How to Choose A Good Forex Automated System

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How to choose a good forex siginal service and automated system is very important for people who cannot or don’t have the experience to trade themselves. Although there are tons of automated forex trading systems which claim to be succesful, chances are most of them are scams. I have tried several times for these so-called winners, and I have to say “thank God, I demoed it, instead of making it live.” However, even if you find a real good system, it does not mean it is suitable for your trading strategy. You could still blow up your account because of that. Let’s first look at the two main types of auto-systems: third party signal proviers and EAs on Metatrader 4.

 

Third-Party Signal Providers

Welcome to the world of monkeys. I cannot say most of them are scams, but definitely 90% of them are not as profitable as they claim. Just check the feedback on forexpeacearmy.com. So what they do is they build a website and post some stats and tell you how profitable they are. Don’t fall over their traps. I heard one trader said that the forex signals he got were losing trades, but the website either changed the entry prices afterwards to make it a winning trade, or simply don’t post them on web. I am not surprised if such things happen. It is totally not transparent. And some websites promise they win over 200 pips per month. Please, what is max drawdown? And honestly speaking 200 pips/month is defintely not a good performance for an experienced forex trader. You are overpaying them. You can make 200 pips per week yourself if you know how to do news trading. Enough said about the scams, let’s look at something better.

1. Zulutrade.com

It is a website that people can sign up as forex signal providers freely and send signals to the subscribers. The transactions are transparent, and they give a lot of stats like maximum drawdown, win ratio etc. And it is completely free. It is your broker who pays for the service. And of course your broker gets money from you in the beginning from spread and commissions. So if you are looking for a signal provider, I suggest you check this website and demo the signals that are suitable for you. However, there are some numerical traps you should be aware of:

More winning pips do not mean it is profitable. What Zulutrade did is to multiply the pips by the position size. So for example, the provider finished a winning trade with 2 pips, but he traded 10 lots, so his winning pips was 20pips. But this is not a fair calculation. Because suppose some provider won 15 pips on 1 lot, then his winning pips was only 15 pips. The latter is definitely more profitable. So you really need to see the transaction history and check out the position size the signal provider is using. I see many followers for signals that trade big, but actully not so profitable. So be careful with this.

-“Many followers” do not really mean exactly the same number of people are running them live. Most of them are just testing them. Find the real number of people running them live on the “live followers” tab beside the graph.

-Maximum Drawdown of course is important. But big drawdown does not mean it is bad. For example swing trades usually have big drawdowns, but they can sometimes be more profitable than scalping. Scalping have smaller drawdown, but there is always a delay between you and the provider, the signal goes through a long process to you, even if is less than half a second, the price changes quickly. You will get a losing trade even if the signal provider gets a winning one. Again, demo it first!!

-Diversification: Some traders like to diversify and try to follow 3-5 signals at the same time. But the problem is his account is too small. So he limit the number of trade signals from each provider. However, this may seem a good strategy for scalping followers, because many scalpers like to open 10 positions on the same trade and close them at different times. But for swing trades, this is a bad idea. Swing traders keep losing trades because they know price will reverse. In the meantime they will open other trades that may be profitable. But if you limit the number of signals from the swing trader, you will not receive a winning signal afterwards, and instead end up with a losing trade. This is also why sometimes there is a huge difference between the performances of signal providers and the followers. Don’t be greedy, 3 is the max for a small account under 10,000 dollars.

 

Manual Trading or Automated Trading? Some signal providers are real traders who do manual trading and send signals to you, some are people who possess a trading program like an EA. Both could be profitable or unprofitable. So I suggest you choose one for each type.

Important: Get a broker that allows two-way hedging!! Now many US brokers under NFA regulations do not allow sell and buy the same pair at the same time anymore. So if you receive contradictory signals from two providers, one will cancel out the other.

-One last advice about Zulutrade: check out where the money flows, if a system has a lot of followers, there’s gotta be a reason for that.

2. Tradency Trading systems such as FXCM FSS and FXDD Auto-trade

You should check out their websites if you don’t know what they are. There are many brokers offer scuh service. You can check it out at here. Basically what they do is the same as zulutrade. But they don’t have as many signal providers. In the meantime, of course, it means that their signals have been filtered before they go live, so they should have better overall quality. This is one thing that it is better than Zulutrade.

