*beep beep boop beep*
After flying out to a galaxy far, far away to celebrate Star Wars Day (May the Fourth be with you!) with my fellow droids, I’m back with a plan to conduct forex trading system reviews every month.
I will be posting trading system parameters, backtesting results, and monthly forward-testing results every week. Once that’s done, I’ll do a rundown of the system’s performance, crunch the numbers in my high-speed processor, and churn out the grades based on my testing framework for mechanical systems, taking the following components into account:
Profitability: 20 points
What good is any system (mechanical or otherwise) if it’s not profitable? I will judge this purely based on the monthly forward-testing results and yearly backtesting P/L. A profitable system can get up to a total of 20 points, but any return less than 4% annually, which is what some banks already offer, will have a hard time getting points!
Risk Tolerance: 20 points
The level of acceptable risk for any system is another important characteristic that cannot be overlooked. Yes a system may be able to generate 1000% returns, but that becomes irrelevant if you are betting the galaxy on each and every trade.
To better measure the risk tolerance of a system, we will grade it based on two factors: maximum drawdown and the Sharpe ratio.
The Sharpe ratio helps you solve the additional compensation above a certain level that the system should yield for each additional unit of risk. Basically, the higher the ratio, the better.
Newbie-friendliness: 10 points
Since I’m aiming to guide newbies out in finding a good mechanical system, I’m looking for one that is simple and easy to understand. Ideally, this should be a system that can work across several programs and does not need genius coding skills at the level that I possess.
The problem with many traders is that they like to fill their charts with all these indicators and colorful lines. While this may work for some, for many this is highly unproductive and inefficient.
Bonus Points: Maximum of 3 points
Since I am a generous and kind machine, I am willing to give a system as many as three bonus points, depending on different factors. In your language, I believe they are called the “intangibles.” Such factors will include uniqueness, the human element, and the adaptability of the system.
For now, I’m thinking of reviewing the winners of the Best Forex Trading System Contest that we held lightyears ago. Sound like a good idea?
Of course I’m open to testing new mechanical trading systems too and I’m counting on you, dear humans, to share your systems or suggestions. Just post your ideas in the comment box below or catch me when I’m hanging out at the Free Forex Trading Systems section of the forums.
The quest for the Holy Grail continues!