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Beware The Lopsided EA

Discussion in 'Forex Trading Systems and Strategies' started by 5of7, Apr 8, 2009.

  1. 5of7

    5of7 Representative for TheCollectiveFX

    Apr 7, 2009
    Likes Received:
    We evaluate literally hundreds of strategies here. All day long, pouring over statistics, fortunately I love doing it. We develop all our own strategies, but recently we evaluated a commercial EA for some other purposes, and were a little shocked.

    I won't name names, it's not my place especially since I believe all EAs are good, and all EAs are bad, at the same time. (Read my other post for explanation)

    But there is something that is plain dangerous that you should look for and be aware of, that's the lopsided EA where the losers are much bigger than the winners. This kind of EA can lose A LOT of money and FAST. They will have a naturally high winrate 70%,80% even 90%. But when they go into a losing streak, they can hit your account hard.

    In technical speak, they are trading win/loss ratio for winrate. There's nothing inherently wrong with that, as long as you are aware and adjust your money management accordingly. These EA's should be given a small portion of your account since they can hit you hard when they go bad.

    Here's the really, really dangerous part, and would cause us to TRASH an EA. It's the intratrade drawdown. These are EAs that when you look at the historic trades you see losers, and average losers of let's say 20 pips.

    But when you watch it trade, you see that it can drawdown 40-60 pips before coming back and exiting at a -20. These are using no stops and instead are exiting on some indicator. If they drawdown deeply, significantly more than the average loser, it's plain dangerous. They can hang you in a loser, then expose you to a serious market move against you.

    These kinds of EAs need very close monitoring, cautious money management, and lots of caution.

    Good luck!

    Trader 5of7 @ TheCollectiveFX.com
  2. Pharaoh

    Pharaoh Colonel

    Oct 3, 2007
    Likes Received:
    Great advice! Another reason to avoid EAs with no SL is that there is always the possibility of losing the connection to your broker. I would hope that even the most well programmed EA would at least incorporate an emergency stoploss.

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