 

A little Advertisement from me: My trading signals and the rebate program:)

I just started using both services and sending swing and news trading signals to both Zulutrade and Tradency. But they will not go live until mid Jan and Feb. So if you using one of these systems, you can check out my signals later in mid-January, and search for “swing pirate” on zulutrade.

Another piece of good news for those who don’t have Zulutrade accounts yet. If you are interested, you can sign up through my affiliate link. Zulutrade offers all affiliates 0.4 pips per trade for referral fee. I am willing to give you half of that money to you each month if you sign up through my website.

Finally it is my own blog http://sites.google.com/site/fxfountain, I updated daily strategy and real-time comments everday for free. I just started it, but it will gradually get better and better and feature more resources. Just come and check it out. You will also find into about the rebate program and my signal strategy update.

Back to the second automated trading system: Expert Advisors on MT4

Many people are using MT4, so for now EA (Expert Advisors) are the most popular programs sold on the internet. And for some people with big account, they sometimes get free API attached to their account. But since MT4 is more popular, let’s just focus on EA.

1. Where to buy an EA?

You can buy an EA from a lot of commercial websites. One of them that I know of is BJF Trading Group. They have a lot of EAs to choose from with different trading strategies. I only bought one EA from them, so I cannot make a generalization. But as far as my purchase is concerned, they have a pretty good service. They reply email fast and adjust the EA according your needs. And they occasionally offer discounts to buyers during holidays like now. And if you subscribe to their service, you will probably get additional discount. As to the EURGBP Scalping EA itself that I bought, it was OK last year. But time changes, and it is not profitable anymore.WHY? Last year, people thought EUR and GBP are similar, so the volality in this pair is not that high; but this year, the fundamental picture totally changed. So never think you do not need to do anything even if you bought a profitable EA. You could lose money next month.

I know there are some other websites that are selling EAs, but mostly they are individual programmer who claim they found a “gold rule blah blah” and post some statistics and testimonials. I never tried them,because some websites just looks like a downright scam. Just look for reviews from forexpeacearmy.com.

2. OK, I am seeing a lot of EAs.

Which one is for me? Never think that an expensive EA is a good one, but cheap EAs are usually bad ones. Most EAs are sold for hundreds of dollars. So I suggest you to buy an EA from a website that offers free adjustment after the purchse. Some websites are just selling them, they don’t offer technical support. This is important, because time changes, and the settings actually should be constantly adjusted, especially in such a volatile market.

The next is to consider what trading strategy you prefer. Some like swing trades, some like scalping. If you want to scalp 4-5 pips for each trade on an MT4 account, I suggest you forget it. Most brokers will do shady stuff to prevent you from making money. Either they increase the spreads, or delay your transaction until it becomes a losing trade. It happens a lot with MT4. What you see is not what you get.

The biggest question now is how much risk you can take and how much money you have. If you have a small account (below 2000 dollars), choosing a heavily trading system will blow up your account within a week. If you don’t like drawdown, you should choose systems that have small SL levels. And also think about diversification, whether that system trades on different pairs. Buy a portfolio of EAs if you have enough money and big account.

My advice for people who are looking to buy from BJF: better buy the EAs that are running live on the website owner’s own account. They offer account monitoring on both demo and live. But if the owner went live on a particular EA, it is more likely that this EA is more profitable.

Another important issue is whether this EA is too popular. If it is too popular and widespread, many others will send orders at the same time as you. If you happen to have slow internet speed and you are physically located farther from your broker’s server, you will get a worse entry. What happened with the EURGBP scalping EA is that, people rushed in to buy on low and sell on high, eventually you end up buying high and selling low. But if you are trading in the Euro and US sessions, such problems are minimized because the price action is mostly determined by the big banks and funds etc, not by the demand of the retail traders.

3. OK, I bought an EA, what now? Backtest on your demo of course. But bear in mind that the results are highly hypothetical. Sometimes your broker will intevene and keep you from making money. So backtest is not completely reliable. My suggestion is to run it on a demo account for at least a month. And then constantly monitor if it is profitble and if possible analyse why you got a losing trade. Did it happen often before? What fundamental picture changed? Was the price action weird? (Yah, some brokers manipulate prices to get your SL). Write to the seller immediately if you have questions. Try to find a forum where other people also bought the system, and discuss.

OK, I guess have concluded all you need to know if you are up for an automated trading system. Choosing a good system is no easier than trading yourself. In the stock market, it is more regulated, so you can buy some funds to trade for you. But the forex market is so underregulated that there are just simply too many scams. Be careful!

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