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Wednesday, January 4, 2017

Automated Forex Strategies - 2016 Results

Just like I did last year, and the year before in this article I'll detail the results of several Automated Forex strategies that have been discussed on this site in the past. The results in both 2014 and 2015 were pretty good. These are 100% automated strategies where the only effort the trader needs to make is ensure his trading platform is open and the robots are on. That's the easy part. The hardest part: to not get involved at all and let the algorithms do its thing.

The results in 2016 were not that good. However, the one system I use with my money, the LT Trend Sniper was not bad and easily beat Barclay's Currency Traders Index, which posted a +1.50% among audited Forex Trading firms in 2016. The other systems discussed in this article are either free, or systems I don't use in my own trading with real money.

So here we are once again, focusing on robust Forex trading strategies with long profitable track records and great likelihood of being profitable in the future. I say great likelihood due to the fact that they exploit a very simple principle of the markets: trends exist. These are systems with simple rules, few degrees of freedom and strong and wide sets of profitable parameters, which suggest low degrees of curve-fitting.

Once again I purchased high quality data from several brokers via to run all these tests on the MetaTrader4 platform. Bid-Ask spread used of 2 pips in the simulations for currencies and 0.4 points in the case of Gold. These are normal spreads, nothing out of this world nowadays. The time zone in the quotes was adjusted to GMT+2 so that the trading weeks only have 5 daily candles (Monday through Friday), all of them full 24 hour candles, instead of the shortened Sunday night and shortened Friday.

Testing on the EURUSD. Otherwise this would be an endless article if I were to show the results for all the currencies. The Euro didn't trend very well this year, for this reason my trend followers couldn't really excel. Other currencies like the Sterling Pound (GBPUSD) did move nicely in one direction. I could write this article basing all my tests on the Pound and look awesome, but that wouldn't be fair as the Euro has been the focus in previous years. So, as usual, the Euro it is.

By clicking on the name of a strategy, you can visit the original article where it was first discussed

EURUSD Donchian breakout strategy with time based exit
This strategy enters on a 70 day Donchian Channel breakout, sets a Stop Loss 2 ATRs away and a Profit Target 3.2 ATRs away. If neither Stop Loss nor Profit Target is achieved in 6 days, the system will simply automatically exit the position as it assumes the initial momentum after the break out may be fading. 3% capital allocation per trade on this test.

(Click on images to enlarge)
-15.65% in 2016. (+38% return in 2015, +16.79% return in 2014). Pretty aggressive system. Not every single year is going to be a winner.

50 Day Breakout system with 50 SMA - 100 SMA crossover confirmation
A strategy kindly shared by reader Pavel Kařízek, who trades this mechanical system on several currencies and futures. For simplicity, again we just show the results on the EURUSD in 2016 or else this article would be infinite.

Because the strategy is applied on so many instruments at the same time, Pavel trades each one with very low risk settings. Let's see how it did for the Euro in 2016, max risk per trade of only 1%.

(Click on images to enlarge)
Pretty much a flat year (+1.79% in 2015 (Euro only), +3.86% in 2014). Very small draw-down as usual. Small returns but take into account the insignificant draw-down and also the fact that this strategy is traded in a portfolio with many other instruments, including not only currencies, but also futures, metals and grains.

The Turtles Trading System (Method 2)
The legendary Turtles Trading system doesn't need an introduction. Killed it in 2014 and 2015.

For those who wonder, I got to finish the prototype for Method 1 of the Turtles, much harder to program. The results of Method 1, when applied to currencies leave a lot to be desired in respect with Method 2. It is profitable as well, just not as attractive, and highly correlated (draw-downs of method 1 tend to coincide with those of method 2, and this is why the Turtles used "either or"). I don't think the Method 1 Robot is even worth publishing.

So, how was 2016 for the Turtles Trading system (method 2) applied to the EURUSD currency pair?
Not very nice:

(Click on images to enlarge)
-17.92% in 2016. This is the most aggressive of all the systems, so a negative year shouldn't be a surprise after a +22.80% result in 2015 and a really good +35.60% in 2014. With 5 winners in 26 trades it is hard to come out profitable. This is the quintessential trend follower and this result simply tells us that the EURUSD pair was rather choppy this year in the 1.07 - 1.15 range for 11 months.

The Turtles Trading System is not the Holy Grail. It is in fact extremely hard to trade and very few individuals would be able to mentally handle it. During years of good trends it will kill it, but in other years it can and will have extended draw-downs in both depth and duration.

LT Trend Sniper
My little boy. From yours truly, the LT Trend Sniper system: my premium strategy designed for following 2 - 3 month long trends in instruments such as the Euro (EURUSD), the Sterling pound (GBPUSD), the Australian dollar (AUDUSD) and Gold.

Here's the Sniper with the EURUSD in 2016.

(Click on images to enlarge) 
+1.05%. Again, not a good year for trend following in the EURO. Previous years results: +8.20% in 2015. +16.79% in 2014. This is using the moderate risk setting (the one in my account). The aggressive result is basically +1.75%, +13.67% and 27.98% respectively.

Many people have asked me whether I prefer the Sniper or the Turtles system and my answer is: The Sniper. My opinion is based on the Average Annual Return to Max-Draw-down ratio. The Sniper has historically obtained better returns for the draw-downs that it experiences. We could increase the position size, to match the historical returns of the Turtles and it would experience way smaller draw-downs at those risk levels. 

As for the other instruments (moderate risk):
Gold +5.18%
Australian Dollar -3.81%
Sterling Pound +5.88%

I do not trade neither the Aussie nor the Pound, but only Gold and the Euro. The combination of Gold and Euro yielded a +6.23% return in 2016. This is the moderate risk level and it was obtained with minuscule draw-downs. The Gold + Euro portfolio has never had a negative year. As far back as my data goes (year 2000), it has had 17 consecutive years of positive returns. Average Annual Return is now +15.63% and the worst historical draw-down is still only 11.59%.

The return in my real money account was a little lower given position size rounding errors of a small account vs the exact position size at the granular level that can be obtained in this back-test with $100,000.

Combining all four symbols Euro + Aussie + Pound + Gold, the portfolio return was +8.3%

LT Impatient Sniper
Finally the cousin of the LT Trend Sniper:


Basically a flat year for the Impatient Sniper in both the Euro and Gold.


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