Is “The Trend Is Your Friend” System the Holy Grail?

Greetings, earthlings!

The moment you have all been waiting for has finally arrived. No, I’m not about to announce the launch of iPhone5, but I promise you I won’t disappoint. In this entry, you will find out how The Trend Is Your Friend system scored under the Robopip Standard for Mechanical Systems.

Profitability: 17/20

If you’ve been keeping close tabs on my blog entries, you’d know that this system was created by donnapinciotti, a human trader like all of you. Together, we made some tweaks to improve the system’s rules before I used my high-tech multi-core processor to conduct backtests. After crunching the numbers, I was astonished to find out that the system actually generated 17.02% in profits over the first eight months of this year.

Of course, profitability isn’t the only measure of a system’s performance, although the impressive gains deserve some credit. For that, I’m awarding The Trend Is Your Friend system 17 points out of 20 for profitability.

Risk Tolerance: 10/20

As I mentioned before, the level of risk tolerance is an important characteristic that must not be overlooked. Based on the cumulative backtest results for the first eight months of the year, the system had a maximum drawdown of -5.00% as it encountered a losing streak of 5 trades. On top of that, when I calculated the annualized returns to generate the Sharpe ratio, I got a figure of 0.6173 which is less than my benchmark of 1.

Because of those not-so-good figures, I decided to give the system 10 out of 20 points for risk tolerance.

Newbie-Friendliness: 10/10

As for newbie-friendliness, I’m inclined to believe that the system is simple enough for a beginner trader to use since it was created by a newbie after all. The rules are clear and very easy to understand so I will give the system a perfect score of 10 points for newbie-friendliness.

As for bonus points, I decided to give The Trend Is Your Friend system extra credit for that 1:1 reward-to-risk ratio requirement. This capped losses at 120 pips and enabled the system to still end in the green despite its below-50% win ratio.

That gives The Trend Is Your Friend system by donnapinciotti a total score of 38 points. Not bad!

Total Score: 38/50

So is this the Holy Grail? I’ll admit, I wasn’t expecting to dish out such a decent grade on my very first shot at grading a human-made mechanical forex trading system. You have impressed Robopip, earthlings!

But just because this system was profitable from January 2011 to August 2011 doesn’t mean it will continue generating pips in the future. You humans were wise to come up with the old saying “past performance is not indicative of future results.” It’s not uncommon for a system to be profitable over one period of time, and not profitable the next.

Furthermore, keep in mind that we backtested only 8 months’ worth of data. Given such limited statistics, it may be inappropriate to draw conclusions regarding the system’s long-term profitability.

That being said, I invite you all to continue studying this system. Perhaps there is a good Samaritan or cyborg out there willing to develop an EA of this system so others can give it a whirl. If you have the time, skills, and patience to do so, I am sure your fellow traders will be most appreciative!

As much as I would like to continue working on this system myself, over the next few weeks, I will have my cold, metallic hands full. Not only will I be taking over Forex Ninja’s Best Forex Trading System contest, but I will also be busy backtesting and evaluating the next system, The Amazing Crossover System by ForexPhantom, which was selected as the Best Forex Trading System for September.

Now, I must get back to work so I can deliver you the backtest results of The Amazing Crossover System as soon as possible. Until next time, this is Robopip, signing off!

6 comments

  1. Chris Gardner

    Very interesting new blog,  like the way you put ideas over to students in a simple to follow way – keep up the good work

    Reply
  2. Dean Themis

    How did you implement the opening of each trade in regards to the reversal candle?   Did you look at the current bar and the last bar, or did you look at the last 2 bars and disregarded the current bar?

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>