Not all forex robots the same. You need to find forex robot that suits your risk level and trading strategy. Therefore, to choose the right forex robot you need to ask yourself a few questions. These questions will explore the tangible and intangible factors of choosing the best forex robot .
What Are Tangible factors?
The first thing that we look at is the tangible or quantifiable factors. These factors are the one that we could see, read, and then decided on. For instance, if you a want to buy new TV, the quantitative factor is looking at the percentage of users buying the same TV from the same brand in comparison to another brand. Alternatively, you choose to buy some product on bulk but with a discount. The variable shows that buying more is cheaper in consideration of buying it individually. However, another variable that affect this decision is whether you need to buy it in bulk or not. There is no point in buying in bulks if you are not using it.
All through this report, we will draw attention to the quantifiable factors that should influence your decision in choosing the right EA. The measures and data that we are going to explore will focus on some of the crucial variables. These must be put under consideration if you want to have the best forex EA .
Quantifiable Factor Number 1. Reading Forex Trading Statistic
It is very vital to maintain one trading risk to manageable level. This is one of the important things when choosing a best trading robot. One way to look at this is by going through their quantitative stats. If you are beginner, learning how to read this statistic is necessary. Read some books on trading statistic and the usual jargons so you will not be confused.
However, if you have been trading for a while, you should learn how to discern those data to judge the best forex EA. In the following reports, we will show various examples, together with the statistical data that will feature how traders like you can choose an Forex Robot. Understand that it is imperative that you make the right decision. This is something that will determine whether you will make profit or loss on trading. Moreover, that margin of loss, if not maintained properly, can be something you cannot afford. Thus resulting in financial difficulties that makes many traders loses their fortune in a single trade.
Quantifiable Factor Number 2. Measuring Your Profitability.
The reason you trade online is to make profit. Nobody comes to the market and hope to lose money. However, when you have forex robot, you need to know a few things. At the end of the trading day, you should expect to have positive returns and not otherwise.
First, look at historical data. Bear in mind that although historical data is not a sign of future performance, it is still ridiculous to choose an best forex robot with a losing record. You would want an forex robot that could gives you profit instead of losses. Nevertheless, many trading robot shows good performance. In this case, you need to compare these forex robots and choose the best forex robot by measuring quantifiable data. One of the best methods in doing comparison is by looking at each forex ea profitability factor.
This simple but vital mathematical equation shows whether you can anticipate a positive or negative return on your capital. It also considers another vital risk factor, which we will explore in the following articles. The profitability factor is the ratio of how much you can profit for each dollar traded over how much you could lose on the same market. The mathematical equation is calculated as follows:
(profit - commission)/(max drawdown + commission)
Forex robot that show a value less than 1 signify an EA with a bad historical data; whereby the returns is much less than the losses and risk. In other words, this EA showed that it has a low possibility to provide you with a profitable trading. Try not to choose any forex robot with a profitability factor of less than one.
What is a drawdown of an forex robot?
This is one of the essential risk indicators when deciding on an forex robot. A percentage is calculated when the forex robot trading loses its peak to the trough or in other words, the percentage between the current high point to its next low point. This percentage is known as drawdown and it depict potential drops in value and the general volatility of the forex robot. The first drawdown is done by evaluating the equity curve of the forex EA. This evaluation is done by reviewing trading charts. Big uneven movements indicate a larger percentage of drawdown. This also shows that the EA is volatile.
You should choose a more stable forex robot. However, in many cases, both or more best forex EA shows stability in their movement. To choose between these better quality EA, you would have to dig deeper and compare them using additional factor.
There are three measurement of drawdown that you should be aware of, max drawdown, average drawdown, and drawdown recovery.
Max Drawdown: This is the best indicator in analyzing worst-case scenario. The max drawdown is vital in deciding whether the trader is able to bear the potential risk in regards to the particular forex robot. Based on the forex robot historical data, there would be a point the forex robot had hit a high percentage of drawdown. This is the max drawdown and possibly losses had occurred during this time. Now, you have to assume that this drawdown is likely to happen the moment you start trading using this particular forex robot. Ask yourself whether you are comfortable with the potential risk. If not then you need to consider other best forex EA with lower max drawdown.
Average drawdown: As the name implies, the average drawdown is the mid percentage of drawdown within the historical data of that particular forex robot. To calculate this drawdown, you need to know the total of drawdown and dividing it with how many times, the drawdown occurs. This results in the average drawdown.
It is quite troublesome to calculate, as you would be given a fair amount of data. Nevertheless, this particular analysis is vital in your decision-making. Therefore, if the average drawdown is not provided readily, using the forex robot, you will need to contact the forex robot vendor to get the data. If you find the vendor is reluctant to provide you with the data, reject the EA and any other forex robot produced by this particular vendor. This is one of the major warning sign of a poor forex robot. In later chapters, we will look deeper into other warning signs.
For the time being, let us focus on the data. Most vendors will be able to provide this data easily. With this information, not only you will be able to discern the average drawdown but you will also be able to see the forex robot average fluctuation over a certain length of time. Let say, you take the smallest drawdown and the highest drawdown that happen in the last three months. Using the data, you will get the average drawdown of those three months. Therefore, if there is no clear indication of large movement in the market, it is possible the average drawdown the coming month would be similar. Ask yourself again; are you able to bear with the risk involved? Is the risk too high or is it bearable?
