Hivetrader Community-Based Trading

A while back FX Engines switched its strategy from automated trading systems based solely on backtested technical indicators to systems that are fine-tuned with input from a community of forex traders. To reflect this new community-based methodology, it's now called Hivetrader. Here's a quick breakdown of how it works, lifted straight from their front page:

• You view the hive [the community of traders] to see the best community-created systems.
  
• You copy hive systems.
  
• You improve the systems and re-test them.
  
• You trade the systems live with the dealer of your choice.
  

I used to play around with FX Engines quite a bit, and had some luck creating and trading with my own customized engines (as discussed in past posts on this blog). But I have absolutely no experience with Hivetrader (yet) and am quite curious how it's performing. So if you have any experiences you'd like to share, pro or con, lucrative or expensive, please share them by posting a comment below. Are you thriving in the hive, or getting stung?

Full disclosure: I have an advertising relationship with FX Engines/Hivetrader, but I promise to publish any and all feedback posted here, good or bad, as long as its on-topic and not spam.

Back on Track with FXCM

Yesterday I made an overdue switch of trading platforms from FX Engines to FXCM's TradeStation II. If you've been following the last couple posts you already know the reasons: FX Engines has been down for several days (still is, in fact). As a result I missed three winning trades in a row, and would've missed another winner last night if I hadn't made the switch to TradeStation.

Fortunately this turned out to be very easy since FXCM was already my forex broker and handled all of FX Engines' trade execution. So it was just a matter of faxing some power-of-attorney paperwork and downloading the latest version of TradeStation, which I'd used before so there weren't any big surprises there. Last night I made my first TradeStation trade by successfully shorting the EUR/USD, a promising start on the new platform.

Overall I've found TradeStation II to be a fine piece of software. The only small differences I've noticed with other trading platforms is that it doesn't come with default charts pre-loaded, so you need to set them up yourself. Which is no big deal. You also can't trade directly off the charts by pointing and clicking at your desired entry point. Again, not a big deal for me.

One trading option offered by FXCM that I'm very interested in is "No Dealing Desk" trades, which apparently have narrower spreads and currency rates that come directly from the large interbank players rather than from FXCM's in-house dealing desk. My only concern is that no dealing desk spreads could vary wildly at moments of high volatility in the market, and since that's when most of my trades tend to close I don't want to wake up to any nasty surprises. So there's definitely a trade-off between the greater certainty of the higher dealing desk spreads, and the lower yet more uncertain no-dealing desk spreads. I'll have to do some more research before I decide it's worth that added spread uncertainty.

To be fair, the reason FX Engines has been down so long isn't really their fault. The problem is apparently on FXCM's end, since they made a change to their trade fulfillment system that broke the API (Application Programming Interface) that allowed FX Engines to trade through FXCM. Which obviously really sucks for FX Engines and their clients, like me. So I hope FXCM gets their API working again soon.

The good news: a seven trade winning streak. The bad news: the last two don't count.

As if to prove that nothing can ever go completely right in forex, I woke up today to find that my trading system made its seventh winning trade in a row - definitely a new record for real trade predictions, not just theoretical ones in my historical backtests. The problem was, I couldn't make this trade, just as I couldn't make the sixth winning trade last Friday (as I mentioned in my previous rant). The reason being my trading platform FX Engines was still down, and still is last I checked. While I've had a lot of good things to say about FX Engines in the past, this is approaching an unacceptable level of downtime during live trading hours. I can certainly sympathize when a server goes down, which they inevitably do - in fact, I've worked at a dotcom start-up where screwy servers gave me a couple extra weeks paid vacation. But can you imagine what would happen if a big player like Charles Schwab or E-Trade (or Oanda, or GFT, or you name it) went down for two trading days, three if you count the Asian trading session on Sunday? Even if you're a small player, you're going to need the uptime and reliability of a big player if you want to compete.

Anyway, I just had to vent a little because it's kind of a bummer to see a nice run of trades killed off because of technical difficulties, which of course never seem to crop up during a losing streak. That's the last I'll say about it, I promise. Well, unless it happens again.

