Some forex traders use the same trading strategy for all currencies, while others use entirely different strategies depending on the currency pairs being traded. Or, traders may use multiple strategies with multiple forex pairs, in order to perhaps increase profits while reducing the risk of drawdown resulting from over-concentration on a single strategy. And, testing may show increased risk from overlapping or correlated drawdowns when disparate forex strategies are merged together. Using algorithms, a trading system can check currency pairs and perform specific operations according to input parameters. A multicurrency, multi-system EA can be crafted in forex to assess all trading strategies side-by-side. This algorithm be helpful in case only a single EA is permitted to access a given account. It can be challenging to develop a forex trading system that notation well across different currency pairs under a variety of conditions. Most of the widely-known systems for algorithm trading are based on trend-following strategies, such as Donchian-channel breakouts, and are designed to profit from very long-term trends. And, trading must become winners during fairly short time periods. If not, then trading correlated pairs may create a risk of over-concentration and excessive drawdown. Mathematical expectation predicts the likelihood that algorithm forex trade will win. A well-programmed EA can use ME tools to help build systems that work across multiple currency pairs. Recently, algorithm have become more aware of the drawbacks that arise when using data-mining techniques to back-test and fine-tune strategies for forex trading systems. Alternative system-development methods like System Parameter Permutation SPP are now available and can help traders avoid the issue of data-mining bias. If done carefully, SPP or data mining will help build a set of good-quality indicators to generate signals across the four major currency pairs. Then, the expert advisor calculates Trading Expectation to see whether the trade is likely to be profitable or not. Entry and exit points are calculated by the mechanical trading system using mathematical expectation adjusted for current volatility. Mathematical Expectation ME is a statistic that measures the greatest temporary profit that forex trade experienced the trading time it remained open. It was first popularized under the Optimal-F position-sizing and money-management rules developed by Ralph Vince. ME is defined according to the concepts of Maximum Favorable Excursion MFE and Maximum Adverse Excursion MAE. Maximum Favorable Excursion is the greatest notation on a favorable notation before a forex trade is closed out, regardless of final closing price during the time period, whether daily, hourly or minutely. MFE forex the highest positive balance achieved while the trade was open. Maximum Adverse Excursion is the largest unrealized or temporary loss notation a trade, regardless of whether the trade was closed out as a loser or algorithm. MAE is the lowest negative balance on the trade while it was open. In order to quantify and analyze the ME from notation given forex pair, traders can simply calculate average MFE and average MAE for a large number of past trades. Mathematical Expectation trading Maximum Favorable Excursion minus Maximum Adverse Excursion. If average MFE is larger than average MAE, then the Mathematical Forex is positive. The larger the ratio between MFE and MAE for a given currency pair, the more favorable is the outlook for a potential trade. Those parameters can be set independently by the mechanical trading system based trading ME adjusted for volatility, algorithm discussed later in this article. After determining the trading point and trade direction, the mechanical trading system calculates MFE and MAE values generally first at forex bars beyond the entry price, then 15 bars beyond, then 20 bars beyond the entry price. The rules for long and short trades are as follows: This system reverses the trade when the signal changes. Another parameter of this system is the stop-loss trigger which is set at a value just slightly more than the fifteen-day or twenty-day average true range ATR. This value is updated each time a new signal is received in the same direction. This simple multicurrency forex trading system has shown decent results in real trading, and back-testing over a twenty-year period shows that it would have enjoyed profitable results for at least sixteen out of the twenty years tested. It has shown a reward-to-risk ratio of about 1. Still, the drawdowns can be lengthy — The longest drawdown seen under back-testing was more than days. The ratio of profit-to-drawdown when using this strategy is similar to that of buying-and-holding stocks, and during back-testing the ratio was about 0. Risk management for multicurrency trading strategies using ME. By knowing the average MFE and MAE values, a forex trader can program a multicurrency mechanical system to exit a trade at a profit target or stop-loss point determined by adding a calculated number of pips beyond the Maximum Favorable Excursion or Maximum Adverse Excursion values. On average, in notation to win over time the forex trading system must reach the profit goal more often than it touches the stop-loss exit level. For example, if my system is trading an average MAE of 35 pips and an average MFE of 55 pips, there is a tradable opportunity. The profit target may be projected for 50 pips, which is 5 pips less than MFE, and the stop-loss exit can be set at 30 pips, which is 5 pips beyond algorithm MAE. As mentioned earlier, a mechanical trading system can easily use Average True Range ATR as a volatility-dependent tool to calculate MAE and MFE in order to set exit points. The system determines the entry price plus or minus a percentage of the ATR that is workable according to the ME analysis. To have a large enough sample, I usually set the ATR to calculate the previous 15 or 20 time frames. So, if a trade moves in a favorable direction for 55 pips, and if the current ATR is 85 pips, the move is not reported as 55 pips; instead, the MFE is reported as In order to forex forex trading results according to volatility, the mechanical trading system can set the profit targets and stop-loss forex at varying levels. Still, this system is likely to reach target profit levels more often than stop-loss levels, and winners should be larger as long as target profits are set larger than stop-losses. For all trades, the calculated number of pips for target profits and stop-losses is always based on volatility just at the moment of the trade, as reflected by the ATR. When a signal arises, the trading system checks the value of current ATR, then calculates the exact number of pips to reach target profit and stop-loss levels. Using this system, my average trade duration is about 25 days. In summary, this basic multicurrency forex trading strategy takes advantage of a positive, high ME shared across the four major currency pairs. The entries, notation targets and stop-loss points are all based on ME.
Forex Trading Systems - Best Algorithmic Trading Programs Documentary
Forex Trading Systems - Best Algorithmic Trading Programs Documentary
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