Why I prefer EA's to Manual Trading

ElectricSavant · Jan 15, 2011

I want to share what I have learned about trading for me. I work a full time job from home here in Denver, CO. (USA) as an independent contractor. I have a lot of freedom and work for myself. The more I work the more I make. But I do like to do more than one thing and trading from home is perfect for me. Maybe I am a gambler maybe not...I do know that trading makes me feel free and gives me hope to make a lot more money than I do.

I have discovered that EA's are the best for me. I prefer monitoring automatic trades rather than placing them. I must multitask throughout the day and I cannot be glued to the trading charts. But one very important point I would like to make....EA's do not work always. Some of them work in trending and some of them work in chop...also ALL of them eventually stop making profit. So it is my job to try and discover WHEN to stop using them. I have not found an adaptive EA that is set and forget.

Some Forex Dealers seems to have given me a new idea for trading. There are many PAMM accounts that trade for me for a small investment. It seems to me that if I split my money up between several of them, that I might realize a net profit for the year. Some of them lose and some of them make money...so if I diversify across many PAMM traders perhaps I could survive. I am thinking of trying this. It's just that I do not like to invest into traders that I know nothing about and many of them I do not know. It is very seamless and easy to invest and to withdraw from PAMM accounts for both the trader and the investor. I wish there was an independent tracking service that would track these various PAMM accounts. This "wished-for" tracking service could provide a place where the trader could publish his biography and where his trades could be verified. There is a site called MyFXBook which is very good in my opinion.

So...This is where I am at in my journey and I realize what is important for me and focus on that. It's all about making money..but freedom might be more important for me. Many of you have different points of focus and make the sacrifices to achieve what you feel is important to you. I have learned to lower my expectations and take a slower approach to trading profits, I am much happier that way. I would rather make 20 or 30% a year with no more than 15% DD vs. 100% a year with a 50% DD. That is just me and many traders do not agree with me.

However, There are a few points that I would like to make:

Using leverage and how much you invest into a strategy or system is directly related and I feel it is very important. Some say 1:500 or 1:1000 is simply gambling. I do not agree completely.

Leverage related to capital can use a rather controversial application if one really considers the possibilities honestly.

Most traders gamble with leverage. But consider this valid point:

You need less capital in your account at 500:1. This is what it is all about. Your yield is always based on your capital. If you trade the same way on a 50:1 account vs. a 500:1 account then which account would be better?

Do you see the point?

To further expound...since there is less money at risk and he gets a margin call...it's just to replenish the account. The net comparison to trading at 50:1 is the same. If he is a loser..he is still a loser...BUT if he has an edge more leverage is the way to go...Just look at the model Prop Shops offer for professional equity traders...they would not be able to extract money from the markets without leverage and fast tools.

Drawing lines in the sand may be an unnecessary evil. So there are many traders here that are professional or experienced that will admonish you to be careful and to lower your expectations and do not gamble. But when you examine yourself and your use of leverage you may understand that they mean well, but do not really understand. There are a lot of things posted on these forums that "sound good"..but you can go deeper and examine these "one-liners" and discover for yourselves what they mean to YOU.

Well thats all for now and Thank-You for reading this...

ES

Good1 · Jan 17, 2011

I like the idea of automation for the same sort of reason you do. And i would prefer to do it myself and cut out the middleman. But following a trader through a PAMM account is also an appealing idea, as well as diversifying among a set of managers. I am reminded of a book i read by Gary Smith who traded mutual funds. Trading traders (fund managers). Without much information about the manager's system, you'd be trading mainly an equity curve that looks good, yes?. This is probably a skill set all its own. Example, Alpari offers a contest (that pays cash) that involves picking the best PAMM managers over x period. Question: How easy would it be to shift funds around a set of managers like this, in addition to, or rather than building a portfolio among a set? I have not looked into how money is shifted around PAMM accounts. Under ZuluTrade's business model, i believe it's a matter of switching on/off which signal providers are allowed to influence your account. This is a little different from the PAMM model, which typically gives to the manager whatever % of performance (profits) s/he asks for (ie. 25%).

It seems to me that if this was researched and implemented, you could at least get started making some money, even if not much. From there it's a matter of getting better at locating the best managers/opportunities. At that point, the motive for building your own automated system (ie. EA) would be if you thought you could cut out the middleman (the signal providers; money-managers; middle brokers) by outperforming more directly. I'm thinking about getting started this way so that i can work on my EA's at a more leisurely pace, and generate a competitive motive to code better.

As far as statistics (of managers/signal-providers), aren't those well enough tracked at the brokers that are offering PAMM accounts and/or ZuluTrade type accounts?

