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Welcome to the Alternative Investments Experimental Blog!

Increase your knowledge about alternative investments!
This blog mainly focus on stock market-alternative investments such as forest investments, land investments, property investments, hedge funds, forex investments, and other interesting ways of making money.

I analyze and buy alternative investments with my own money. This gives you fun reading and a guideline how to invest your own money in alternative investments by following my success and learning from my mistakes! :-)


Sunday, February 24, 2013

My personal experience from stock market trading robots, auto-trading

In my last blog I wrote about my experiences from forex robot trading. In this post I am writing about my experiences from using two stock market trading robots. It all started in in early 2012 when I was searching for companies providing stock trading robots and I found the company Autostock (http://autostock.se/homeold).



I bought the stock trading platform product Nordnet Autotrader (that I intended to use for both robot trading and my own “manual” trading), which Autostock has developed. With the platform came a free trading robot for one year, “Coda OMX” (trading OMXS30-index). I decided to invest in one more trading robot, “Adagio” (stock futures and ETN trading), to get a better evaluation of Autostock. The results were stunning from both robots when I started with them (about nine month ago), but since then the results has gotten worse. See pictures below. Good to know is that some of the historical data had been back-tested by Autostock.


 
Picture above: Adagio-results (http://autostock.se/produkter/adagio)



Picture above: Coda OMX-results (http://autostock.se/produkter/coda)

Because of bad results from Coda OMX I was allowed to change to Coda DAX (robot trading on the German stock market) for a few month ago, as Coda DAX had performed better than Coda OMX. Also, after last summer I changed the product Adagio to ACDC because of not satisfying results.



Picture above: Coda DAX-results (http://autostock.se/produkter/coda-dax)


Picture above: ACDC-results (http://autostock.se/produkter/acdc)

How the trading robots are set up…
So how it worked was that the trading platform needs to be installed on your computer (or on a server). Then Autostock sends you an access code for the robot which you use to install the robot on the trading platform. Some configuration is also needed on the trading platform. There are instructions for this, but you can also get support from Autostock. Once this is done, the robot needs to be connected to an account where you have your money. After this the robot can start trading on the stock market with your money from your account.
 

What was my verdict for this robot trading investment..?

I have summarized my impressions as below:

Positive
·         Very good support
·         Autostock holds courses regularly how to use their products
·         Good knowledge about stock trading, technical analysis etc.
·         Flexible. I was allowed to change robot during the license period (in the same price range)

Negative
·         Difficult to implement the trading robots on the trading platform, I was depending on Autostock’s help a lot (And updates came quite regularly so I had to contact them often for help. A more techie guy would probably not have the same problem as me J )
·         The trading results were not to my satisfaction L (Probably the most important factor of all above, I would most likely be happier in total having for instance bad support if I ended up with a lot of money in my pocket from the robots J )

As I mentioned the results were not that great. After this period using their trading robot strategies I have a loss of almost 900 USD, with an invested amount of about 15 000 USD. 

Description
SEK
USD
Invested amount to be used for robot trading (initial account status)
     100 000   
     15 385   
Current account status, after robots have been trading (about nine month)
       94 355   
     14 516   
Result
-       5 645   
-        868   

But it is important to have in mind that there are also a lot of “running costs” related to this kind of investment. You need to pay a license fee to be able to use the robots, license fee for the trading platform etc. These costs are often neglected “hidden” costs that people don’t think about! This is what it looks like to me this far:

Description
SEK
USD
Comment
Nordnet Autotrader- trading platform cost
         3 980   
          612   
The yearly fee was 612 USD it but could also have been paid quarterly. Buying a one-year license gave me a "package" with the trading robot Coda. And the platform is needed to use the trading robots
Server cost
         3 321   
          511   
Since the robot only trades when I have my computer on at home, I chose to buy the service from Autostock to have the trading platform (and the robots) installed on a server that is online 24/7. Thereby I wouldn't miss out any trades. Cost: 31 USD/month
Robot "Coda"
0
0
Free of charge when I bought the trading platform
Robot "ACDC"
         2 485   
          382   
Paid quarterly. Yearly cost: 612 USD. I received a 40 USD discount when I bought the trading platform for one year
Total / Break-even figure
         9 786   
      1 506   
 

As you can see, the robots would have to generate a profit of 1 500 USD before I would actually have made any profit from the robot trading (which with my initial investment amount equals to about a 10% profit generation), when considering all trading related costs. And considering my results above from using the robots (-900 USD), I don’t need to say that this does not add up to break-even on this investment. So actually I didn’t lose 900 USD, I lost 2 400 USD in total!

So due to the high trading related costs, a fairly high amount of invested money for trading would be needed to generate a break-even figure (since if you would only invest 1 500 USD the robot would have to generate a 100% profit to break even) - and the trading robots would also need to perform well over time. Another reason to have the robots trading with a significant amount of money is that the “transaction cost” (stock market commission) when trading could actually eat up the profit, if too small amounts are traded!

The stock markets the past year has performed quite well, so in hindsight I would have been better off investing in an index fund rather than these trading robots. An index fund would also have much lower “running costs”, in some cases zero.

Next postings…
I have found a stock market signal provider for buying/selling stock futures that shows really good results (I know, basically same story as the robots above – but this time hopefully the results will be consistent over time. I am a trading optimist and I do believe in auto-trading. Sooner or later I WILL find a great auto-trading product. Please email me if you have any suggestions! J ). I intend to test this signal provider for a few months and will tell you if it actually works or not in a posting later on.

I have stopped using the Autostock products for the moment. Some of the money I have released from Autostock I have invested in a very interesting alternative product that I will write about soon. I will also write about some successful alternative investments of mine very soon. More of these teasers in my upcoming posters… So stay tuned and subscribe to my blog (at the top right on my blog) - don’t miss out on more interesting stories!

