Even when I put race horse “blinders” on my trading robot and automated trading removes emotions and greed, it still seems it will never remove our concerns completely.
If you have been following my Daily-F trading signals on vavatrade.com then you’ve probably noticed that it did not make any profit for the last 3 months in a row. It must be the main reason why I get questions from my customers and they ask for my take why this happening and what my outlook is for the future. For some, it looks like Daily-F is going through a rough time now.
I would like to take advantage of my blog and answer these kinds of questions through a blog post. I hope to educate and explain what my thoughts are, and what am I going to do about it.
We can call it a “rough time” or even just a regular drawdown. Everyone thinks of these “periods” in their own way. Personally, I do not worry much as there have been even worse times in the past. I have had months losing -1000 pips and did not change any of the rules or the way my trading robot operates. The losses are a part of trading and it will always be this way.
When pips are accumulating in our accounts we never ask “I wonder why we are making profit?” or “I think this and that economic news release pushed the last 3 weeks trades into profit”. But when pips are down, we always tend to put pressure on the potential reasons and try to find thousands of reasons why it might have happened. Funny how things are, aren’t they. But a very reasonable way to think about it if you are not used to the ups and downs of trading.
From my personal point of view I always leave all decisions to my trading robot which adapts to new market conditions, and that may be one of those periods right now. You know how you drive a car going south and then suddenly you turn around and head north… and if it’s done immediately, all the stuff gets scattered all around the place in your car? Well, it could be that market conditions are changing and a few false breakouts occurred which ended up as losses. It’s like the things in your car that were shuffled around when you changed direction quickly—if the market is turning and changing direction then things can ‘land on their heads’ for some time as the market sorts itself out.
Some will say it’s because the situation with Russia and Ukraine, others will blame Gold or Oil prices or whatever they are following in newspapers, while others will just find other economical news events, etc, to blame. Everyone will find a reason (possibly dozens of them) why this and that might have happened. But that is just a guessing game. Actually, that is the right time to follow one of the most important rules of currency trading: Do not deviate from your plan and stay focused and disciplined to follow you trading rules which were profitable for quite a long time.
Automated trading was created to remove emotions and greed, which seems to lead to the stress-free trading. I never interfere with my trading robot when it’s doing the job it was programmed to do. However, it is not always the case if you keep worrying about whether it will be profitable next week and next month or even next year. Doesn’t this sound like if you were asking yourself if you will be happy tomorrow or the next week? Isn’t this the same as to be concerned if you will be in perfect health next month and get flu or some other seasonal infection? I bet you agree with me that no one can tell how it will be for us in the future—there is no crystal ball that can tell the future after all.
The way I explain these kinds of situations may sound funny to some of you. The Forex market is trying to scare you away, to get you to stop trading for a while or to change trading rules, or to reverse your trading logic as the last few positions ended in loss. But you know what happens after that? I bet you all know, if you have been trading for a long time, that once you change the rules the market “switches” back to the way it was before. So at this point your original trading rules would be working well again, but wait… you have already changed them and now you are losing again. I have been in such situations hundreds of times before I have created Daily-F and automated it to work without human intervention. From such experience, the rule says, “Always stick to your trading plan no matter what“, and it has held true so far in all my experience.
“Be like a postage stamp. Stick to one thing until you get there.”
― Josh Billings
If you watch this video by Nick Radge where he shows what one of the best currency traders in the world’s trading record looks like, you will see that he had a year or two which ended up in a loss. But he still did not quit and stuck to his plan. He was managing millions of dollars at that time. Would you be willing to stay doing what you were doing you showed a loss for an entire 12 month period? We do not know the details of this story, if the trading rules were changed or not, but this shows us that 3 months of small losses in a row does not necessarily mean that the trading system has stopped working. We could state that the strategy is not working as well as it was before, but we cannot state that it has stopped working altogether. Remember, trading has its natural ebbs and flows.