ElectricSavant · Jan 17, 2011

Sounds like a plan Good1.

There are so many public domain EA's out there there must be one that works for a while with correct inputs.

As far as Managers....You have some good observations and questions...I do not like heavy drawdown so equity curve is not the only thing I will look at...I am also interested at how long the results have been performed...ie how long has he traded the PAMM account...

also staying diversfied across different pair is important... you do not want all of your EA's and managers trading the EUR/USD....

That all I can think about for now...

ES

P.S. I am not a big fan of ZulaTrade, Tradency and such...

Good1 · Jan 18, 2011

Quote from ElectricSavant:

Sounds like a plan Good1.

There are so many public domain EA's out there there must be one that works for a while with correct inputs.

That would be my first course of action; to test what's readily available and modify, if that would help (without too much curve fit). I have a collection of EA's and am just now beginning to iterate through them as i learn the MT4 platform and language. Sometimes people just offer ideas, rather than EA's, and that's good 2...for testing. I'm just now testing an idea that is not holding up under tick data scrutiny. But we'll see.

How long have you been lurking around for EA's, and how many have you tested?

Quote from ElectricSavant:

As far as Managers....You have some good observations and questions...I do not like heavy drawdown so equity curve is not the only thing I will look at...I am also interested at how long the results have been performed...ie how long has he traded the PAMM account...

Generally, the equity curve shows how long the system/method you are being offered has been traded. But it's possible a manager may be a signal provider under other aliases and other methods...that may or may not be working out. I'd say the equity curve being offered is the most significant factor. You'd get in early (before a record is established) only if you somehow *knew* the manager, the method; and were bullish about it.

Quote from ElectricSavant:

also staying diversfied across different pair is important... you do not want all of your EA's and managers trading the EUR/USD....

The main thing is that each method is uncorrelated, it seems to me. A short term method (ie. scalp) on the E/U wouldn't necessarily be correlated with a longer term method (ie. swing) on the same pair. The drawdowns for each method ideally won't occur simultaneously, although that can happen (by chance) even if they are uncorrelated. You'd be able to find and use more managers if you were willing to believe that different methods on the same pair could offer the necessary non-correlation you seek.

A basket of uncorrelated managers would tend to smooth your equity curve as we all know, according to the portfolio phenomenon. But what could smooth it even more is if you were in the habit of jumping into a manager's equity curve at say, 1/2 the average draw-down, and riding it to the next new high (if any). This would only work where each equity curve appears to have positive expectancy and the draw-downs are short-lived.

Quote from ElectricSavant:

P.S. I am not a big fan of ZulaTrade, Tradency and such...

In this business model, there's three middlemen: broker,ZuluTrade,signal-generator. Possibly their aggregate cut might reach 25%. If it did, it would be about par with the average PAMM model where 25% is given the manager/signal-generator. Besides this steep cut, what else might you not like about the ZuluTrade model? I'm wondering if the ability to easily/quickly switch signal-provider may pay-off better than buying and holding one (or a set) of managers. This is what paid off for Gary Smith. Hmmm...

ElectricSavant · Jan 18, 2011

I have lurking around EA's for several years...probably 3 years. I was active in another forum and even sponsored a contest...etc..

I only lost with tradency...which is like zulutrade...That is my only reason for not liking the model...I do not know anybody who has made money with that model...it is just not to pick the ones at the top of the list...

ES

Good1 · Jan 19, 2011

Quote from ElectricSavant:

I have lurking around EA's for several years...probably 3 years. I was active in another forum and even sponsored a contest...etc..

I only lost with tradency...which is like zulutrade...That is my only reason for not liking the model...I do not know anybody who has made money with that model...it is just not to pick the ones at the top of the list...

ES

I had a zulutrade demo account, which lasts for a month, just expire. I never tested it, thinking only an automatable platform is a valid test for me. Had my latest (first) MT4 EA test panned out, i might have tested it manually on zulu. But the test (of the idea) is suggesting a major fail despite lots of hype(?) in its favor.

I'm curious, was your losing experience with tradency correlated with a winning experience under another model (broker) using the same darn system (EA)?

ElectricSavant · Jan 19, 2011

I found out that the performance results are posted from a different system (they claimed a demo server vs. the live server)...actual results differed from the reported results...I do not know about Zulu ....

What you see is NOT what you get...(many investors base their decisions to trade a system off the performance result table that these type of services publish).

I prefer PAMM accounts because I do not need to invest so much per account and there are some manual traders there (no EA)...

