11.12.2012 г.

How can we determine ahead of time when a certain EA would be suitable for upcoming market conditions?


That a trading holy grail question. Much more than the one million question LOL.

What we can do is to know if it is working now.

Based on that you can evaluate how much draw-down is logical and calculated within the system. You can use a Monte Carlo simulation based on that knowledge. Check the post about Monte Carlo simulations and the appropriate risk control.

You can use market state analysis as an independent tool too. This a discretionary approach based on the best practices among discretionary traders and this is how far this pragmatic field can go by now (in my eyes of course).

And you can use your fundamental knowledge to have some insight. Sometimes the market state is closely related with fundamental information. Here I can give a historical example: the Swiss/Euro EA, this strategy was based on the Swiss Central bank decision setting a minimum exchange rate of 1.20. Until we were under the same circumstances the EA was expected to work and it worked too well for several months doubling the account many times.

And you can use data mining only for predicting market conditions. That is also possible, however it is not an easy task.

Predicting the future performance of an Expert adviser in Metatrader is not an easy task. Before doing this you need to know what is really the worth of the EA model. 

Suggested books:

The Evaluation and Optimization of Trading Strategies (Wiley Trading) by Robert Pado
Trading Systems: A New Approach to System Development and Portfolio Optimisation by Emilio Tomasini and Urban Jaekle

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