Of course, all this could end up that I am wrong and Daily-F will just lose and stop working, but to be honest, I will need more than 3 losing months to admit that it does not work anymore. Or maybe it will “get up on its feet” again and will make profit to recover this loss and make more profit than—just like it did every time for the last 3 years. I am just a human and cannot see the future. Only time will tell. Then those whose guesses will prove to be right will stand up tall and say “I told you so” whether the system will turn out to be a loser or a winner.
The Reactions Are Always The Same
Every time when my system goes into drawdown people start to worry… and that is completely normal reaction, I get it. We all get emotional when we see a time of failure coming our way. Maybe at this stage those who worry about the drawdowns, no matter how big or small they are (everyone have its own limit and “risk appetite”), should consider if they are comfortable of following such trading system. I am not saying you should quit using my services, but I am just being honest with you. Some people left my services after experiencing 8% drawdown while others are okay and patient even during times when the drawdown is around 20%.
It is your money that you have invested and you are responsible for it. Yes, I manage the funds, though its more accurate to say that my trading robot manages your money. But it’s you who invested that money and you who are ultimately responsible for it. I do not want to sound like I am rejecting you as a customer, and do not want to look like an arrogant or irresponsible signal provider who cares only about making profit from monthly fees. It is my responsibility to do my best and let my trading robot work as I think it should work, and not jump from one strategy to another—as many of my customers suggest I do.
Do you quit when the going gets tough or do you see your trading strategy through the bad spots?
“You are responsible for your life, and your ultimate success depends on the choices you make.”
― Denis Waitley
I have no interest in convincing anyone to follow my trading system and pay me money if they do not trusting it. I am interested to make money for my customers and this means I need to be strong and keep my original course. You know how race horses wear these squared “blinders” to keep them from being distracted or spooked? Well, I need to make sure my trading robot has those too. That is my job.
When a trading system or robot finally ends up in profit and recovers from the drawdown, people usually do not make a big deal about it. “Oh, I knew it would recover, it always does” they say, or sometimes “I told you to stop worrying, everything is fine, see?“.
Now, conversely, if a trading system or robot fails by hitting a security level or even worse, gets a margin call, you would hear the very same people saying “I knew this would happen, it was just a matter of time” or “What else did you expected?”
To me, all those and similar comments sound like they could be from any area of our lives, not just currency trading. You know that funny situation when you go to take a shower suddenly someone is knocking on your door? We usually say “Every time I go to shower someone will knock on my door”. Is it true that every time this happens? Did you track this? Where is your Excel sheet with the data of the last 6 months? I hope you get my point.
“If you doubt the man – do not give him a job, and if you have given – trust him.”
― Chinese proverb
So after all, I always trust my trading robot. Even if I have a small feeling of worry inside and I see few months in loss, I believe it will recover. And if it won’t I will always know that I have stayed strong and stuck to the original rules which worked for years. Everything always can use an improvement, I admit that, but what I am confident in is that my robot is built to adapt to new market conditions. I have few other variations of my trading robot and run it continuously on other accounts to see what other settings or currency pairs could be used, but every change, even the smallest one, requires to be tested live for at least 3-6 months. And even this does not guarantee that the next 6 months of trading rule will be profitable.
Jumping from one set of currency trading rules to another is like having a few girlfriends at the same time. Eventually you will confuse their names and lose them all.
― Rimantas Petrauskas
People often like to question different pairs as if they are worth to be traded or not. My best man and best friend recently said that he thinks JPY pairs should be removed from the system, especially EURJPY and GBPJPY. They usually have huge stop losses and it seems those are hit more frequently than others. Well that seems to be true, but wrong at the same time. Let me explain.
If we look at the picture above we will see all 8 pairs trading record from Daily-F master account. This holds almost 3 years of data and shows total of 11,569 pips profit. That is about 3,856 pips profit a year on average, or 321 pips a month.
Now if we take EURJPY and GBPJPY pairs only we see that those two alone have accumulated profit of 3,420 pips in almost 3 years. Now if those 2 pairs were not used in my strategy you see how many pips would not even be gained?
