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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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.
One input setting that is available to us is called GMT Offset. It seems as though the expert advisor is very choosy about exactly when it will trade, and it needs to keep track of time accurately. One of our readers even seems to think we didn't have this number set right in one of our backtests. Since this is the only parameter available to us that might affect entries and exits, rather than money management, we tried a few different values. Maybe if we got that number right our backtest results would suddenly look more like the MegaDroid team's? Their manual even goes so far as to say:
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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.
For trade 76 on March 20th the entry and exit take place at the same time and price, but there is a small difference in size. This could be explained by the two backtests not using exactly the same value for the Risk Level setting. The trouble is Albert and John are obviously not using the 0.3 setting they talk about in their manual, so how can we be sure?
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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
Already feeling rather frustrated I returned to read the email in full. Amongst other things it told me that the benefits of opening an account with Forex.com UK include:
- No hedging restrictions
- Spreads as low as 1 to 2 pips on the most widely traded currency pairs
- FSA regulated firm and segregated accounts
- Micro lot trading, free EA Hosting and more
The "more" seemed to include an account opening bonus of "up to $200". Apart from that a "free" VPS sounds like something worth having, so I phoned the UK freephone number Forex.com helpfully provided on their online account application to try and discover more.
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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:
The ‘No-Hedging’ rule has been in effect for over a month now and as many of you can attest most of the statements of “doom and gloom” have been highly exaggerated.
Amongst other things FXDD put forward the view that moving your cash offshore is not necessarily a great idea:
More on FXDD Say No Hedging Doom and Gloom Highly Exaggerated
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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!
We'll start by recounting the various trials and tribulations we have encountered whilst trying to reproduce the so called "Live Updates" shown on the Forex MegaDroid website.
On April 8th, shortly after we bought the Droid, we received an email from Forex MegaDroid support. This told us that:
After literally hundreds of support tickets on this subject…. Users have experienced a lot of confusion and frustration while attempting to produce reasonable back-tests…We are therefore requesting that all users follow the instructions in the manual to download and install MetaTrader from the ForexMeta website for back-testing purposes.
I'm sure that you can imagine our surprise when we subsequently got to read version 1.10 of the Forex MegaDroid manual, dated April 20th. This said that:
Matching results shown on the website – We used the FXDD version of MetaTrader for back-testing with the following settings: All default, except RiskLevel (generally 0.3) and GmtOffset (+3)
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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.
When brokers started implementing the "no hedging" aspects of that rule back in May it seemed to catch the Forex MegaDroid team by surprise. Their customers discovered that the first version of the Droid suddenly stopped working. Albert and John are trying to reassure those customers that things will be better this time around :
There are some new NFA rules coming into force at the end of this month and we know that some people have been getting a little nervous about it.
With that in mind, we decided it would be a good idea let you know that we're working on a new release of Forex MegaDroid that'll allow it to continue trading once the new rules take effect.
As a loyal customer it's good to know that the Forex MegaDroid expert advisor will be fixed in time, and that FIFO won't bring it to it's knees. Albert and John's warning did, however, raise a few worrying thoughts at the back of my mind.
Will MetaTrader 4 be fixed in time?
Will all the other robots running loose around the world be fixed in time?
Will all the other forex trading platforms around the world be fixed in 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.
As you can see, in our live test Forex MegaDroid was profitable for the month, with 7 winning trades and only one tiny losing trade. This apparently rosy overview does, however, gloss over all sorts of interesting details.
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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!
Our VPS runs several copies of MetaTrader 4 testing a variety of different expert advisors, and all using live accounts with Alpari UK. All the others were still working fine, but Forex MegaDroid had apparently stopped dead in its tracks at 16:19:45 British Summer Time yesterday. Here's the sight that greeted my sore eyes earlier today (with some live account numbers blurred out):
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We've just added a new installment to our course on how to build your very own forex trading system. This one is something of a history lesson about the legendary Turtle Traders.
To go with the new lesson we've also added another example to our series of educational MetaTrader robots. This one implements a much simplified version of the original Turtle Trading System. This is a long term trend following system based around breakouts from a trading range, and as you can see even after 25 years that system still has some life left in it!
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