of way until recently. Some traders will look at that and may joke how they would like to be on the other side of these trades…and now you can.

Before completely giving up on this system, run it as a reverse. You will see if that creates any opportunities.

All in all, the reverse of this system does not offer any good longer term opportunities as this system trades very frequently and we get eaten up with the spread. We will pass on this system for now.

Jeremy Wagner · #7 (**permalink**) 10-01-2008, 07:32 PM

Today, we are going to look at Tecnofinanza. This is the 3rd system from our previous list. On 9/26/08 we reviewed the Tecnofinanza_II system. These obviously come from the same family, but they do have some differences. Both curves seem to follow a similar pattern…very fast run up, then it begins to drawdown and move sideways.

The equity curve we are looking at today does not have as high of highs or as large of a drawdown then its Tecnofinanza_II brother. Without knowing the specific strategies on how they trade, it appears as though Tecno_II will apply more trades to those positions that are doing well and utilize up to 4 maximum positions at any one time. This allows for a rapid increase in the equity. On the other hand, the Tecnofinanza has a maximum position of 1 so its peaks and valleys are going to be closer relative as it is not opening as many trades in the market at one time.

Since Tecno_II has maximum positions of “4” and Tecno has a maximum position of “1”, let’s compare these systems on an apple to apple basis to determine one that we would prefer. To do so, we need to make sure our effective leverage is the same for each system.

*Keep in mind leverage is a double edge sword that can magnify losses as well as gains.

The leverage in the FSS platform is figured by:
Max positions X Trade Size / Account Equity = Portfolio Leverage

For illustrative purposes we are going to trade Tecno_II on 10k lots starting with $10,000. So the portfolio leverage becomes:
4 x 10,000 / 10,000 = 4 (or 4:1 leverage)
(Max positions X Trade Size / Account Equity = Portfolio Leverage)

Now, we need to figure the trade size on Tecnofinanzas so we arrive at 4:1 leverage (this is so we can compare apples to apples with Tecnofinanzas_II), our formula becomes :
1 x (Trade Size) / 10,00= 4
Max positions X Trade Size / Account Equity = Portfolio Leverage)

Therefore, we need 40,000 fixed lot trade size to compare an apples to apples.

(The chart for Tecnofinanzas_II is noted on the 9/26/08 post).

Conclusion: If we had to choose between Tecnofinanzas and Tecnofinanzas_II, we are going for Tecnofinanzas_II because it has slightly smaller drawdowns and slightly higher profits on an apples to apples basis.

Note : If trading Tecnofinanzas_II in a small account, keep in mind there may not be enough capital to support the system as the drawdown is -4905 pips.

Jeremy Wagner · #8 (**permalink**) 10-02-2008, 06:51 PM

Today, we are going to look at Innisoft. We learn something interesting today about this system. But first, let's review some key data about the system:
Max DD : -3,153
Profit in Pips : 1411
Start Date : 11/15/2007

This system provides us an equity curve that resembles a V-shape. Since its inception in Nov 2007, it immediately drew down a fairly steep amount of 3,159 pips. Then around the beginning of April, it began a 4,350 pip run.

Some items of note:
1) The previous systems we have reviewed of the EURUSD are trend following and have struggled when the EUR topped 6 months ago…Innisoft has held its own during that period.
2) Additionally, Innisoft has done quite well through the credit squeeze that became a highly visible crisis beginning in September.
3) Most importantly, this system recovered from a deep drawdown of 3,153 pips in 45 days.

This system shows us a quality that we have not seen thus far. It show us the ability to recover from its maximum drawdown in fairly quick order. Drawdowns are inevitable with every system. However, if the system continuosly recovers quickly, that tells me the system has an explosive nature that can grab quick profits.

Quick profits can also mean quick losses. You want to be certain to manage your downside risk and make sure you are well capitalized for the size of trades you are placing.

We will continue our review tomorrow of EURUSD systems.

Jeremy Wagner · #9 (**permalink**) 10-03-2008, 04:08 PM

We have an interesting equity curve today on the InsiderBreakout. This curve has been on a calm upward march until this summer. Then with the financial world’s wounds opening up in September, their curve became very erratic and drew down 3,142 pips at one point. This is a good example of why you don’t want to chase returns. It had a steep runup of approx 2,000 pips from mid August to mid September. Had you gotten into the system at that point after seeing it scream upwards, you would have experienced a 3,142 draw down.