If you look at the picture below which shows GBPJPY directional analysis you can see how it was struggling to make any profit for about 1.5 years. It was tossing around the breakeven point for many months until something has changed and in 2013 GBPJPY made so many pips that it became the 4th best pair on the Daily-F list.
Luckily, I did not removed this pair from the list after 6 months of testing, when it was looking like just a complete waste of pips and time.
So in the end, what makes Daily-F profitable is that it has 8 pairs and diversify profit/loss between them. When a few pairs do not work so well, the other pairs may cover those loses and even make more than that.
I know it is not enough just to speak my mind about what I think and what is my outlook for the future, as that is just talk. These are just my beliefs, like probably Growthbot EA team believed in their trading robot too. Now this EA has lost almost all the profit it made in more than 2 years. People question me if what is happening with Daily-F now is a sign that it will end up like many other EA’s in the industry and lose the money it has made so far.
The answer to this is that I do not know, and it is obvious that no one knows. We can predict that this will end up in a loss or it will end up in profit like it did several times before. Those who vote for the “end up in loss” will shout out loud that they were right if the EA ends up there, but they will also fade away silently if the EA manages to recover again. I prefer not to predict anything and do not guess how it will end up. I will just trust my EA and respect its choices, like I did for the last 3 years. It is not uncommon for Daily-F EA to be stuck and struggling for several months, coming back to point it was before, until eventually its profit curve shoots up. Just look at the picture below.
You can see a number of “channels of struggle” and obviously the best time to invest into Daily-F for newcomers were all those times when the equity curve is at the very bottom of those “channels”. Of course no one knows where those were exactly until we have this history chart. At that time people kept questioning my system and asking me if it is going to fail now or what?
With all the things that we see right now I hope you understand well that anything can happen. No one, including me, can give you any guarantees about where this will go and how much profit, if any, Daily-F will make in the future. Again, this is the nature of all trading activities.
So we have four possible scenarios, and believe me, you can adapt this to any trading strategy anytime.
1) You quit now, my EA recovers and keeps making profit. You will be angry that you did not stay to recover losses. You probably won’t say this to anyone and will promise yourself to not do this in the future.
2) You quit now and my EA will lose more money, hit stop out level (for those who have one) or even gets a margin call. You are happy you made a good decision and will tell your friends about this victory.
3) You stay to follow my EA signals, it recovers and keeps making profits. You forget that these 3 months even existed until the next “tough period”.
4) You stay to follow my EA signals, it loses more money, hits your stop out level (if you have one) or even gets a margin call. You are sad and angry you did not quit earlier. You lose trust in Forex and tell yourself you will never invest in any trading signals service no matter how good it looks.
Sorry if those sound offensive, but those four options are the ugly truth and one of these scenarios will happen.
I remember that day I invested my first $5000 USD into my live MT4 account to follow my own trading signals. I took the risk and knew that one of those 4 scenarios would happen. I waited patiently, and finally, when I doubled my real money Forex account, I finally believed that it is truly possible to make money trading currencies. Although I made less profit last year than I did previously, I do believe in my trading strategy and will stick with it.
To answer your question about if I will improve my strategy, I can say that I am always testing a few variations of it on other accounts. Some tests are already running for almost a year now, but still it is too early to incorporate any new significant changes. I have made an extra 2,200 pips with GBPAUD and EURNZD pairs in the last 12 months on another account and found another 14 pairs to be not working well or even losing all the time with Daily-F, but I am not comfortable yet to add those 2 pairs into main master account. Still no one knows if this year those will be profitable, or maybe if they will continue to do well and cover some losses of other pairs.
One of the biggest concerns about my system is it’s huge stop loss of 400 pips comparing to a fixed profit level of 100 pips. Although this big stop loss is not used that often, it is still a possibility that should be taken into consideration when calculating maximum possible drawdown. This makes these numbers ugly and scary for sure.
I am analyzing years of data to see if I can lower the stop loss. If that can happen, and will prove to be good, there should be less pips lost. However, this takes lots of time and testing.
In Forex things go slow, even when you see prices fall down at the speed of light.
– Rimantas Petrauskas
Hope you find this information useful. Please post your comments below.