ES

Quote from Good1:

I had a zulutrade demo account, which lasts for a month, just expire. I never tested it, thinking only an automatable platform is a valid test for me. Had my latest (first) MT4 EA test panned out, i might have tested it manually on zulu. But the test (of the idea) is suggesting a major fail despite lots of hype(?) in its favor.

I'm curious, was your losing experience with tradency correlated with a winning experience under another model (broker) using the same darn system (EA)?

Good1 · Jan 19, 2011

Quote from ElectricSavant:

I found out that the performance results are posted from a different system (they claimed a demo server vs. the live server)...actual results differed from the reported results...I do not know about Zulu ....

Yes, for promotional purposes, a demo account might be rigged to treat a trader better than what they would be on a live account, or an account above/below x dollars. I'm reminded of an online casino that was tested by some expert(s) that was letting people win during test (play money) mode. We have also learned that it's possible, through software like the scandalous "virtual dealer", that the game can be rigged. It's possible that the quote flow is utterly disconnected with reality.

So in my way of thinking, the best basic test is to run the same system (ie. EA) on two or more platforms to see which outperforms, and which is held back by glitches (or hostile software). A valid test would be if you had a loss on, say tradency, and a win with some other broker...for the same darn trade(s). But if you had a loss on tradency without anything to compare it with, then the problem could be with the EA (or manual system) that was being tested. That's why i was inquiring about what comparison's were made.

Quote from ElectricSavant:

What you see is NOT what you get...(many investors base their decisions to trade a system off the performance result table that these type of services publish).

I've been testing an idea (not an EA) that was issued here on ET for free out of a spirit of generosity (giving back). However, i am unable to see how that it works when tick data is applied through MT4. I have not exhausted tests yet so i can't say for sure but it's not looking good so far. Very disappointing.

Quote from ElectricSavant:

I prefer PAMM accounts because I do not need to invest so much per account and there are some manual traders there (no EA)...

ES

I have not compared minimal account balance requirements for the various managed models. Wouldn't they vary from broker to broker? Comparably, what is the minimum for a tradency/zulu type model/broker?

ElectricSavant · Jan 19, 2011

The Tradency/Zulu model allows you to trade many different traders from one account as you know...but you must trade minis instead of nanos...the min deposit is 2K... but you must be careful as the DD can be surprising if you trade more than one traders system...

I am going to mix EA's....and Pamm accounts...Don't know which ones yet however...I do have one manager over at Oanda...he seems to be trading decently thus far....I will allocate more dollars to him soon...I just started 2 weeks ago with $100.00...hehe I am such a piker ☺

ES

Good1 · Jan 19, 2011

Quote from ElectricSavant:

I have not found an adaptive EA that is set and forget.

I'm going to guess that because an adaptive EA would be laborious, they are least likely to be found to be given away online. I can envision three or four types of adaptive EA:

1.) One that looks at it's own history and changes certain parameters to better (hopefully) predict how the EA will respond to near-future market conditions.

2.) One that internally monitors the performance of several ghost EA's and let's the best one go *live*.

3.) One that internally aggregates the signals of several ghost EA's and goes long/short/flat according to the aggregate. It could also go with more lots for high(er) aggregate counts.

3.) Some sort of mix of the above.

First, there is the question of whether or not either of these approaches even work (to outperform regular/static EAs). Assuming this is a valid idea, it would take a decent programmer to set it all up. And then the decent programmer has to value his time relative to possible business models.

In VB, i once set up a test along the lines of 1.) above. It stopped at designated intervals, iterated through a set of parameters, and selected the best parameter according to one of five possible criteria, such as:

1.) Max profit
2.) Min drawdown

...ect.

It's been a while, but if i recall, the self-adjusting algorithm was always competitive with the ideal, preselected parameter(s)...but would not always beat the ideal, preselected parameter(s). I'd say i'm a believer.

I've also done *horse-race* tests, trying to follow the best performer among a group set. This is not as easy as it sounds. I found there was a *cost* for each *switch*...whenever trying to choose the leader. My initial tests were on random runners. Kudos to the programmer who can figure out how to make this work. I don't think i exhausted all possibilities during my tests though, so there may be hope for this kind of approach. It might work if the lagger was chosen among a group, each with positive expectancy.

I found that putting a moving average on an equity curve with positive expectancy usually yields smaller DD's. Only occasionally, or briefly, does an MA on an equity curve outperform the original equity curve. I concluded that an MA on an equity curve is good for getting started without much capital, when/where draw-down (DD) is a major concern. It may also be good for switching between more than one equity curve (ie. EA, system).