How to trade the Magic MA EA using the EURJPY: End of December 2014

INDEX

  • Background to this analysis
  • Overview of the Magic MA EA
  • What to expect from the Magic MA EA
  • Possible strategies to use when trading the Magic MA
  • Why the EURJPY?
  • Testing and optimization approach
  • Summary of results and settings
  • EA Input and testing ranges
  • Trading statistics
  • Account sizing
  • Questions, comments and remarks
  • Disclaimer

Background to this analysis

This report is part of an Expert Adviser service whereby you can have

  1. the same analysis for the EA below done for different currencies of your choice
  2. this analysis updated every 3 months
  3. a more comprehensive analysis for ANY EA of your choice using any currency

After you have completed your review of this analysis please click on this link for more details:

http://www.alwayswiththetrendea.com/forex-expert-adviser-analysis-and-optimization-service/

The object of these reports is to enable the trader to make informed trading decisions based on taking historic price action and the most relevant Forex trading factors into account.

From 2015 on we also supply these type of reports for FREE for 2 currencies for any Expert4x EA purchased and to existing owners. If clients need more currencies including gold and other instruments analyzed we will do it for a small additional fee. Use the above link for more information.

The service below should guide you to more information on:-

  • How the EA works and what to expect when trading it
  • The currency being tested
  • When are bad times to use the EA
  • When are good times to use the EA
  • Which settings have worked well for continuous trading.
  • Which setting have worked well under favorable market conditions
  • Which settings have worked well under unfavorable market conditions.
  • What account size to use
  • And much more……………

Overview of the Magic Moving Average EA

The Moving Average indicator is a trending indicator. So this EA makes its money from catching sustained trends. In order to catch sustained trends it is best to use high volatility currencies that are less likely to range and more likely to trend. It only trades 1 transaction at a time for each chart it is used on. This reduces risk and capital required.

For more information about this EA please view:-

http://www.alwayswiththetrendea.com/the-magic-moving-average-course-and-ea/

What to expect from the Magic MA EA.

Big sustained trends do not happen every day so expect:

  • Many false breakout that result in small losses or even small gains
  • Long period (weeks) when there are no trades
  • Long period when you are in a trade that is a sustained one.
  • Losses when trading in low volatile period (Even relatively high volatility currencies can have low volatility periods)
  • Exceptional gains in trending and high volatility markets
  • A very low success rate even in favorable markets – only 20% of trades will be successful
  • Very low $ losses on losing transactions and very high $ gains on positive transactions that make up for the low success rate

So weaknesses are that this EA is slow and can trade very seldom – as low as 8 trades a year. It therefore requires patience. The strengths are that it requires low capital, has a good chance of being profitable, losses are small, gains are high, exits are always at the very best times (proven by the optimization process below), can be traded on a set and forget basis.

Possible strategies to follow using this EA

The Magic MA is designed to trade continuously.

If you however want to use it like a trading tool and if you can read the market well

  • You should NOT trade low volatility and decreasing volatility currencies or when the overall market is ranging or volatility is decreasing.
  • The other alternative is to trade a basket of currencies at the same time to increase your chances of catching good trends.
  • The Grid Trend Multiplier is best suited to consolidating and decreasing volatility markets and you could alternate between the 2 EA’s.

Why the EURJPY for this analysis

The testing to be used are going to be applied to the Magic Moving Average which is a breakout type of system which performs well in a volatile environment with long trends. We are therefore looking for volatile currencies. The EURJPY is amongst the most volatile currencies in the market at this time and is currently experiencing increasing volatility.

The information below about ANY currency can be found at this link:

http://expert4x.com/forex-currency-volatility-over-a-number-of-weeks/

 

Relative Volatility

Time of Day

This EA has a time of day setting so one would expect optimized settings to favor the European and US morning markets due to increased volatility during those hours as shown below

Day of the week

The EA has a Day of the Week setting so one would expect that Wednesday could be a day to avoid due to it low volatility

Volatility

The EURJPY is also experiencing increased volatility during the period of testing as shown below. It has also experience strong decrease and increases on volatility during the year of testing so these need to be considered

Testing and optimization approach

As can be seen from the volatility chart above, the EURJPY experienced a period of decreasing and increasing volatility during 2014. We are therefore going to do 3 optimization exercises.

  1. The whole period for the last year (Dec 2013 to Dec 2014)
  2. The period when there was decreasing volatility (Mar 2014 to Aug 2014)
  3. The period when there was increasing volatility (Sept 2014 to Dec 2014)

The approach is going to attempt to find high success ranges of settings during which the EA was profitable for all the period above. At best these ranges will then be used as guides to determine possible setting for future use of the EA. Where there are overlaps in the setting ranges determined in the above tests that could point to very robust settings that would work in all market conditions.

Over optimization or curve fitting is always a problem when using historic data. It is not good to find the most successful settings in the past only as those are less likely to continue to be successful in the future. That is why we use 2 approaches to guard against over optimization and curve fitting.

  • We try to find optimal ranges for the settings rather than precise settings
  • We take into account the changes in trading volatility in the historic data and do common sense split test where applicable

We do not do random walk forward tests as they ignore the most important driver for this particular EA and that is market volatility. Our experience shows that walk forward tests could disqualify even the best EA.

This optimization approach is more one of systematically illuminating the negatives to come up with likely setting ranges that will have the best chance of success, rather than the more traditional approach of just finding the best setting that worked in the past. Any setting within these ranges will have given you a very high chance of success in the past.

