The mechanism that loses if you buy EA and it starts running
EA developer Reiwa's Double-E is here.
Today’s article is as follows.
--------------------------------
A scam where buying an EA and running it leads to loss
--------------------------------
Everyone, when the forward test of an EA looks good,
you might think, “This could be the Holy Grail!” and buy it to run, only to
start losing instantly and become unamendable to look at.
This is what you could call an EA-ism.
...however, there is a mechanism or a simple cause behind it.
When you feel like buying because the forward test looks good,
“The state already has quite a lot of wins”.
A state that already has a lot of wins means
in comparison to the backtest.
If the EA performs well and wins a lot in forward tests,
(win rate, profit factor, etc.)
it tends to converge toward the performance suggested by the original backtest.
In other words, you started it with a higher likelihood of losing.
No matter how excellent an EA is, there will always be times it loses.
“If you buy an EA when it’s already winning a lot and start running it”
“the next time the probability of losing becomes extremely high”
meaning.
Whether it will win more or lose more depends on how far the forward deviates from the backtest,
so assess it in this area.
--------------------------------
【A trick on top of that】
--------------------------------
If you’ve determined from the backtest that it’s a good EA,
you may buy it, but
focus on the timing to run it in forward test.
Even a good EA will inevitably lose at times.
Even during a favorable forward period,
there will always be a stagnation or drawdown period.
In other words, start running it after you’ve checked the drawdown in forward tests.
The image is to “buy the dips” in the forward graph.
Probably, you’ll feel hesitant to run an EA during a drawdown.
But whether you can do this now may greatly affect your future EA life.
--------------------------------
If an EA’s maximum drawdown in the backtest is 500 pips,
and you start running it when it has drawn 200 pips in forward test,
according to past backtests,
it is statistically likely that drawdown will continue after starting, but will stay within 300 pips.
--------------------------------
Shifting your mindset this way will feel more comfortable mentally.
It may reduce some of the struggles with running.
An EA that wins a lot,
to avoid missing out,
you may want to run it immediately to make big profits,
but calmly compare with the backtest and how it looks.
Moreover, can you trust that backtest?
If you can decide it’s a good EA with that in mind,
start running forward and picking up dips.
If you can do that, then
apart from extraordinary circumstances,
you can leave it as it is, in my opinion.
Even if you run an EA and it performs poorly in a short period, many people will remove it, but
users don’t know the EA’s logic because it’s a black box,
so you can’t clearly tell when it’s strong or weak,
and if you casually remove or re-run it, you risk
opportunity loss and missing profits.
In other words, you may harm the EA’s original performance.
So, basically,
if you determine from backtest and forward that it’s a good EA, buy it,
start running forward and picking up dips,
and otherwise, leave it as is unless something major happens.
Real money may grow or shrink in front of you,
which can be mentally tough, but
approach it with that spirit!
━━━━━━━━━━━━━━━
【Reiwa’s Double-E EA Listing】
https://www.gogojungle.co.jp/users/112481/products
━━━━━━━━━━━━━━━
【Reiwa’s Double-E serialized articles】
■EA Beginner Course
https://www.gogojungle.co.jp/finance/navi/series/1700
■No-pretenses! Gogojungle Problem Posing!
https://www.gogojungle.co.jp/finance/navi/series/1701
■Double-E FX Musings
https://www.gogojungle.co.jp/finance/navi/series/610
【Reiwa’s Double-E’s Beliefs】
Develop EA with a legitimate approach,
earn the love of more people,
maintain a long-lasting WIN-WIN relationship,
aim to revitalize the EA market and raise literacy.
━━━━━━━━━━━━━━━
