Volatile Market Conditions could be bad for Automated Forex Traders

Slippage is the bane of any trader’s existence. According to Investopedia, Slippage often occurs during periods of high volatility; resulting in a difference between the expected price of a trade, and the price the trade actually executes at.

The Leo EA uses an averaging method of placing positions at increasing weight, so that the buy line moving average will drop & all positions can close for a profit if the market turns up just slightly (and vice versa for short positions).

The robot automatically closes all positions when they average out to a 35pips profit, and doesn’t pose much of a problem if the total lots I’m holding is less than 1 lot, and each position is small (less than 0.1 lot).

But when my total lot size goes over 1 lot, the new positions placed are exponentially larger. Any small fluctuation in prices when the EA reaches take profit level of 35pips (as you can see below), could end up in a 100-500pips loss.

On the 11th & 12th of Feb 2013, 3 of my 5 accounts faced the problem of closing at losses due to volatile market conditions, losing between 2.8% to 4% within 1 day! I was very concerned and after speaking to Edward, found out that many other clients had the same problem, even on other brokers.

Then just 10 days later on the 21st of Feb 2013, 4 accounts dropped 1.5% to 2.3%, while the last 1 account made 3% due to the volatile market conditions during basket closing of positions (see below).

This is very unfortunate & I am concerned about the increasing frequency of volatile marketing conditions leading to loss, especially with this method of Auto trading.

Although it does not happen often, I am losing my confidence in the ability of the EA to generate consistent profits, for the sole reason that slippages like this can cause an extremely unfavourable and unpredictable loss anywhere from 1% up to 5% of my investment (or even more who knows!).

Just off the top of my mind, could there be a way to overcome this by increasing the current take profit from 35 pips? I would imagine this will in turn increase the risk factor, which would then have to be counter balanced by something else… such as trading on a higher time frame like M15 or M30 instead of the current M5 chart?

Feel free to leave your comments and thoughts on this!

How Conservative are you in Forex Trading?

As much as I regret not being well-prepared enough to handle the crisis on 4th Jan, it is all in the past and we must all learn to pick ourselves up from the ground, and move on!

This incident also affected many of Edward’s clients, and most people had their accounts completely wiped out. Over the last few weeks, Edward has revised his recommended settings for the robot, including reducing the starting lot size from 0.10 to 0.05 for $10k accounts, and increasing the CCI period from 60 to 120. This in turn reduces our risk and monthly profit to about 5% instead of the 10% we were previously looking at.

On top of that, he also conducted compulsory basic technical training for all existing and new customers, giving us some basic technical knowledge to operate the robot as well as teaching us some crisis management skills.

I decided to pump in another round of funding to reduce the time needed to make back my loss from 4th Jan. Granted, this is still highly risky stuff, and I have one advice for those of you thinking of buying an automated forex trading robot; make sure you’re only using money you can afford to lose! 

In fact, you can check out some of my trades here:

http://www.mt4i.com/users/leo0003

http://www.mt4i.com/users/leo0004

http://www.mt4i.com/users/leo0008

Feel free to leave your comments and let me know what you think about automated forex trading! Do you think the risk is worth it? What makes a robot better than another?

Result of Greed in Currency Trading

Everything looked so far so good and the bot made about 10% over the first 5 weeks, and I even managed to withdraw the profits into my bank account here in Singapore within 2 days.

Towards the end of December 2012, talks on the Fiscal Cliff were ongoing and made the market much more volatile than usual, but I thought nothing of it. At this point, I started to become complacent and began to monitor my accounts less frequently. I imagined that the robot was a bulletproof product able to withstand any kind of market change, and continue to generate passive income for me indefinitely.

I mean, the bot was said to be able to withstand a drop of 300pips with my settings, and I bet I would be able to do something if I saw aggressive movement in the market. But I was oh so wrong.

On the 4th of January, I received a call from my Aunt saying to reduce the starting lot size (a parameter of the bot) of the bot, because the market was on a downslide and the robot was placing Buy positions at an increasing rate & weight. It does this so that the buy line moving average will drop & all positions can close for a profit if the market turns up just slightly.

So I quickly logged into the VPS hosting my trading accounts, and saw that each of my $10,000 account had a floating P/L of about -$4000, and the positions placed by the bot were of exponentially increasing lot sizes. I had prepared myself for this day, when I would have to intervene with the robot’s decisions and to stop my accounts from going bust! Well guess what, I was dumbfounded. I had no idea what to do! All I knew how to do was to login to my VPS, and to tweak the starting lot size, and to close positions. I had no idea what most of the buttons in my MT4 platform was used for.

I did what I could and reduced my starting lot size from 0.10 to 0.02, but it was too late. By the end of the day, GBP/USD slid 3 points from 1.63 to 1.60, and 3 of my 4 accounts were wiped to about $1000 left (I got lucky because I turned off 1 of the accounts a few days prior and all my funds in there are still intact).

I knew I was risking all the money I deposited, but then again, I thought I could have easily managed any situation that comes up. Barely 2 months into this, and I got myself into a $23,000 hole! What was I thinking?? I was so engulfed with the idea of “free” money and passive income and rushed into this investment without even learning how to operate the robot properly. I realised I had no idea how to manage a crisis if one were to ever appear!

I felt really stupid and to say the least, it must have been one of the most depressing days of my life.

Introduction to Automated Forex Trading Software

I’m no expert in Forex trading but I’ll tell you this: Forex trading is risky business!

I first ventured into the unfamiliar scene of Currency trading when my Aunt introduced me to Edward Khoo, the owner of an Automated Forex trading Robot & founder of LS Capital Pte Ltd, here in Singapore. As a young, naive and risk-loving undergraduate, I was naturally very much interested in the 10%/month returns the bot claimed to achieve.

So like any other tech-savvy 24 year old, I turned to my friends & Google to find out more about Forex trading and the cost-benefits of automated trading. As we discussed about it, one question always popped up in the conversation; if the robot really works, why bother selling it to individuals at $1,500 a piece when you could sell it to huge corporations for millions and millions of dollars? I mean, wouldn’t that be anyone’s first instinct?

To find out, I attended Edward’s marketing presentation three times to get a better understanding of how the robot operated, and this is his answer to the above question:

Why should I sell my product to a bank or any other financial corporation? They already have more money than they need. I want to make people like you and me happy. People who need money to send their kids to school, to pay for their medical bills, and for people who want to retire and be able to earn a passive income.

So… you do this so that everyone can make money together and be happy, and you find joy in helping others to build their fortunes and making them happy? Sounds like a typical answer to the question, but his sincerity was real and I could feel it.

I know there are countless other forex robots out there that claim to be able to do the same thing, so just to make sure, I asked around about the functionality of the robot and got a thumbs up from a source who had experience with trading Forex.

First of all, the robot only trades GBP/USD which is a generally stable pair and relatively politically stable, as compared to the likes of EUR & JPY. The robot also uses a moving average inspired by the Martingale (doubling) system. It also only trades on platforms providing a leverage of 1:500 so that only a minimum sum of US$5,000 is required to start trading.

My eagerness got the better of me and I deposited US$40,000 into StarfishFX & started trading on the 20th of November 2012, even taking up a bank loan with 1% flat interest for 6 months to fund part of it.

I knew what I was getting into. I knew that I had the risk that if one day the market crashed, I could stand to lose all the money I deposited. But I thought that it wouldn’t happen to me, or that maybe I would see it coming and prevent it in time. Well, I was wrong.

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