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Forex Crescendo - Melly's First EA Review

For my first review I thought I'd look at a product which has been around for a year or so now called Forex Crescendo.

Forex CrescendoThe Crescendo website seems to consist of a typical long sales letter suggesting its audience should listen carefully because the vendor is about to give away his best kept trading secret that made a fantastic wedge of dough in under 8 months. Personally, I don't get anything whatsoever from that sort of spiel, but I guess other people must do otherwise vendors wouldn't bother to use that approach.

The Crescendo EA itself comes with its own self-installer which installs the necessary files into the MetaTrader installation folder(s) that you choose. The PDF manual is comprehensive and consists of no fewer than 37 pages, although about 1/3 of those pages are just pre-amble explaining how to use the self-installer which I did think was a bit overkill.

About the EA

Forex Crescendo works on two currency symbols, the GBPUSD pair and the GBPJPY cross, using what is commonly called a "Grid" strategy. Grid strategies will enter their initial trade with a profit target in mind. If they hit their profit target then great, they will bank the profit and start over again. If they don't hit the profit target, and the trade moves out of the money by a certain amount, a new trade will be opened. The idea is that the price now needs to move to the average value of the two trades to break even, so a new profit target can be set which is marginally better than break even.

If the price moves even further out of the money, a third trade will be opened which alters the break-even level further still. And so on... You could theoretically have umpteen trades open for days, weeks, or even months while you wait for the price to retrace to the average profit target so that you can exit for a net overall profit.

The issue I have with this type of strategy is that the process of averaging down is frowned upon by professional traders. The assumption is that the price will retrace but, in practice, there will be times when the price doesn't retrace and the trader won't be able to keep margining new positions while he hopes for the best.

I was taught to get out of my losing trades before the losses got worse - not to risk increasing the losses further still. Anybody who's ever heard of Nick Leeson wil be aware that he broke Barings Bank by averaging down his losing positions (OK, he also margined his new positions by exceeding his limits without his employer's authority) in the hope that they would come good.

Putting those prejudices aside, I want to see whether this type of system, IF USED CAREFULLY, does actually have a role to play.


Setting Crescendo up

My first observation here is that setting Crescendo up can require far more user interaction than is probably necessary. The list of external parameters that the user is able to enter is quite long and, I couldn't help but think, is a bit pointless. I can only think that users must like being able to alter settings because it gives them a sense of being in control.

Personally, I believe in keeping things as simple as possible because too much user interference normally ends in tears. Also, I'm presuming that the Crescendo vendors must know what their optimum settings are, so why not just hard-code the best settings into the EA and remove some of those external parameters completely?

The fact that there are so many external parameters that the user is able to modify rings alarm bells, quite frankly. Rightly or wrongly, it sends a message that the EA has problems and the user is being invited to test an unfinished product in the hope that he might find something that works.


The Strategy Tests

It's got to be said that my first attempt at testing Crescendo was a disaster, although that was of my own making.

Wherever possible, I like to use default or recommended settings to test an EA. In the case of Crescendo the default risk setting uses fixed lots to trade. Because of this, I would expect to see a straight(ish) line equity curve rather than an exponentially rising equity curve which is typically produced by EAs which increase the trade size as the account balance grows.

Crescendo also includes an option to use different forms of Martingale (more about this later), but it doesn't use this by default so I left it switched off.

I first set Crescendo up on a $5,000 FXCM UK account where the minimum lot size was 0.1 on the GBP/USD currency pair. The profit target was default $4 and $1,000 of the account was allocated to Crescendo with a stop-out set at 30%. In other words, as soon as the open drawdown hit $300, all trades would close to crystalise the loss before it got any worse. Trading 0.1 lots with a $4 profit target meant that trades would close once they were just 4 pips into profit, so I expected the win rate to be high.

An important thing to note about systems like Crescendo is that, because of their tendency to hold multiple open losing positions, they don't use stop-losses at all. Instead their stop-loss system relies upon them closing out once the aggregated open loss exceeds the maximum drawdown level that I referred to above. The lack of a declared stop-loss means that Crescendo needs to be kept running 24 hours a day while it has open trades so that it can manage them. It also needs to be running on a system which isn't susceptible to power or IP outages, otherwise there could be a problem with Crescendo being unable to exit its trades.