Some key data about the system:
Max DD : -3,142
Profit in Pips : 737
Start Date : 1/02/2008

This would be a good system in calmer markets. This, like the markets, became quite volatile in September.

Jeremy Wagner · #10 (**permalink**) 10-06-2008, 06:24 PM

Has the recent volatility left you wondering if anybody can make money in these conditions? We have seen several systems do very well, only to give up those quick gains due to the recent volatility in the financial markets. C-Z has actually held up strong over the past 60 days when the credit pond began to freeze over. Additionally, in April when the EURUSD topped, this system was on the right side of the trade (point 1) by going short. Again in August, the EURUSD sold off sharp again and C-Z had a short position on as well (point 2). This system seems to be at the right side of the trade at the right place at the right time. We will keep this system handy as I imagine there is another system out there that will compliment it well. The ‘stair step’ equity curve gives us a foundation to build on.

Key data points about the system :
Max DD : -2,188 pips
Profit in Pips : 838
Start Date : 8/3/07

Jeremy Wagner · #11 (**permalink**) 10-07-2008, 07:23 PM

When considering the volatility of trading over the past year, the equity curve of AutoFuturosFX is what I would expect. It went through a shallow drawdown for 6 months as the trend of the EURUSD changed from upward to a downward trend. Then, when the credit markets froze over, the equity curve become very choppy with 500 pip swings back and forth in a matter of a couple days. With the credit stresses unlikely to stop anytime soon, this system is too volatile and we have only 7 months of trading experience to look at. We will pass on this system for now.

Key data points about the system :
Max DD : -839 pips
Profit in Pips : 465
Start Date : 2/26/08

Jeremy Wagner · #12 (**permalink**) 10-08-2008, 07:09 PM

This system has a similar stair step pattern as we saw with Cornerstone-Zeus a few days earlier. However, the drawdowns are smaller, the curve is smoother, and the net profits are greater with PipRancher..

A stair step equity curve from the lower left to the upper right gives us a foundation to build upon. The system has the ability to find quick bursts, but does not readily give back those gains.

For example, if we find another system in another currency pair (a currency with a low correlation to EURUSD) that has a stair step pattern as well, when we combine them together in a portfolio, our curve will have the ‘stair steps’ smoothed over.

We will keep an eye on PipRancher as it will make our short list of contenders.

Key data points about the system :
Max DD : -1046 pips
Profit in Pips : 1799
Start Date : 1/02/08

Jeremy Wagner · #13 (**permalink**) 10-09-2008, 01:57 PM

Today's review is for the Liquid-Multi system. This system's equity curve seems to track the price action for the EURUSD. Notice that when the EURUSD topped on 7/15, a few days later this equity curve topped and began to trade down. If you are biased on a direction the EURUSD may go, you could use this system to trade it for you. For example, you could trade the system as a 'reverse' if you feel the EURUSD price will be going down.

For the purpose of our reviews right now, we are looking for a system that can withstand the changing market conditions so we will pass on Liquid-Multi.

Max DD : -5,966
Profit in Pips : -3,741
Start Date : 4/07/2007

Jeremy Wagner · #14 (**permalink**) 10-10-2008, 11:29 AM

This system provides a good example of why it is important to see some trading history before investing in the system. Initially, it ran up 21% in the first 4 months out of the gate. Then, it rolled over and is continually adding to its drawdown.

The reason to look at a longer historical time line of a system’s trades is to see how it performs in changing market conditions. Oftentimes, systems will do very well in a given set of market conditions. Then, the system cannot seem to be on the right side of the trade when those conditions change. Common market conditions that you will find are : 1) Quiet Trending, 2) Quiet Range, 3) Volatile Trending, 4) Volatile Range

Expecting to see a longer historical period of the system will indicate how the system behaves when market conditions change.

Max DD : -6548
Profit in Pips : -4398
Start Date : 10/29/2007

Jeremy Wagner · #15 (**permalink**) 10-12-2008, 06:50 PM

Max DD : -1,678
Profit in Pips : 1,366
Start Date : 1/29/2008

As the name suggests, this systems appears to trade EURUSD based on a ranging strategy. You can see how this system has been in its current drawdown of 1,678 pips dating back to March 2008. If the market moves to a ranging type for the EURUSD, then this system may be one to reconsider at that time in the future.