Happy glitch-free trading!

Timed Exits

In an effort to keep tightening up my trades to cut short losses and lock in profits quickly, I've been playing around with some timed exit strategies for the past week or so (in case you were wondering why it's been so quiet around here).

In my regular daily trading I already have a very basic timed exit in place - after 24 hours in a trade, I'll either close it out or roll it over to the next day. But this is more a side-effect of the price data I used to design my trading system - I get the data in 24 hour units, so by default that's my minimum trading period.

However, I've been trying more aggressive trade-timing strategies via FX Engines, and so far have managed to crank up the backtested performance of my best GBP/USD engine by almost 1000 pips. I did this by using the time-out feature in their engine design tool, specifying that the engine automatically close out a trade after a certain number of days. The underlying idea is that a trade is likely to be profitable within a certain time window, and after that the chances of success drop off dramatically. This was already quite evident in the backtested results before I added a timed exit: successful trades averaged about 2.5 days in length, while unsuccessful ones tended to drag out for close to a week. So I figured, if the longest trades are most likely to fail, why not start cutting them short and see what happens?

After testing out that theory with a variety of timed exits, it turned out that there was indeed an optimal time period for my GBP/USD engine, after which the most profitable strategy was to just close out the trade.

This same principle might apply to your own trading. To find out, you could try timing every trade and then see how long a successful trade lasts, on average, versus how long an unsuccessful one takes. You could also monitor trades that closed quickly to see if they might have been profitable if they'd continued for a longer period.

Based on the data you gather, you may begin to notice patterns: perhaps you let your trades run on too long, hoping they'll turn around, when you should really be closing them quickly according to a strict timetable. Or on the other hand, maybe you're closing a lot of trades too soon because of tight stop-losses, or impatiently taking small profits instead of waiting for big ones. Whatever the answer, you'll be on your way to discovering the most profitable timeframe for your style of trading. Hope you find it!

FX Engines Account Types

As I've mentioned before I'm an FX Engines user as well as an affiliate of theirs, and every so often I've written about a particular trading engine that works well for me, or a new trading feature they've rolled out. But in the past few weeks I've been getting feedback from readers of this blog about certain tools and features I recommend that don't seem to be available in their accounts.

For example, some account types don't allow you to create your own engines or trading signals, while mine does. On the other hand, while I can invent and test my own engines, I don't have access to their pre-built engines for trading the news. Since I wasn't sure exactly why this was, I checked in about it with FX Engines and got some helpful clarification from their representative Scott. Here's what he told me:

There are three account types available:

FX Trader: These are accounts designed to trade the news. This account has stock engines and signals, but no ability to create engines or signals.

FX Trader Plus: This is just like FX Trader but adds the ability to create exit signals and use them in trades.

FX Builder: This is the system building account option. You can create entry signals, exit signals, and engines. You can demo or live trade engines and back test them over 5 years of tic data. (This is the account I have.)

If you currently have an FX Trader account and want to try building your own engines, you can contact the support staff (like Scott) through the FX Engines interface and they'll be happy to switch it over for you. (And switch it back if you decide you liked your other account better.)

Scott also mentioned they'll be rolling out some new engine building features soon, which I'll be sure to post about when I have more details.

I hope this helps clarify what the different account options are. If you have other questions, feel free to email me or post a comment and I'll be happy to follow up on them with FX Engines.

Starting up live FX Engines GBP/USD trading

I had a really mediocre November, with very few trades going my way...and that was before I got caught flat-footed by the huge declines in the dollar around Thanksgiving. In the meantime one of my automated FX Engines was quietly cranking away earning hundreds of (demo) pips trading the British Pound. It managed to catch a lot of the action I missed while I was traveling and sleeping off turkey dinners. So I've decided to give this engine a shot at the big time (well, the pre-big time), and am allocating 20% of my trading capital for it to buy pounds with.