The results below were determined using the methodology below to find profitable ranges:-

  1. Do a complete optimization of settings using the Generic algorithm to find the high level setting heat maps.
  2. Use the heat maps to find and reduce the range of setting groups
  3. Redo the optimization of settings using the reduced range of settings determined in 3
  4. Use the results in 3 to reduce the ranges further if possible and rerun the optimization to get a high profitability success %.
  5. Create setting range options by using:-
    1. The high success ranges found
    2. The best optimized results
    3. another successful settings other than those of the best results
  6. Determine the minimum capital required for the above 3 settings

The Profitability success % is the number of successful setting combinations in the final setting ranges compared to the total combinations tested. So if there are 400 successful results out of 500 results tested profitability success % would be 80%

For a more detailed overview of the processes used please do this course which is free to owners of the Magic MA EA. https://www.udemy.com/double-your-forex-account-using-the-magic-ma-robot/

Testing and optimization results:

Historic successful Ranges 

Below are the high probability ranges determined during optimization and testing. You can choice ANY settings that fall within the ranges below. As shown these ranges have historically generated high levels of success.

The settings and ranges for the Total period represent the type of settings you would use for continuous trading.

THESE SETTING WILL REMAIN VALID FOR AS LONG AS THERE IS NO BIG CHANGE IN THE VOLATILITY OF THE EURJPY. APPLY CAUTION WHEN THERE IS A SHARP DROP IN VOLATILITY LEVELS AND APPLY THE SPECIFIC SETTING FOR DECREASING VOLATILITY OR ALTERNATIVE DO NOT TRADE

Please note that the time of day information is based on London trading time taking day light saving adjustments into account. You will have to make changes to cater for your own broker time-zone.

Also please note the time frame used for the optimization is the 15 Minute time frame. Please make sure that your EA is installed on a 15 minute chart when using these settings.

Commentary on the results below:-

  • In general in bad times setting become smaller and in good time they are bigger. The continuous trading option (full year test is something in between).
  • The European and US sessions are the best for breakout trading.
  • The day of the week settings do not make a major difference

Best historic settings

 

As additional information we also supply the best results and settings during these periods as a guide and additional information. This information is extreme curve fitting and the chances of the exact settings producing the exact same results are remote. Use this information with care.

It does however point to the important of growing and declining volatility period. $19 a day were made in increasing volatility, $3 a day was made in decreasing volatility and $6 a day was made in continuous trading for the whole year.

EA Input and testing screens

EA Input : Continuous trading for the full year

The RED ARROW show the best results and the BLUE ARROWS show the profitable ranges identified

EA Input : Reducing Volatility 

The RED ARROW show the best results and the BLUE ARROWS show the profitable ranges identified

EA Input : Increasing  Volatility 

The RED ARROW show the best results and the BLUE ARROWS show the profitable ranges identified

Trading statistics

The results below show how a very high Return on investment ($1501/300) of 500% can be achieved with a success rate of 16.6% because of the average profit per profitable trade being $241 and the average loss per losing trade being only -$18 after 60 trades.

The drawdown of -$405 and consecutive loss number of -$198 points to the fact that an account size of above $500 for this trading although $300 seemed fine for this run.

ANOTHER EXAMPLE: The results below show how a reasonable Return on investment ($874/300) of 270% can be achieved with a success rate of 12.5% because of the average profit per profitable trade being $186 and the average loss per losing trade being only -$16 after 96 trades.

The drawdown of -$721 and consecutive loss number of -$423 points to the fact that an account size of above $600 or $800 for this trading although $300 seemed fine for this run.

Account sizing

The above best results could have been achieved using an account of:

  • Continuous trading $150
  • Increased volatility $100
  • Decreased volatility  $300

So the motto is that in bad times you need more capital and in good time less.

To cater for potential bad times it looks like an account of $500 would be adequate for each 0.1 lot (mini lot) traded

Based on a $500 the annualized returns on the best results achieved are

  • Continuous trading:- $1 663 / $500 = 330% annualized ROI
  • Decreasing volatility: $411 / 125 days x 250 days = 82% annualized ROI
  • Increased volatility: $1332 / 50 days x 250 days = $4 757 on $500 = 951 % annualized ROI

Questions, comments and remarks

If you would like to ask any questions, or make any comments and remarks please use this link where the above report is also available as a webpage.

As result of your questions and comments we may add additional information to the report which will be updated on the website from time to time.

Before making any trading decision please visit the website to check if there are any important changes to the above document.

Also please bear in mind that different data bases using different time zones and the use of the Genetic Algorithm may produce inconsistent testing and optimization results even if tester use the same apparent information. You may experience different results in your own optimization activities. Our recommendation it to go with the results you can personal put the most trust into. Please remember that optimization is not an exact science and testing results can vary considerably. Therefore use the results as Guides and back the results up with other outside information and common sense where possible.

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Disclaimer

This service uses data supplied by a third party (mainly TickStory) and software supplied by a third party (MT4 Strategy tester). It also uses a Generic Algorithm to reduce testing time. These could have internal unknown weaknesses. Although good information like when the EA performs well and when it does not, Historic price action can at best provide a GUIDE for trading into the future. Expert4x and its employees and associates can therefore not be held responsible for any trading results that occur as result of the above information. The information is mainly supplied for educational and trading support guidance. Please use this information supplied in this service at your own risk.

Also consider the general risks involved in Forex trading and never risk any money you cannot afford to lose.

Also please bear in mind that different data bases using different time zones and the use of the Generic Algorithm may produce inconsistent testing and optimization results even if the tester uses the same apparent information. You may experience different results in your own optimization activities. Our recommendation it to go with the results you can personally put the most trust into. Please remember that optimization is not an exact science and testing results can vary considerably. Therefore use the results as Guides and back the results up with other outside information and common sense where possible.