Wednesday, February 13, 2013

Introduction to forex automatic trading (forex autotrading), and my costly learnings from forex robots (forex Expert Advisor systems – fx EA systems)


 

So, let’s get started by describing what a forex robot is! Forex robots are the same as auto-trading systems or EA systems, Expert Advisor systems. Favorite children always have many names J. A forex robot is an automatic trading system that based on a script (software) is executing trading orders. The script itself is based on a pre-defined trading strategy. The orders are executed without any human interaction, which gives advantages such as:


·         Consistent trading. There is no subjective human biased interaction. No “subjective feelings or thoughts” are involved that can affect the trade
·         Immediate trading. The trade is executed automatically and directly when the trading signal from the forex trading script is created
·         The investor saves time trading. Since the system is following the market and executing orders based on the pre-defined trading strategy, the investor does not have to spend time constantly monitoring the market, waiting for the best trading opportunity to occur
·         The investor needs little knowledge about how the forex market works and how to trade since the trading is done automatically. (even though every investor should know what they (or the script) is doing and how it works - in order not to have any unpleasant surprises by the robot’s actions!)
 
Trading robots operate based on some kind of “trigger”. The trigger tells the trading robot when to execute the trade, and the trigger itself is based on a mathematical algorithm. The algorithms are often based on technical analysis (such as candlesticks, MACD), but can also be based on other trading patterns such as market implications from news events.

Read more about trading strategies here:
http://www.aboutcurrency.com/strategies/forextradingstrategies/forex_trading_strategies.shtml

There are tremendously many forex robot options available and the difficult part is to know which ones actually work - most of them seem awesome and promise great results, but I doubt this is actually the case! It is important to bear in mind that a robot trading script often works better in a specific trading climate - some can for instance work well in good economies and some in bad. Also, once a popular robot is being employed by very many users, the trading strategy risks to be “diluted”, i.e. because so many people are using the trading strategy it becomes less effective. So there is always a risk that a robot that performed well recently will not do well in the future. The robot trading script often has to continuously be updated in order to meet the new trading climate.

If you see good results from a robot the past six month there is unfortunately no guarantee that it will continue delivering good results, depending on issues such as the trading climate and the “crowd/volume” problem.

Picture above is from: forexrobotandtrick.blogspot.com


What kind of forex robots are out there, and how do I get a script working?

In order to start forex robot trading you need to find a robot script that you believe in. I am sure there are people out there making money by using forex robots – or at least companies making money from people using their robots J. So if you won’t become too discouraged from the reading of the next section below I have found some interesting web-pages analyzing the performance of forex robots. Check them out if you feel like it:

http://www.forexrobotstest.com/index.html
http://www.expertadvisorsforex.com
http://bestforexea.com
http://www.camforex.com

Once you have found a robot script you will have to install it, which often can be done on a MT4 trading platform. Once this is done the robot can start trading on the global forex market. Note that the robot will only be trading when your computer is on and when the MT4 platform has been started on your computer. A way to get around this is to implement the robot on a server that is operating 24/7.  Some companies do offer this service.
 
Picture above illustrates the robot script with the forex trading strategy being installed on the forex trading platform, which executes trades towards the global forex market

If you are a good computer programmer you can actually create your own trading scripts in MT4 based on your own favorite technical analysis!


Enough of the robot introduction! I am sure you wonder how I did with my choice of forex robot…
After too many hours spent looking for a great investment opportunity within a forex robot I finally found a local player (forextrade.se) offering an automated robot trading product which was based on so called grid-trading.

This grid-trading script strategy was based on the assumption that historical patterns between two very strongly correlated currencies will repeat over time. The currency pair can over time reach high levels both upwards- and downwards but has historically tended to go back to the middle of the chart (like a rubber-band), following a certain pattern. This forex robot product used this theory by dividing the historical development of the currency pair in two halves, based on the average currency pair’s movements over a long time period. Below the average line only buy-positions (trades) were created, since over time the currency pair will work its way up towards the average line again. Thereby the purchase positions would be locked in with a small profit. In a similar way only sell-positions were created in the area above the average line.

The trading robot created the grid with pre-defined buying /selling intervals between the grids. When the currency pair reaches a grid, a buy- or sell position was opened. Once the next grid was reached, the position closed. Several positions could be opened at the same time.


The picture illustrates where the forex trading robot opens sell- and buy positions

The largest risk with this forex trading strategy probably occurs if the currency pair breaks out from its historical patterns with many open positions, which would require a higher amount of invested capital than the recommended minimum employed capital for this forex robot. Unfortunately I invested in this forex robot in 2009 when the markets still were in kind of a chaos so the historical patterns did not really occur for the traded currencies... After having a good start with a profit of about 40% my beginners luck disappeared. So what happened was that I lost all my money - every single nickel and dime! (the forex trading platform automatically sold off all my open positions once my equity* reached zero. It is a built-in safety mechanism in the trading platforms so people can’t lose more than the invested capital. A very important feature as trading is most often performed with leverage!)

My only comfort was that I only lost half as much as I could have lost… Since I didn’t want to invest alone in this for me unknown and quite dangerous territory, I had persuaded a friend to split the investment and risk (and potential reward) with me… I don’t think he will be very keen to do another joint investment venture with me J

forextrade.se has stopped selling this grid-trading forex robot. I wonder why… J I haven’t tried any other forex robot trading after this adventure, but I have tried stock market robot trading. I will talk about this in my future postings. So stay tuned and subscribe to my blog (at the top right on my blog) - don’t miss out on more interesting stories!

* Equity = Balance minus open positions. Balance = total capital in the account (initial invested amount of money plus any profit made)