This particular engine looks for upward breakouts of the GBP/USD pair at the opening of US East Coast trading, and jumps on them when they happen (invariably while I'm fast asleep). Interestingly it only racks up fewer than 40% positive trades, but its risk/reward ratio works out very profitably - over 3 years of backtesting its trading performance was over 5000 pips.

The fact that this engine can help hedge against losing EUR/USD trades is also appealing - the GBP and EUR are highly correlated, so on days when my primary system gets a short EUR/USD trade wrong, this engine can help limit the damage and grab some pips going in the opposite direction. I always used to enjoy trading the GBP/USD pair and lately I've felt I'm missing out on the potential profits offered by its higher volatility by confining myself solely to the EUR/USD...so this engine could help improve that situation as well.

Of course, its success depends to a huge degree on continued downward pressure on the dollar - for the time being this seems likely to continue, but if the dollar suddenly begins to strengthen I may find myself eating these words. Yum.

Related links:
FX Engines
FX Engines Update

FX Engines News Calendar & Trading Alerts

One of the niftier recent features added to FX Engines is a calendar providing alerts of upcoming news events that are likely to move the forex market. Each event is listed with a rating of 1 to 5 stars, with more stars indicating a higher likelihood the event will produce a major price movement. If you're a news-oriented trader but find it confusing and a little tedious to keep track of the whole cycle of economic events, as well as gauge their likely impact on the market, you'll probably find the calendars and alerts come in very handy.

If you have an account with FX Engines you can access the calendar on their Upcoming Events page. Here's a typical news alert:


To trade on a particular news event in FX Engines you can either (1) sign up for their news trading services, (2) trade the event manually by placing a standard order through their interface as you would with any other broker (trades are placed via FXCM), or (3) design your own customized news engine. Just remember that trading the news is a volatile business, and there's absolutely no guarantee you'll make consistent profits - but with a news calendar and automated tools you may be able to improve your odds.

Related links:
FX Engines
FX Engines Launches News Trading Tools

Disclosure: Forex Forays has a business relationship with FX Engines, but I wouldn't write about their services if I didn't find them worthwhile.

My Best EUR/USD FX Engine: 3994 Pips

I thought I'd share the recipe for the best EUR/USD engine I've come up with for trading on FX Engines. It relies on timing of market activity in this currency pair to help identify high-probability trades. In over three years of backtesting on historical data it racked up 3994 pips, or around 1300 pips a year. Here's how to put it together if you'd like to take it for a spin. [Register here to set up your FX Engines account if you don't already have one.]

First you'll have to create a new signal in the Breakouts signal menu with the following parameters:

Name: whatever you like
Signal interval: 60 Minutes
Signal type: Entry
Signal activates: choose option 3, and complete with the following numbers:
Price breakout below the low minus 5 pips for the last 1 periods

Now just hit Save at the bottom and you're done and ready to use this signal in your engine.

Next find your way to the Create an Engine page and enter these parameters to create this engine.

Name: Whatever you'll remember

Currency Pair: EUR/USD

Trade Direction: Long

Entry Signal: Select the signal you just created from the menu.

Entry Settings: Market Entry

Entry Schedule: Select the last option and choose 2:00 AM through 3:00 AM EST for every day of the week listed. Yes, this is only an hour window of time - my research indicates that, curiously enough, a downtrend in this period correlates to an uptrend for that day.

Exit Settings: choose the Fixed Stop & Limit Exit option, with 75 pips as the fixed stop, and 160 pips as the limit exit.

Now just scroll past all the other options to the bottom and hit the Finish button, and you're done and ready to backtest your engine. Backtesting is a crucial step to make sure you've entered all the parameters correctly, and that I'm not just making this all up at random. You can run your backtests in the Testing section of the site. My tests of this engine ran for a date range of 01/01/03 - 03/24/06.

If you do end up trading with this engine, just keep in mind that while it certainly performed well in backtesting, there's no guarantee it'll continue to trade profitably in the future. Trade at your own risk!

