Is Trading FOREX a 5050 Proposition?
You’ve heard it before:
“Trading FOREX is easy. The market either goes up or down – you just have to be right more than half the time and you make money.”
Ah – if only it was that easy.
So is it true? Is trading FOREX a simple 5050 proposition?
“I mean, if I have an Expert Advisor that performs just horribly, can I just change all the buy orders to sell orders, all the sell orders to buy orders, and have a terrific system?”
Let’s use a simple MetaTrader Expert Advisor to find the answer to these questions.
The 5050 Expert Advisor enters a trade each time the 8period Exponential Moving Average (EMA) crosses through the 13period EMA. The Expert Advisor has two inputs, OrderFlag and Xbars.
The input value OrderFlag instructs the 5050 Expert Advisor to swap the order type between Buy and Sell. The input value Xbars is optional and can be used to exit a trade after any number of periods (or bars).
The market condition that causes an order to be created is consistent: when the 8period EMA crosses through the 13period EMA.
The following table summarizes the possible combinations and the resulting order type.
Input:OrderFlag  Market:8 crosses up through 13  Market:8 crosses down through 13  Output:OrderType 
0  TRUE  FALSE  BUY 
1  TRUE  FALSE  SELL 
0  FALSE  TRUE  SELL 
1  FALSE  TRUE  BUY 
This handy Expert Advisor will allow us to test some theories regarding the 5050 proposition.
Test #1 is a benchmark test.

It will buy each time the 8period EMA crosses up through the 13period EMA.

It will sell each time 8period EMA crosses down through the 13period EMA.
The stoploss is set at 50 points, the takeprofit is set at 75 points.
The following table summarizes the test input and the test results for Test #1.
iExpertAdvisor TestTable


Test Information 

ExpertAdvisor Name 
5050 ExpertAdvisor 

ExpertAdvisor Version 
1.0 

Test Number 
1 

Test Period 
11/2003 – 8/2005 

Currency Pair 
GBP/USD 

Chart Period 
1 hour 




Test Input

Test Results 

Spread/Commission 
5 
Total Trades 
305 
StopLoss 
50 
Winning Trades 
146 
TakeProfit 
75 
Losing Trades 

ExpertAdvisor Input 
Winning Percentage 


OrderFlag 
0 


Xbars 
0 
Total Net Profit 
– $9,130 
For Test #2, we will change the input value OrderType from 0 to 1. This will cause each trade’s order type to be reversed.
The Buys become Sells, and the Sells become Buys.
The following table summarizes the test input and the test results for Test #2.
iExpertAdvisor TestTable  
Test Information  
ExpertAdvisor Name 
5050 ExpertAdvisor  
ExpertAdvisor Version  1.0  
Test Number  2  
Test Period  11/2003 – 8/2005  
Currency Pair  GBP/USD  
Chart Period  1 hour  
Test Input 
Test Results 

Spread/Commission  5  Total Trades  304 
StopLoss  50  Winning Trades  133 
TakeProfit  75  Losing Trades  
ExpertAdvisor Input 
Winning Percentage  
OrderFlag  1  
Xbars  0  Total Net Profit  – $28,210 
Not what you would expect if trading FOREX is 5050?
If trading FOREX is a simple 5050 proposition, you would expect the following two conditions to be true:
 The number of Test #1 wins would equal the number of Test #2 losses.
 The number of Test #1 losses would equal the number of Test #2 wins.
Well, the spread is set to 5 points. Perhaps the spread is obscuring the test results. Let’s rerun tests #1 and #2, with the spread set to 0. These are tests #3 and #4.
The following table summarizes the test input and the test results for Test #3.
iExpertAdvisor TestTable  
Test Information  
ExpertAdvisor Name 
5050 ExpertAdvisor  
ExpertAdvisor Version  1.0  
Test Number  3  
Test Period  11/2003 – 8/2005  
Currency Pair  GBP/USD  
Chart Period  1 hour  
Test Input 
Test Results 

