The spot forex markets are quite volatile - which opens the possibilities of significantly profitable moves.

However, the downside to all this is the possibility - or rather the certainty - of occasional drawdowns. Check the charts below of the GBPUSD Long Term trades that occurred between 6-7-06 and 7-3-06. These two back-to-back trades were the ones that created the published drawdown for this system - over $12,000.



Although the losses on these trades were more than recovered over the next two weeks, the fact remains that these types of drawdowns WILL OCCUR with this system.

To be a successful system trader you must first realize that these drawdown events will occur and are a part of system trading and second, you must have the mind set to stay with the system through these difficult periods.

Many traders think that they can stand these drawdowns / losses, but when real money is at stake they often panic and withdraw from system trading just before the big profitable trades occur.

First of all, be sure that your account is properly capitalized for the system you are trading by starting with an account balance that is at least 50% greater than the maximum drawdown historically experienced by the system.

Second, discipline yourself to stay with the system.

Although these points do not automatically guarantee profitable system trading, they will take you a long way toward that goal.

2. I have noticed that the medium term systems sometimes only trade once or twice a week and then they will trade 2 - 3 times in one day? Why is this happening?

The chart below from July 28, 2006 illustrates this trading pattern. Note that the system changed positions 5 times during the day, 4 on consecutive bars.


This can occur when the market has been sideways, or trendless, for a considerable period of time. The parallel functions that define the market trend can be flipped from long to short quite frequently during congestion phases such as these and, therefore, re-define the trend much more frequently than during the more common trending periods.

While seen infrequently, these patterns are part of the normal behavior of the system. When the market re-enters a trending mode the system will once again display the usual trading patterns.

3. I have to say that your Multiphase System has made quite a start on FX-AUTO during the month of July 2006.. Do you expect it to continue as successfully in the future, for example under different trading conditions? Although self-correcting, would you expect some negative weeks / months until correction, or will it churn out good positive pips every month?

First of all, there are no guarantees in trading and it is entirely possible that successive months will not be as profitable or, for that matter, profitable at all. These systems are designed to be self-adaptive in that they are constantly adjusting their parameters for changing market conditions, but this is not a guarantee that they will always be profitable. If market conditions change too frequently there may not be sufficient time for these adjustments to be made.

To better answer your specific question, let's examine the actual real time performance of the systems in July 2006 to the projections created by developmental system testing over historical data. Please review this disclaimer prior to continuing as the following illustrations take into consideration hypothetical testing data.

During the month of July, real time trading of the Multphase Systems has resulted in a net profit of $32,897.91 and the Cyclone Forex System had generated $7,039.43.

Testing projections predict that Multiphase should generate $46,388.63 and Cyclone should produce $11220.63 on an AVERAGE monthly basis.

So while the real time profits achieved seem impressive, they are less than system testing had projected for the average month.

What does this then tell us? Hypothetical backtesting represents the optimum performance for the designated system over back data - to achieve these results in real time trading would require that identical market conditions repeat themselves, which is not likely. Obviously and logically then we should expect somewhat lower performance in real time trading, which we have observed during the month of July, 2006.

4. How can one system sell and at the same time be buying same currency pair?

We are actually trading 3 separate systems within the Multiphase system for
GBPUSD - a short term, medium term and long term strategy.

These systems are designed to define and trade with the trend on different
( short, medium and long ) time frames, and thus can occasionally take
positions in opposite directions. This happens when the market is in a
sideways, or consolidation phase during which trend definition is not as
clear as when the market is trending in one direction or another.

When the market breaks out of trendless mode the positions in the direction
of the trend are maintained and will remain with the new trend until
reversed or until they reach their various self-adaptive target points. The
positions that are against the new trend will either be stopped out or more
likely, reversed in the direction of the new trend. Frequently these
positions against the new trade are stopped out for small losses that are
significantly less than the profits being achieved by the positions in the
direction of the new major trend.

5. Why do you trade so many different systems?

This use of several systems on multiple time frames in effect acts as a
hedge when the market is in a sideways mode. We will usually have a position
in the right direction when the breakout occurs.

This is actually a form of diversification. Most traders are familiar with
the concept of diversifying a stock portfolio by owning many stocks of
different characteristics, volatility, or industry groups in an attempt to "
smooth out " the gyrations of the market.

You can also achieve diversification on a single item, in this case GBPUSD,
by trading several systems with separate approaches across separate time
frames. Over time this strategy has proven to significantly improve the
profit picture of our test accounts.

6. What account size is recommended to trade your systems?

Account size recommendations are detailed here.

7. What is the maximum drawdown that I would need to plan for either Multiphase or Cyclone?

Drawdowns for all the systems can be found on the testing pages.

8. Do you keep many open trades? I have been monitoring trade systems on
FX-Auto for about 6 months, and I have seen many systems start out
profitable. However most of these systems had several negative trades open.
So when they closed, all pips were lost.

No, we do not maintain multiple open trades in the anticipation that they may eventually turn profitable and then help the track record. All trades recorded are actual system trades only.

However, with the potential of 12 systems trading simultaneously we can have greater than 10 - 12 positions actively open an any given time.

9. Do you offer a free trial period for your systems?

No.

10. Do you have more trading history performance dating earlier than
Nov 2005? If so, what are the results?

No. The systems are developed on tick based charts. The amount of data available on the TradeStation Data Network is limited, thus limiting the back testing capability of the systems.

11. Is your system purely mechanical?

Yes. The system is entirely technically based, with now allowances for holiday periods, news events, economic reports, etc. For a detailed discussion on the use of the parallel function programming that drives these systems please click here.

12. How long have these systems traded in a live account?

All systems have been trading in a live account beginning June 30, 2006.