Related topics:
My Best GBP/USD FX Engine
Divergence FX Engine

Related links:
FX Engines Home Page
FX Engines Registration

Divergence FX Engine

One of the core principles in technical analysis is divergence, a situation in which the price is moving in the opposite direction of a trend indicator such as the moving average. Of the various definitions I've read of divergence, I found Investopedia's the most straightforward.

Here's an example of one divergence you're likely to see: during an uptrend, the price is hitting higher highs, but the moving average has begun to slow its ascent and may even be trending downward. In this case you're seeing the last gasps of that trend, as the price attempts to move up but finds less and less support. At the same time you're likely to see larger and larger gaps between the high prices and closing prices, with the lower closing prices contributing to that downward shift in the moving average.

One handy, albeit cartoonish, way to visualize this kind of divergence is picturing a guy in a rollercoaster who's forgotten to strap himself in. As the rollercoaster roars up an incline and reaches the top, the upward momentum tosses the guy up into the air, where he continues upward for several feet as the rollercoaster levels off and then begins to shoot downward again. And you know the rest...after hanging there in midair for a moment, he plummets back down, hopefully into his seat or else some understanding person's lap.

The same divergence rules apply in a downtrend, for instance when the price hits new lows while the moving average begins to level off and then move upwards. (It's harder to create a rollercoaster analogy for this one, though...maybe picture the guy hanging from a bungee cord underneath the rollercoaster? In any case, he's not going to be in good shape after this particular ride - hopefully your divergence trades will end more happily :-)

But getting back to the title of this post, I decided to try and create a divergence-based engine in FX Engines. I played around with a few different breakout and moving average signals and was able to come up with a profitable engine for trading the GBP/USD pair pretty quickly. Over 3 years of backtesting it turned a profit of 3,294 pips. Here's the formula:

Currency Pair: GBP/USD
Trade Direction: Long
Entry Signals:
(1) FXE EMA 20 LONG 60 MIN TREND - this is one of the installed sample engines that comes free with an FX Engines account.

(2) 60 Minute Short Breakout Signal - this one you'll have to make yourself in the Breakout Signals section of the site. Here are the parameters:

Signal interval: 60 minutes
Signal type: Entry signal
Signal activates: Price breakout below the previous period's close minus 15 pips

As you can see, you now have a long moving average trend paired with a short breakout signal: two signals diverging in opposite directions.

Entry Type: Market entry

Entry Schedule: Activate my entry signals only during London-New York trading (2 AM EST to 4 PM EST Monday-Friday)

Exit Strategy: Scroll down to Option 4: Contextual Exits and choose this pre-installed exit signal: 1 LEVEL 60 MIN P/100 EXIT SIGNAL

(This is one of the best all-around exit signals in FX Engines.)

Now just hit "Finish" and you're done. Happy divergence trading!

Related links:
FX Engines
Divergence Definition

Related topic:
My Best GBP/USD FX Engine

My Best GBP/USD FX Engine - 3873 Pips, Anyone?

It's been a while since I've posted a recipe for a forex system that you can take out and start trading with today. So in the interests of making this blog useful, and perhaps improving the trading profits of you folks kind enough to read it, here's the formula for an FX Engine I created that raked in 3873 pips trading the GBP/USD pair in three years of backtesting. This made it my best-performing engine for trading the British Pound, and I think the key factor was that I used my market-timing studies to determine when it would enter its trades.

Without further ado, here's how to put it all together:

First off, you'll need to create your own custom signal. Actually, I'm getting ahead of myself...if you've never used FX Engines before you'll need to register. So, now you're registered and in the Signals section. Next, choose "Breakouts" and "Create a New Signal". Here are the parameters to enter:

Name: call it whatever you want.
Signal Interval: 60 MINUTE
Signal Type: Entry Signal
Signal Activates: Price breakout above the high plus 2 pips for the last 1 period

Now save it and you're done with the signal.

