Comparing Forex Platforms, Part 3 - FX Engines

One of the most innovative forex systems I've come across is FX Engines, which allows you to create and backtest your own trading programs and then set them loose to trade for you, 24 hours a day. FX Engines helped solve one of the most irritating problems I encountered with forex: namely, the fact that most of the market action occurred while I was asleep (or should have been asleep). I'm on the West Coast of the US, so trading frequently peaks after 1:00 AM my time. With an automated engine watching the market constantly for me, I didn't need to stare at charts constantly. I also didn't need to worry as much about timing market entrances and exits, or agonize about whether I was making the right call or not. With a set of trading rules programmed in, the trading engines I created made the decisions on their own with greater precision than I could ever muster.

Here's how FX Engines works. You select a currency pair, a set of entry and exit signals, wait times, no-trade periods (Sundays, for instance), and combine them into a trading script, or engine. Long and short signals you can choose from include MACD, stochastics, ADX, RSI, Exponential Moving Averages, and price breakouts. A large menu of so-called "contextual exits" is also offered, of which my favorites are the "3 Level Signal-Trail-Limit" and the "60 Minute P/100 Exit". (Yes, the names sound confusing and a bit obscure, but just plug 'em into your engine and you'll see why I'm a fan.)

You can also create your own custom exits using fixed or trailing stops, limit orders, price reversals, crosses of key signals, and so on. Once you've created your engine, the most important next step is to run it through FX Engines' impressive historical testing system, which will test it on over two years of market data. At the end of each test, you'll get a report on how the engine performed: the total number of trades, percentage accuracy, average pips per trade, total pips earned, longest winning and losing streaks, largest drawdown of capital, and other key data.

What surprised me about many of the engines I created was that they were profitable even though their accuracy was well under 50%. Another interesting discovery was that some of the most successful engines were constructed using contrarian principles...that is, an engine that looks for a long or short indicator to actuall fail, and for the price to then head in the opposite direction. For instance, my best engines took stochastic signals and waited for the trend they signalled to collapse, and then traded the reversal.

The key with FX Engines is to test, test, test. Fortunately the site makes this easy by allowing you to recombine parts from different engines (an entry signal from one, an exit signal from another, etc.) into new engines, and then compare their performances. This feature is called the "Back Test Multiplier", and it's amazing when you see it in action.

You can start running your engines in demo mode just by signing up for free at the site. In order to begin actively trading real money, you'll need to set up and fund a trading account with Forex Capital Markets (FXCM), a major market maker and separate entity from FX Engines. You then empower FX Engines to trade your FXCM account on your behalf via a limited power of attorney. However, if you ever want to trade the same FXCM account on your own using their Trading Station software, you'll have to revoke the power of attorney and won't be able to use FX Engines at the same time. So it's either one or the other -- I bring it up because I ran into this very problem.

Another minor quibble I have with FX Engines is the limited number of signals -- as of this writing, some of my favorites weren't available in their menu of indicators: no Bollingers, CCI, Stark Bands, or Parabolic SAR. I would also have liked the option to program a timed entry every day based on various signals -- for instance, if certain conditions are in place at the London market open, to execute a trade at precisely that moment. However, from my emails with Scott, the FX Engines President & CEO, it sounds it's really just a matter of time before these are available; FX Engines is a fairly new service and so they're still at work improving and expanding their offerings.

Which brings me to another feature I like about FX Engines: they offer managed trading accounts, in which you can have them trade your funds with the engines they've developed in-house. If you're looking for a hands-off approach to forex investment, this is definitely a service to consider.

Overall, I have to say FX Engines is just about the most fun and most innovative forex service I've used. I'd definitely recommend opening a demo account and trying your hand at creating a some trading engines. And if you do, please come back and post your results here in the comments section!