Today we concentrate on a very unusual expert advisor -- the GPS Forex Robot, developed by Mark Larsen and his group.
Now, whatever I'm going to say in the following lines would not matter to people who have heard of Larsen before. Every time a forum participant mentions his name, it's usually followed by a story of ruined accounts, neglected refunds and crappy software.
Still, I believe it's worth exploring this GPS Forex Robot for the sake of developing a habit of digging deeper into complex matters -- things that appear bright and shiny on the surface, but are spoiled on the inside.
Let's start with the basics.
The developers of the GPS Forex Robot (variant 2) offer it for sale for $149, and there is a 60-day money back guarantee. So far so good -- for this price, we may expect the expert advisor to match the performance of the Forex Growth Bot, or FGB, which costs $129, and the Forex Invest Bot, or FIB,- $197.
The cheesy website promotes the GPS Forex Robot as a true miracle maker. As soon as you apply it to a Metatrader 4 (MT4) account, you will only have to wait for the wonder of 98% winning trades to happen. If that seems too good to be true, that is probably because it is not.
But let us examine the block-buster claims further. According to Larsen, a reverse strategy allows fast compensation for losses incurred. Say the robot buys EURUSD and suffers a loss. Because of this, it will immediately open a reverse trade (market ) -- a strategy called stop-and-reverse. In fact, that's something quite easy to implement in a software -- even by newbies -- so there goes the"genius" of the two programmers (Ronald and Antony) accountable for the bot.
The fascinating part about this bot is its approach to improve trade contract sizes. After the EA reverses a trade, it raises steeply the trade contract dimensions -- from 5 to 9 times.
To me, this resembles a Martingale strategy, which is a gambling method, in which you start with a certain bet size, then double it every time you lose and keep doing so until you win, when you turn back to the original bet size. What is dangerous about this strategy is that it can guarantee specific gains only to gamblers with infinite wealth and there is no limit on the maximum bet you can make. But if your wealth is limited, which usually is the case with forex trading, or there is a maximum amount you are able to trade (again -- the case with trading), then you may end up buried under the weight of continuously rising bets without a genuine chance to return your losses. In simple words, if you lose more than once, your accounts will most likely fail.
Backtests: Oh, Sweet, Sweet, Martingale!
Let's explore the backtests to determine how the peculiar strategy of GPS Forex Robot works.
At a first glance, the picture is rosy, as this incredible robot makes drives a first deposit of $10,000 to a net profit of $100,952. Adding to the sequence of positive news, profit trades (89%) outnumber the losing trades (11%). Pay attention, however, the average profit trade ($219) lags behind the average loss trade ($824)! That is troublesome because a series of losses can get you into a really deep trouble.
The history of transactions is really enlightening, as you may see the odd trading strategy of the robot in action. By way of example, on May 27, 2009 there is a heavy loss of $919 after buying 1 lot of EURUSD. The robot immediately reverses the strategy and opens a market trade but with commerce contract size of 6.8. This time it is a winner -- there's a profit of $904, but such profitable trades can't be guaranteed.
Forward evaluations: Cradle of Loss
A true account on Myfxbook.com, to which the GPS Forex Robot is applied, provides us with further insight concerning this EA. The trade is with EURUSD and began on May 21, 2012. Since its activation, the account has registered a gain of 153%, which, given the initial deposit of $100,000, represents a whopping sum.
The account has not registered a single month of declines since its launch, although the growth rate is gradually declining.
A worrying sign is that average pips per trade are at 4.6, which hints at vulnerability to changes in market behaviour. By contrast, FIB's Synergy FX account enjoys average pips per trade ratio of 13.6, while the ratio stands at 6.6 for FGB's account with ThinkForex.
The risk is low, however, since drawdown is at a solid level of 10%, the same as that of FIB and much lower (which is very good thing) than the 42% recorded by FGB's account.
The curious part is from the history of trades as once again we encounter the stop-and-reverse strategy and the particular version of the Martingale method. The robot applies both methods when there are particularly heavy losses. For example, after a losing trade (the loss is $10,230) on June 8, 2012, the robot reverses the strategy and increases the trade contract size from 11 lots to 75 lots. In the event the robot had suffered another loss like the previous one, but with the increased trade contract size, the total loss would have shrunk to $71,088.
If you're acquainted with Isaac Asimov's work, you should know the First Law of Robotics -- that is, a robot cannot harm a human being. Well, the GPS Forex Robot clearly violates this law. It could be not harming the dealers, but it's harming their accounts. It is similar to the Rosemary's baby sleeping in the cradle of reduction. You just don't know when the baby will wake up and unleash hell.
Don't Care about Bad Reputation
The funniest thing is that Mark Larsen appears not to care at all about the strategy used by the GPS Forex Robot. In fact, he is the only person to have rated this EA with five stars, in his own review of the software. Even if that's the best way to hell.
Know your keywords
Expert advisor (EA) -- An algorithmic trading platform for the MetaTrader platform; a trading robot. EA's can be downloaded free of charge or for a fee, or can be programmed in the MQL programming language.
Backtesting -- Testing a trading plan on previous time periods through a simulation.
Drawdown - A trader's biggest loss for a certain period of time, expressed in pips or as a
Percentage of the trader's profit.
Let's say you start with a balance of $1,000, then make a profit of $1,000, and after that lose $500. Your drawdown will be 25% ($500/ $1000 + $1000 = 0.25 = 25%).
A standard lot consists of 100,000
If you are buying 1 lot EURUSD in 1.3000 for example, you are purchasing 100,000 Euro for 130,000 US Dollars.