Next go to the Engines page and choose "Create a New Engine." Here's what to enter there:

Name: Whatever. Hey, how about "ForexForays.com Engine"? :-)
Currency pair: GBP/USD
Trade Direction: Long
Entry Signal to Select: Choose the one you just created from the menu.
Entry Settings: Market Entry
Entry Schedule: Choose "Activate my entry signals only during the times outlined below". For Sunday, select "No trades". For every other day, choose 8:00 AM as the start time and 9:00 AM as the end time - so just an hour window of time each day.

On the next page, you'll choose an exit strategy for this engine. Choose Fixed Stop & Limit Exit (the first one) with 100 pips as the stop and 200 pips as the limit exit.

And that's it - just scroll past all the other options and hit the Finish button at the bottom. Now you're ready to backtest the engine and find out if I'm full of it or not. You can do that by going to the Tests link, choosing your new engine from the menu and running a test. When selecting the Pip Spread, remember this is a GBP/USD engine so choose 5 pips. Now hit the Begin Test button and see what happens!

If you do end up trading with this engine, just keep in mind that while it certainly performed well in backtesting, there's no guarantee it'll continue to trade profitably in the future. Trade at your own risk!

PS - I have a EUR/USD engine that performed even better than this one. Maybe I'll feature it in a future post.

Related links:
FX Engines Home Page
FX Engines Registration

FX Engines Launches an Affiliate Program

I just got an email from FX Engines announcing that they've launched a multi-tiered affiliate program, allowing current clients (like me) to earn commissions by referring new traders to their automated trading services.

If you're currently trading with FX Engines and want to refer them new clients, you can learn more about the affiliate program on this page.

If you're a forex trader and are interested in trying out FX Engines, here's where to register. They offer a free demo account so you can practice automated trading before putting any real money on the line.

(Fair disclosure: yes, those are affiliate links - I am in this for the money, after all! And the fun, of course...but mostly the money.)

FX Engines Launches News Trading Tools

One of my favorite forex trading platforms, FX Engines, has just rolled out a new set of signals and tools enabling you to trade on market-moving news events, such as the release of data on Non-Farm Payrolls, Building Permits, the Consumer Price Index (CPI), Consumer Confidence, Housing Starts, Personal Spending, and Retail Sales - to name just a few.

I've always had a hard time trading on economic news, a problem I ranted about in this post a while back. Having a set of automated tools that will let me place trades at the moment news hits the market, even if I'm fast asleep at the time, should make it a lot easier to start adding this data to my trading system. I'm planning to test out these new features at FX Engines on a demo basis, and if they bring in consistent profits, I'll start trading the news with real funds.

You can read more about these new trading tools on the FX Engines "Trade the News" page. News events to watch in the coming week are ISM Services, Initial Claims, and Wholesale Inventories.

Related topics:
Comparing Forex Platforms: FX Engines
FX Engines Update
My Best EUR/USD FX Engine
My Best GBP/USD FX Engine
Divergence FX Engine

FX Engines Update

As I mentioned in an earlier post on the subject, FX Engines is one of the most fun and low-stress ways I've found to trade currency. Well, they've just made the user experience even better with a number of new features that rolled out over the past weekend. Noteworthy enhancements include:

The ability to enter and exit trades manually, allowing you to make your own trading calls alongside the forex engines you design to trade for you. So for instance, if I want to place my usual 4:00 pm trades based on my own analyses while letting my engines run concurrently, I can now do so. Previously, I would've had to have an account with another market-maker, or temporarily suspend my FX Engines account, in order to trade manually. No longer.

The ability to create live charts of your favorite currency pairs, something that wasn't previously possible.

A larger selection of currency pairs to trade with.

Improved signals to use in creating and fine-tuning your engines, including the addition of a Trend Signal for used in gating trades when combined with other signals.

Commissions are now $0 for trades with your own engines (rather than managed accounts). Previously they were $1 per trade.

A bolder look with colorful icons making it easier to navigate the site.

Overall, a great set of improvements -- nice work by the FX Engines crew!

Related topics:
FX Engines Launches News Trading Tools
My Best EUR/USD FX Engine
My Best GBP/USD FX Engine
Divergence FX Engine

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!