Spread/Commission  0  Total Trades  74 
StopLoss  50  Winning Trades  202 
TakeProfit  75  Losing Trades  
ExpertAdvisor Input 
Winning Percentage  
OrderFlag  0  
Xbars  0  Total Net Profit  – $4,370 
Now let’s reverse each order type (by setting OrderFlag=1) and retest.
The following table summarizes the test input and the test results for Test #4.
iExpertAdvisor TestTable  
Test Information  
ExpertAdvisor Name 
5050 ExpertAdvisor  
ExpertAdvisor Version  1.0  
Test Number  4  
Test Period  11/2003 – 8/2005  
Currency Pair  GBP/USD  
Chart Period  1 hour  
Test Input 
Test Results 

Spread/Commission  0  Total Trades  218 
StopLoss  50  Winning Trades  79 
TakeProfit  75  Losing Trades  
ExpertAdvisor Input 
Winning Percentage  
OrderFlag  1  
Xbars  0  Total Net Profit  – $6,430 
Again, not what you would expect if FOREX is a 5050 proposition.
Each trade entry has definitely been swapped, so perhaps the discrepancy is caused by the trade exit.
Maybe the lack of symmetry between the trade’s stoploss and takeprofit is the problem.
Let’s set the stoploss equal to the takeprofit at 125. These are tests #5 and #6.
The following table summarizes the test input and the test results for Test #5.
iExpertAdvisor TestTable  
Test Information  
ExpertAdvisor Name 
5050 ExpertAdvisor  
ExpertAdvisor Version  1.0  
Test Number  5  
Test Period  11/2003 – 8/2005  
Currency Pair  GBP/USD  
Chart Period  1 hour  
Test Input 
Test Results 

Spread/Commission  0  Total Trades  118 
StopLoss  125  Winning Trades  50 
TakeProfit  125  Losing Trades  
ExpertAdvisor Input 
Winning Percentage  
OrderFlag  0  
Xbars  0  Total Net Profit  – $23,500 
Now let’s reverse each order type (by setting OrderFlag=1) and retest.
The following table summarizes the test input and the test results for Test #6.
iExpertAdvisor TestTable  
Test Information  
ExpertAdvisor Name 
5050 ExpertAdvisor  
ExpertAdvisor Version  1.0  
Test Number  6  
Test Period  11/2003 – 8/2005  
Currency Pair  GBP/USD  
Chart Period  1 hour  
Test Input 
Test Results 

Spread/Commission  0  Total Trades  118 
StopLoss  125  Winning Trades  68 
TakeProfit  125  Losing Trades  
ExpertAdvisor Input 
Winning Percentage  
OrderFlag  1  
Xbars  0  Total Net Profit  + $23,500 * 
That’s more like it! The symmetry is easy to see in the test results.
 Test #5 number of losses is equal to Test #6 number of wins.
 Test #5 number of wins is equal to Test #6 number of losses.
If the timebased exit is used (by setting Xbars), and the commission is zero, the test results are symmetrical as well (Try it).
We conclude, trading FOREX is a 5050 proposition, if the following two conditions are true.
 The cost of trading is free: no commission, no spread, no swap fees.
 The trade is symmetrical. Two examples are: the stoploss is equal to the takeprofit; or the exit is timebased.
Since condition #1 is never true, we can say confidently that trading FOREX is NOT a 5050 proposition. (And even if the cost of trading was free, it’s unlikely a system’s entry and exit would always be equivalent.)
(Another advantage of backtesting an Expert Advisor is that you can quickly see the effect of trading costs on your system’s profitability.*)
It’s valuable to understand the true nature of the FOREX market. In future posts we’ll address other assumptions commonly made about the FOREX market.
*In case you are wondering, Test #6 is not a profitable system. When the spread is set to 5 points, the net profit is $25,600.
iExpertAdvisor  MetaTrader Expert Advisor Builders
Great analysis.