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Statistical Forex System — Complexity of a System

August 18, 2008 by

The final part of my introduction into statistical Forex system development is dedicated to the complexity of the resulting expert advisor (or automated program if you want to create such strategy for anything else than MetaTrader platform).

When traders think about Forex system, they come to a conclusion that a simple trading system can’t be profitable, because it doesn’t capture all the market parameters that influence the dynamics of the currency pairs. Partially I agree with this point of view but, in my opinion, the complexity of a Forex system should be limited. With the statistical Forex systems the complexity of different parts may vary.

  1. The amount of different information and the number of data types that is gathered for the statistical system are the important parameters, which if increased produce a more complex system. One may decide to gather not a single timeframe information, but rather statistics from several timeframes and record not only the price quotes (or OHLC data for bars/candles) but also many indicators, calculations and other parameters. This will lead to rather large database of the statistics that would be hard to interpret in a right way, but if interpreted correctly it will surely yield better results than a more simple strategy.
  2. Gathering statistics before the actual strategy running is extremely important and is a necessary step, in my opinion. But making a system that can continue gathering statistics when it runs in a real-time is also important. It shouldn’t add much complexity to your expert advisor, but it will help to react faster on the market changes. Of course, such on-the-fly data gathering can’t substitute the pre-running gathering.
  3. Changing the way of the interpretation and statistics comparing is a really advanced method to add the complexity to your statistical system. Having several functions to compare the past and the current data can be helpful if you have some method to choose from these functions. Personally I couldn’t develop a system that would use such an interesting functionality.
  4. The complexity of the actual order carrying and position handling is a rather obvious field for the system improvement and upgrading, but it hardly can be connected to the statistics that can be gathered. The only way that would work, in my opinion, is if your system uses real chart-to-chart comparison – that’s a really difficult method, but it opens a whole new set of opportunities for position and order adjustment. In other cases, simple buy/sell/hold decisions are the best market actions available for the statistical Forex systems.

Those are the most obvious ways to make your trading system more complex. Some minor changes can also improve it to make it react more flexibly on the market volatility and evolution. If you have experience with really complex Forex systems that are based on the trading statistics, feel free to comment on this post.

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