Choosing Strategies in the FSA Account

Name: Greg Holden

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Since the introduction of the Forex Strategy Automator (FSA), our clients have been given access to some of the leading automated strategies available in the forex market today. Yet some questions persist about how to best utilize these systems and which ones operate most profitably, and in what circumstances. The purpose of this writing is to assist traders in choosing the right strategy for them.

The FSA account works through a ground-breaking mode of operation. It aggregates strategies designed by traders, forex companies, brokers and even computer programmers into an easy-to-use system where clients merely choose which strategy suits them. However, inexperienced traders may find themselves confused by the amount of acronyms and technical terms, thus having a hard time deciphering. Fear not, this article will act as your guide – your candle in the dark.

The best place to start is to present the key concept of minimizing information. On the FSA accounts, there are a few tools (parameters) which are extremely helpful in choosing the right strategy. After opening your FSA account, click on the tab at the top labeled “Performance.” Find 2 to 4 parameters that suit your needs and level of understanding, and then implement them. The more of these tools you use, the better picture you have, but there is a turning point when you begin to get too much information which merely clouds your understanding of what’s happening, which is why sticking to the ones you know best is a great tip.

Just above the list of systems/strategies there is a list of terms which will help you understand just how to choose the right strategy. Study these and be familiar with exactly what parameters will best serve your needs. For the purpose of this piece, 3 such tools will be focused on: Pips, Max DD, and RAR.

Pips represents the number of pips accumulated by a strategy over a given time period. Max DD (Maximum Draw Down) is the largest distance the strategy will allow between its peak profits and worst losses before closing down the trades – basically, this represents how much this strategy is going to risk with each position. RAR (Risk Adjustment Rate) is Pips divided by Max DD. The numbers given here show the potential for return. A reading of 4 in this field means that the system’s returns are typically 4 times greater than its Max DD.

We will analyze 3 different strategies (2 successful, 1 less successful) to get a feel for how to pick these strategies and what the above tools represent when choosing.

Being a short-term trader myself, I wanted to choose a strategy which opened trades frequently. In my search categories I kept my timeframe to within the “last month to date.” A Max DD of “(0)-(-400),” and an RAR of “0-3.” Under the perameter “# Trades” I found a great strategy. The system called DailyTrend. This strategy opened 177 trades in the last month, trading primarily 5 of the Majors (EUR/USD, EUR/JPY, GBP/USD, USD/CHF, and USD/JPY), it risks $317 per trade, but has a 2.38 RAR, which means it trades frequently, and typically wins 2.38 times more than it loses. In the last month, it captured 755 pips of profit. Not too shabby.

By sticking to the basics of keeping information at a minimum, I used just a handful of tools/parameters to pick a strategy which may very well be one of the better strategies in this system, even though it doesn’t win 100% of the time, it’s ratio of wins to losses looks appetizing.

Sticking with these same principles, I expanded my search to look for a strategy which opened even more trades than DailyTrend, and had an RAR greater than 3. I happened to find myself looking at a strategy which I know many traders had used to great effect in the last few weeks. It is called Oxidative Stress Balancer NH. It trades a wide variety of currencies, risks very little (Max DD of $108 per trade), has an RAR of 88.33 (a very high figure), and with the 809 trades it opened in the last month it captured 9,275 pips for profit.

My only concern here is that it has only been open since June of this year, which means it may be a system which exaggerates its abilities through a lack of historical data. If you choose this strategy, use it with caution.

After broadening my search by removing all limitations in the search categories, I sought out a strategy which many traders have liked simply because of its name: (-) Super Hypertonic. I can’t tell you how many traders have made the mistake of using this strategy.

Despite offering relatively positive figures, and a name reminiscent of a well-marketed energy drink, it has a number of drawbacks. It trades frequently, has a positive (yet smaller) RAR, and took over $600 in profit this past month, the truth is, this strategy is dangerous because it risks over $500 per trade for such a measly payout, and only wins 1 in 4 trades. Positive numbers can be tricky because people see the profits this strategy made in the time specified, but the longer-term style of this strategy is that of a losing one.

As you can see, the FSA offers a wide and diverse list of strategies. The above 3 are just the tip of the iceberg. Believe me when I say that there are dozens of good strategies, and yes, even a number of bad ones. Knowing how to pick them is key to using the FSA successfully.

Keep a few things in mind when choosing them. First, the Max DD. Know how much this strategy is going to risk with each position. The market is unpredictable and a strategy that risks a lot isn’t always a great choice unless it offers very high rewards. Second, the RAR. If the strategy offers a much higher return than what it risks, consider using it. Another useful tool is the percentage of winning trades. If a strategy has a win percentage of 50% one might think it a good strategy… until they see that it only opened 2 trades. Likewise, a strategy with a 30% win ratio isn’t a bad choice either if it opens over 800 trades, has an RAR over 3 or 4, and risks only a small amount.

Learning how to compare and contrast these bits of information a strategy provides is the key to choosing a successful one.

* The calculations made in the Forex Strategy Automator (FSA) are averaged calculations which offer a hypothetical end-result. They do not represent an exact figure of profits/losses. Oftentimes, the actual results will vary drastically from the hypothetical calculations made inside the system.

** Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.