Strategy Test

In the the 10 year test from 2001 through 2010, I got as far as 6 months and 136 trades before deciding to abort the test. Although the win rate was 90%, there were 4 separate occasions when the 30% stop out was hit and the stop outs took away all of the gains and then some.

It was pretty clear that I was doing something wrong, so I decided to restart the test having multiplied everything by a factor of 10 in compensation for the minimum lot size being 0.1 lot. In other words, I increased the account size to $50k, set the profit target to $40 (ie. 40 pips) and allocated $10,000 to the Crescendo EA.

Ordinarily, I probably wouldn't even have mentioned my mistake, but it occurred to me that, if I could make this mistake (and I'm familiar with EAs), then other people could easily make the same mistake too. Seeing as the consequences could be very costly, I therefore decided to mention it in my review. So, if you're one of the many people out there whose broker doesn't permit micro (0.01) lots, please take note of the above and adjust your target profit accordingly!

Having run the test again, the first thing to note was that the larger profit target results in Crescendo taking far fewer trades because it stays in its trades for much longer. In addition, the higher profit target in pips meant that the win rate dropped significantly to around 70%. The reduced number of trades aside, Crescendo still was not profitable over a 10 year backtest. Sure, it had its moments when the equity curve would progress upwards in a relatively straight line, but there would always be an accident waiting to happen just around the corner. You can see what I mean in the curve below.

Strategy Test

I mentioned previously that Crescendo also includes options to use Martingale. The effect of Martingale is to bring the target profit closer towards the later trades, thereby increasing the chances of hitting the profit sooner (or even of hitting the target at all). Personally, I'm not a fan of Martingale type systems but I ran a test nonetheless using Crescendo's "Linear Martingale" setting. This has the effect of increasing lot sizes in the sequence 0.01, 0.02, 0.03, 0.04, and so on.

You can see the effect of using Martingale below. The equity curve pretty much speaks for itself and, in addition, there seems to be some sort of bug in the code because it reached a point where Crescendo was opening a trade and then immediately close it for a loss, only to then immediately re-open another trade and do the same over again.

Strategy Test

When this started to happen I chose to stop the test because I'd seen enough to draw a conclusion.


Conclusion

Crescendo is always going to be susceptible to taking large drawdowns when it gets caught on the wrong side of a trend and the tests show that it will be loss making over any sustained period of time. There are nonetheless periods which can last months on end where it will make good progress before drawing down, and it could theoretically be used with a high level of risk to grow a relatively small account by a significant amount in a short space of time. This is pure gambling, however, and it's not of interest to me.

I did also note that, whilst Crescendo is NFA hedging compliant (it won't try to open trades in the opposite direction to any existing open trades), it isn't FIFO compliant. In other words, it closes the most recent trades first when it has a basket of trades open. It should be a straightforward task for the vendor to modify the code to make it compliant. The user is also invited to enter his own slippage value, so I'm sceptical that Crescendo would deliver the same performance live as in demo. If anyone plans to use it live I think that I would suggest setting the slippage to 0 (zero).

My only other observation is that, because the profit target is a monetary value, Crescendo will probably work best with 3/5-digit brokers because the profit target can be reached quicker.

I didn't bother to look at testing Crescendo on the GBP/JPY cross, mainly because I didn't expect it to show anything new and I didn't want to waste my time.


Forward Tests

As part of my testing, I've set Forex Crescendo up on a $5k Alpari UK demo account trading fixed 0.01 lots with $1,000 allocated on both the GBPUSD and GBPJPY symbols. I've set the maximum drawdown limit at 25% and the order step at 50 on the GBPUSD symbol, although all of the other settings are their default value.

On the GBPJPY symbol I've left everything at default.


You can monitor Forex Crescendo's performance at MellyForex by clicking here.

Discussion (1 comment)

  1. On 07/25/2013 at 12:19, Michael said:

    This Ea seems to be crap.

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