Faced with what seems to be a continuous stream of Expert Advisor releases, you’d be forgiven for thinking that the latest Forex robots are the ones to go for.
This is of course understandable. We are socially conditioned into believing the concept of ‘new’ as being better or somehow evolved. However should this mindset also be applied when it comes to choosing the systems we want to make us money?
There seems to be a long held belief in the trading community that systems and strategies suffer from a limited lifespan. This view tends to be backed up by the stampede which accompanies each new system launch and the subsequent slide into obsurity that a system will make as interest wanes.
There is of course an element of truth in the above. Vendors will launch their systems off of the back of good performance in order to maximise their sales, so any departure away from these headline grabbing results will inevitably lead to the assumption that a systems is finished.
However it is wrong to assume that older systems cannot still compete with these young pretenders. After all there are only so many strategies and approaches to trading the Forex markets that can be developed given the limitations of the indicators available. Moreover and perhaps more poignantly, only a limited number of these can be combined to create a strategy capable of running within MetaTrader itself.
The most probably explanation for periods of underperformance is more to do with the markets themselves.
Forex movements tend to operate in cycles. These can last anything from just a few minutes or days, or even run for several years. Within these cycles there will be numerous trends and periods of counter trends. There will even be points where there are no trends in existence at all.
The key point to take from this is that market dynamics are constantly changing. Against this ever changing backdrop it is unrealistic to expect a static trading strategy to be able to accommodate these ever changing market conditions. So when newly released systems suddenly stop working, it is not necessarily the system that has fundamentally broken, but rather that the market dynamic has changed.
This is why traders so often refer to a honeymoon period with a system where they first make their profits. Forex robot vendors are clever. They will optimize their systems to perform well against the most recent market data in order to present their strategy favourably.
Don’t believe me? Then take a look at the performance of the system over longer time periods – 2,3,4 or 5 years. The further you go back with your testing the more unattractive the results of the system often look.
Periods of underperformance and out performance are characteristic of all trading approaches. It is therefore unfair to single out automated systems for special criticism here.
My point here is that what you need to understand is that there are very few strategies that can perform in ALL market conditions. This is no revelation to experienced traders but it a point worth noting. To maintain profitable trading you need to use a strategy which can capitalise on the prevailing market conditions.
So what is to become of your old systems that are no longer used?
Well the truth is that once a system is out of the limelight few traders will continue using it. This makes it a lot more difficult to track down the latest trading performance.
A way round this is to set up your old EAs to run on a demo account. In this way you will be able to keep a track of performance and compare it to the latest Forex robots that you are trading.
If the market dynamics have again become favourable for the strategy used then you might well be surprised at the results acheived. You can even make some adjustments to the settings to see how the system peformance responds.
In this age of austerity keeping hold of your old Forex robots could be a shrewd long term move.