What Happened to Positive Forex?
Six weeks ago, I opened a demo account with BulldogFX and subscribed to Positive Forex.
I was very happy with the demo, and pleased to see that the demo auto trade fills matched hypothetical C2 fills almost exactly. However, I was less pleased with the performance of the system itself:
Every now and then systems are blowing up spectacularly on C2, and I'm very worried that I found myself close to subscribing to the system. Because I didn't finish my analysis of the system, I don't know what my final decision would have been...
On a positive note, I have always been very suspicious of forex systems relative to stock systems, because I have seen many forex systems blow up before. That's one of the reasons why I've only traded stock systems in my portfolio so far. Perhaps if there have been a few systems on C2 with stable track records of more than 2 years, I might consider forex again, but in the near future, I'll stick to stocks.
A possible explanation why Positive Forex blew up is that it was generating high returns by ignoring hidden risk (i.e. a collapse of the carry trade). You can find a nice explanation here.
10 comments:
Based on my observations FX is impossible for the average trader to be successful in for the long haul (meaning 2+ years). I certainly would love to be proved wrong, and have nothing against FX traders.
It is TOO controlled, and all in bad ways. Central banks hold all the cards, or all the cards that matter 99.9% of the time.
The lure of FX is that it is very possible to come up with systems that backtest very well (for the last few years), and have forward testing that matches the back-testing.
The problem is that that at any time the market paradigm can shift, and old rules don't apply; and it happens in one day. That said, any robust trend-following routine that works on grains, meats, metals and currencies isn't going to go belly-up when these shifts occur. It's the currency-specific optimzed programs that are going to get murdered.
Obviously this can happen to any market. For my money, I want the tradeable market with the MOST public participation, and the MOST government interest (ie, US Stock Market). Changes occur more slowly in that environment.
Very insightful! I think your observation is consistent with the lack of successful forex systems on C2 with more than 1-2 years of history.
Just my $0.02...but didn't the system vendor 'abandon ship' on or about 10-Aug-2007 (last login)?
The equity curve was just fine - even up to the first few days of the following week!
Anything else is just speculation, since vendor didn't even revisit his system even before decline or said "blow-up" began.
If a C2 user is going to place real money in an account to be autotraded, it is ultimately their responsibility to regularly monitor it for drawdowns and to hopefully have a preset level already determined!
I know a lot of statistical analysis is used for a variety of purposes - including to try and prognosticate these type of events. I feel however the best preventative measure is to simply "cut bait" at your own predetermined risk level.Gilbert
Hi Gilbert,
I asked the vendor earlier this week if he could elaborate on the drawdown and what we could expect for the future. He answered that he'll change the current strategy and use stop-losses and take-profits.
I agree with Gilbert that you'd have to be nuts not to exit a position in a situation like Positive Forex. The guy didn't bail on his system btw, he didn't log in because he had no new signals to post. Oh yeah and he didn't want to read his private messages I'm sure too.
I also agree that most statistical analysis is useless for anticipating a system's future performance.
The rest is an exercise in trying to predict the future from the past, which the system itself is most likely trying to do as well. I'm not versed in statistics, but that effort seems way too far removed from what's going on to have any validity.
I look for a few things: Average winner significantly larger than average loser. Decent win % (40-60% seems like the sweet spot for long-term success). Controlled drawdowns. RECOVERY from drawdown. I like to see a system that has HAD a decent drawdown, and how it recovered from it. Anyone investing in a smooth 45 degree equity curve is going to get thumped, and that's a fact.
All systems have significant drawdowns relative to their average annual return. If you haven't seen one yet, that means its on the horizon. Terrible time to invest. You can have 95% confidence levels out the yin-yang, but that system WILL have a large outlier drawdown, and likely sooner rather than later.
I agree that it's difficult to predict when a system will crash by just looking at a single system. At the same time, I do think it is possible to identify certain characteristics of systems that might give the system a higher chance of crashing at some point. This analysis would involve a large number of trading systems (i.e. all >3,500 listed on C2) and would try to find certain characteristics (e.g. trades forex, no stops, extreme win percentages, high leverage etc.) that appear more frequent in systems that crashed versus systems that did not crash. The result would not be a prediction like, system X is likely to crash tomorrow, but rather: system X has a higher chance of crashing some time in the future.
When systems are blowing up spectacularly on C2, and you close to subscribing to the system. You didn't finish analysis of the system,Must be find the final decision.
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