How to build a successful portfolio

ea portfolio

If you are an EA trader building a successful portfolio is the key to success. There is no such thing as an EA that adapts to the current market perfectly, every EA works better for a particular type of market and simply survives without making profits when the market changes. Survival is the best case, I’m talking about good EAs, crap ones blow the account once the market changes. The main key in building a successful portfolio is to analyze the drawdown correlation between EAs. Very interesting things can happen: 2 EAs with maximum drawdown of let’s say 500 and 400 pips can show together an overall drawdown of 300 pips! That can affect the overall profit, but to what degree? In this article I’m going to answer some frequently asked questions, stay tuned 🙂

Is it good to run together 2 EAs that share the same strategy? Sharing the same strategy doesn’t involve a high degree of correlation. For example, 2 EAs are trading volatility breakdowns. One of them is trading on M15, the other on H1. In the first case, stop loss is usually very small, up to 25 pips. In the second case, stop loss is also small, this is the main rule of volatility breakdown EAs. But what about take profit levels? They are not at all correlated, anything can happen!

I have 4 EAs: Forex Fancy Bot, Forex Pips Bag v3.0, Forex Cleaner and one of my private EAs, I called it September because it was built in September last year. The analysis were performed with spread=2, EURUSD.

Forex Fancy Bot (M15, EURUSD, volatility breakout)
Maximum drawdown: 348 pips
Overall profit: 14,955 pips
Return / Drawdown ratio: 42,98
Drawdown length: 528 days

Forex Pips Bag v3.o (H1, EURUSD, volatility breakout)
Maximum drawdown: 605 pips
Overall profit: 12,339 pips
Return / Drawdown ratio: 20,37
Drawdown length: 417 days

Forex Cleaner (M30, EURUSD, swing)
Maximum drawdown: 1198 pips
Overall profit: 13,541 pips
Return / Drawdown ratio: 11,3
Drawdown length: 643 days

September (M30, EURUSD, breakouts and pullbacks)
Maximum drawdown: 827 pips
Overall profit: 22,609 pips
Return / Drawdown ratio: 27,32
Drawdown length: 554 days

There is a nice freeware little program called Strategy Quant EA Analyzer, which is great for analyzing portfolios, do a search on google and get it, it’s a must have.

Portfolio (all 4 EAs together)
Maximum drawdown: 1504 pips
Overall profit: 63,445 pips
Return / Drawdown ratio: 42,18 pips
Drawdown length: 196 days

portfolio

portfolio

The first thing that gets my attention is drawdown length, it is highly reduced from ~550 days (the best longest DD period for an individual EA) to 196 days (portfolio). Isn’t that great?
Maximum drawdown however is greater than the worst EA from portfolio, Forex Cleaner. I don’t like that at all. What I like most is the return/DD ratio which almost equals our best EA, Forex Fancy Bot. Thew weak link seems to be Forex Cleaner, if we remove it from the portfolio, we get the following results:

Portfolio (minus Forex Cleaner)
Maximum drawdown: 1275 pips
Overall profit: 49,904 pips
Return / Drawdown ratio: 39,13
Drawdown length: 337 days

Oops, the results are much worse without Forex Cleaner even if it seems that it was the weak link. The overall conclusion is that Cleaner doesn’t perform very well as standalone but can raise the quality of the portfolio by much! But even so, we must still expect to a worse historical drawdown of 1500 pips and a Monte Carlo Worst Case Scenario of 3000 pips which is quite high so the main issue is to adjust the risk accordingly. The good news is this setup produces ~4800 pips per year and exceeds by much MCWCS of 3000 pips.
Historical profit / MCWCS = 1.6 which is great. So, this portfolio is a keeper, it’s much better than any of those 4 standalone EAs.

Now, what kind of money management should I use? Remember, I can lose up to 3000 pips so risking 1% per trade is dangerous. I’m going to use fixed lots: 0.1 lots with a starting balance of $10,000. 3000 pips per year = $30,000 = 30% which is exactly my goal.

I hope you enjoyed this article, if the answer is yes, please share and leave feedback 🙂