I logged into our virtual private server this morning, excited at the prospect of writing about our first month's live Forex MegaDroid testing using real money. That will now have to wait for a while, because I discovered something even more interesting. The Forex MegaDroid robot had completely stopped working, and not for the first time!
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Here are our first set of Forex MegaDroid live test results, which cover the month of June 2009. Here at the Trading Gurus we recommend forward testing any new forex trading system on a demo account for at least three months before even thinking of trying it using real money on a live account. However our loyal readers have been asking to see some live results. After 2 months testing on a demo account with no major disasters for the MegaDroid we decided to start live testing using a modest initial deposit of $500. On an account that supports micro-lots this is sufficiently large to allow the Droid's money management system to start trading with more than the bare minimum position size. It is also a reasonable sum of money for someone new to forex trading to be prepared to lose. As you have hopefully realised by now, newcomers to forex trading do have an unfortunate tendency to lose money.
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An email from the Forex MegaDroid team was waiting for me in my inbox this morning. It seems they will be releasing a new version of their robot before the end of the month, which is when the first-in first-out provisions of NFA compliance rule 2-43(b) finally come into force.
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It's now three month's since "Forex MegaDroid landed on the Forex industry like a BOMB". The time has come to try and tie together all the backtesting, forward testing and live testing, and to decide whether to keep the Droid running on our virtual private server for a while longer. Unfortunately this is not an easy task!
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As we reported back in May, FXDD still allow "hedging" on their MetaTrader 4 accounts. Presumably they feel able to do this because their application to become a member of the NFA is still pending. The announcement that we linked to in our May article was removed from their website some time ago, but yesterday a new take on the NFA hedging ban appeared in its place:
More on FXDD Say No Hedging Doom and Gloom Highly Exaggerated
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I received an email this morning from Forex.com promoting the benefits of opening a MetaTrader account with their FSA regulated UK operation. The headline read:
Total control of your trading strategies. – Don't let hedging restrictions affect how you trade your account.
When I clicked on it I didn't receive lots more information about how hedging restrictions might affect my trading. Instead I found myself looking at an online application to open an account at Forex.com UK
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After a lot of experimentation we finally managed to work out how duplicate the first trade in 2009 shown on the Forex MegaDroid website. Not only that, but using a demo account from FXDD that supplies historical data with only 4 decimal places, and working out exactly the right values for the Risk Level and GMT Offset input settings allowed us to duplicate the first 75 trades, up to and including the loss of $4672.00 on March 18th. After that though, the differences between our backtest results and those shown by the Forex MegaDroid team become more and more obvious.
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An essential part of evaluating any trading system, whether you developed it yourself or bought it over the internet, is to discover how robust your chosen system is to changes in the system input parameters. Unfortunately the developers of Forex MegaDroid don't give their users the ability to alter the parameters that control their robot's "artificial intelligence". We assume there must be a few hidden somewhere inside the Droid's electronic brain, but there is no way for us to twiddle them with our virtual screwdriver. We assume that Albert and John spent many months tuning their creation to perfection. They have, however, made it very difficult for us to try and work out if they have over-optimised their robot's mega-mind. Maybe it will suffer a virtual epileptic fit one day soon? We have no way of knowing.
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The Commodity Futures Trading Commission recently released its latest report on financial data for Futures Commission Merchants. This contains the numbers as of May 31st 2009, "from reports filed by June 30th 2009". This report is particularly interesting because on May 16th the NFA's minimum net capital requirement for Forex Dealer Members increased from $10,000,000 to $20,000,000. The CFTC helpfully allow you to download monthly data going back to 2002 too. It's interesting to discover which brokers have fallen by the wayside over recent months as successive increases in regulatory capital requirements have weeded out the weaker players.
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In a recent letter to the Commodity Futures Trading Commission the National Futures Association commented on proposed further increases in net capital requirements for Futures Commission Merchants and Introducing Brokers.
Whilst the NFA:
More on NFA "Respectfully" Criticizes SEC Capital Requirements
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