Recovery Drawdown: This
drawdown show how long it takes, on average, for that particular forex robot to recover from the lowest point and return to a good positive level. The recovery period is essential in evaluating this forex robot. Now, we mentioned that volatile forex robot is an indication of something that all traders should avoid. However, those with stable historical data would also show a longer recovery period. However, you should not worry on this. Low recovery period also means that it is more stable and steady, require less maintenance, and risk management. Look for this factor on your forex robot if you are gunning for a steady consistent growth of capital.
In conclusion, on the drawdown analysis, it is good to have all the data for max drawdown, average drawdown, and drawdown recovery. However, it is better if you combine the three analyses in choosing your best forex robot. The combined analysis would show you the level of volatility, how long, in average, for the forex robot to recover from losses, and if the overall potential risk in using the forex robot is tolerable or too risky for you.
For the time being, we are still looking at the second tangible factor on choosing best forex robot; Measuring Your Profitability.
Understanding the drawdown is in other words, understanding the risk on using the forex robot. Apart from the drawdown analysis, we should look at another item that determines the profitability factor.
How accurate is the forex robot and what is their Win/Lose Ratio.
Now that you already screened out best forex EA that does not suits you, it is time to compare the remaining EA in your list. The comparison variable this time would be on performance accuracy and expectancy. When the forex place a trade, there is a possibility of win or loss. The performance accuracy dictates the percentage of winning trades vs. losing trades.
The first thing that you need to take notice is the scope of the accuracy. You must ensure that there is enough statistical data set to do a correct measurement. A reliable data should have more than 32 data points. In the case of good trading evaluation, get around 50-100 data set. It is vital to have good reliable measurement, as it will show better performance accuracy.
Secondly, look at the average win/loss ratio. For example, an forex robot has done 15 trades and 10 of these were profitable. This shows a good profitability of 66.6%. However, if you increase your data set to 45 by including the next 30 trades, you might get a different percentage. So let just say the forex robot, in the next 30 trades, manage to have 12 profitable trades.
What can you see?
Total accuracy of the forex robot is only to 22/45 or 48.8%. There is a drastic change just by adding more trading data in the accuracy measurement. Therefore, it is necessary to measure the complete performance with larger data. You do not really have to worry of the drastic changes. Having a larger data to calculate the accuracy will show you the accuracy in the end. So do not base the performance accuracy on short run data. The losing or winning streak might not portray the correct standing of the forex robot. It probably means that there was an unexpected event, causing the short run fluctuation.
Now, let us look at the performance expectancy. Whereas accuracy analysis relies on past data and past performance, expectancy is analyzing past data to obtain future performance.
You might be surprised that performance accuracy does not necessarily mean good profitability. By combining both accuracy and expectancy, you will be able to discern the actual performance of the forex robot .
What is the calculation for performance expectancy?
The calculation for expectancy is as follows. At the same time, refer to following schedule to see how mock EA is evaluated based on their expectancy rate.
(Accuracy x Average win) / ((1- Accuracy) x Average loss)
Example 2: The Performance Expectancy
Winning Trades Losing Trades Accuracy Average Win Average Loss Expectancy
EA 1 230 195 54.12% 3.1 2.9 1.26
EA 2 172 280 38.05% 4.4 2.4 1.13
EA 3 395 120 76.70% 1.5 5.3 0.93
Just like in Example 1. The Drawdown & Profitability Factor, the final sum. which in this case is ‘Expectancy’, shows that anything above 1 is good. In this sense, it reflects net positive return on the account over the measured period. In other words, expectancy can be considered as average amount gained per trade. The more trade data included in the analysis the greater the variance.
Although forex robot performance can be judge using the expectancy rate, you have to remember it only reflects the overall view per trade. It does not reflect the actual performance of each trade. For instance, a scalping EA will probably have low expectancy. In this case, let us consider an expectancy of 1.15. Even though the number is low number, it should generate a large amount of trades in a period. More trade usually creates a sizable gain.
Now, if you compare this to a significant forex robot with an expectancy of 5.75, which only generates a few trades during the same period, you would probably reject the scalping EA. In this case, you had probably missed a potentially best forex EA, if you ignore the nature of the EA and its total profit. Therefore, if have a need to compare, do not compare similar forex robots. The one that you screened out would probably better from the one that you are left with to do further comparison.
What do we have learn so far?
You started with understanding that you need to learn how to read trading statistic. With that, you moved to learning how to measure your profitability. There are two major percentages or rate that you need to look at; the drawdown percentage and the expectancy rate. You discern the results on max, average and the recovery drawdown of the EA. Then you moved on to learn how the EA accuracy and win/loss ratio. Using this data, you discern performance expectancy forex robot. By combining both quantifiable data, you have an idea on which forex robot to choose. Probably, by now you will have a list. However, there is another part of choosing the best forex robot that we have not explore yet. This is the intangible or qualitative factor.
What Are The Intangible Factors?
In business, you might encounter the word ‘goodwill’. Now, how do you calculate ‘goodwill’? It cannot be calculated but it is one of the most important factors when valuing a business. In other words, ‘goodwill’ is image of the company. In trading and choosing the best forex robot, you also need to look into the intangible factor. However, instead of goodwill, you will need to focus on the feel and trading style of the EA. These factors cannot be quantified. That is also, why it is known as qualitative factor.
What Are The Qualitative Factor To Be Considered?
Fit And Feel.
Is the forex suitable for you? Although, EA is fully automated and run based on parameters set by users, it is probable that the users interfere with the settings once things does not go according to plan. However, if you use an forex robot that you more comfortable and trust, you would probably less inclined to interfere and let the trading runs its course. To have this sort of confidence, you do need to have forex robot that is up to your expectancy.