Today we focus 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 those who have heard of Larsen before. Every time a forum participant mentions his name, it is usually followed by a story of ruined accounts, neglected refunds and crappy software.
Still, I believe it is worth exploring this GPS Forex Robot for the sake of developing a habit of digging deeper into complex matters -- things that look bright and shiny on the surface, but are spoiled on the inside.
Let's start with the basics.
The programmers of the GPS Forex Robot (version 2) offer it for sale for $149, and there's a 60-day money back guarantee. Thus far so good -- for this cost, we may expect the expert adviser to match the performance of the Forex Growth Bot, or FGB, which costs $129, and the Forex Invest Bot, or FIB,- $197.
More Details: http://www.socialleadfreak.com/gps-forex-robot-review
Don't Go Chasing Waterfalls
The cheesy website promotes the GPS Forex Robot as a real 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 this looks too good to be true, that is probably because it is not.
But let's examine the block-buster claims further. According to Larsen, a reverse strategy allows fast compensation for losses incurred. Say the robot purchases EURUSD and suffers a loss. As a result, it will instantly open a reverse trade (sell) -- a strategy called stop-and-reverse. In fact, that's something quite easy to implement in a software -- even by novices -- so there goes the"genius" of both programmers (Ronald and Antony) responsible for the bot.
The fascinating part about this bot is its approach to improve trade contract sizes. When the EA reverses a trade, it raises steeply the trade contract size -- from 5 to 9 times.
To me, this resembles a Martingale strategy, which is a gaming method, where you begin with a specific bet size, then double it every time you lose and keep doing so until you win, when you return to the first bet size. What's dangerous about this strategy is that it can guarantee specific gains only to gamblers with boundless wealth and there's absolutely not any limit on the maximum bet you can make. But if your wealth is limited, which generally is the case with forex trading, or there's a maximum amount you can exchange (again -- the situation with trading), then you may wind up buried under the weight of continuously rising bets without an actual chance to return your losses. In simple words, if you lose more than once, your account will most likely fail.
Let's explore the backtests to determine how the peculiar strategy of GPS Forex Robot works. The test is for the period from October 9, 2007 to January 5, 2012.
At a first glance, the picture is rosy, as this incredible robot makes drives an initial deposit of $10,000 to a net profit of $100,952. The relative drawdown is at 20%, which is an acceptable risk level. Adding to the sequence of positive information, profit trades (89%) outnumber the losing trades (11%). That's troublesome because a succession of losses can get you into a really deep trouble.
The history of trades is really enlightening, because 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 plan and opens a market trade but with commerce contract dimensions of 6.8. This time it is a winner -- there's a gain of $904, but such lucrative trades cannot 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 about this EA. The transaction is with EURUSD and started on May 21, 2012. Since its activation, the account has registered a profit of 153%, which, given the initial deposit of $100,000, represents a whopping sum.
The account hasn't registered a single month of losses since its launch, even though the growth rate is slowly declining.
A worrying sign is that average pips per trade are at 4.6, which hints in vulnerability to changes in market behaviour. By comparison, 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 reduced, but since drawdown reaches a solid level of 10%, just like that of FIB and much lower (which is very good thing) than the 42% recorded by FGB's account.
The curious part is in the background of transactions as once again we experience the stop-and-reverse strategy and the specific version of the Martingale method. The robot applies both approaches 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 plan and increases the trade contract size from 11 a lot to 75 lots. In the event the robot had suffered another loss like the preceding one, but with the increased commerce contract size, the total loss would have amounted to $71,088. Imagine what could have happened after a series of 6 or 7 losses, or even 20!
If you're familiar with Isaac Asimov's work, you should know that the First Law of Robotics -- that is, a robot cannot harm a human being. The GPS Forex Robot clearly violates this law. It could be not harming the traders, but it is harming their accounts. It's like the Rosemary's baby sleeping in the cradle of reduction. You just don't know when the baby will awaken and unleash hell.
Don't Care about Bad Reputation
The funniest thing is that Mark Larsen appears to not care at all about the strategy used by the GPS Forex Robot. In actuality, he's the only person to have rated this EA with five stars, in his own review of the program. Way to go, Larsen! Even if that is the best way to hell.
Know your keywords
Expert advisor (EA) -- An algorithmic trading platform to 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 past time intervals 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 begin with a balance of $1,000, then make a profit of $1,000, and after that lose $500.
Lot - The standardized contract size of a trading tool. A standard lot Includes 100,000
Currency units, a mini lot -- of 10,000; a micro lot -- of 1,000 units, and a nano lot -- of 100 units.
If you're buying 1 lot EURUSD at 1.3000 for example, you're purchasing 100,000 Euro for 130,000 US Dollars.
Pip - The fourth digit after the decimal indication of a price quote. For instance: if the EUR/USD moves from
1.3350 into 1.3351, that is 1 pip. Pips are used to measure price movement, profit and slippage.
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