What if we back test one of those Forex trading strategies which are generated by ChatGPT in real market conditions? Well, that’s what we did and the results left us speechless. We began with a one thousand dollar account and let’s see what happened next.
Artificial intelligence has become one of the most prominent topics in recent times, particularly in the context of trading. It possesses the capability to analyze and process massive volumes of data within a fraction of a second, aiding us in making informed decisions.
A quick search on YouTube shows numerous videos discussing topics such as ChatGPT algo trading, day trading with the help of ChatGPT, or even ChatGPT stock trading. The majority of these videos share a common idea: they seek guidance from ChatGPT for a profitable trading strategy that balances high profitability with minimal risk. They indeed appear to be highly profitable, but what if we were to test one under real market conditions? That’s what we’re going to do today, so stay tuned to see if using ChatGPT to make a trading strategy is a good or bad idea.
While many still raise concerns about artificial intelligence, particularly for Forex or stock trading, it’s important to note that ChatGPT relies on information accessible online and is not current. However, numerous videos claim that they’ve discovered a profitable trading strategy by relying solely on ChatGPT. I won’t pass judgment on any of those claims, but I decided to conduct a back test of one of those strategies 100 times.
Thus, I selected one of these videos and thoroughly reviewed the strategy. First, we need to put two simple indicators on the chart: the K’s reversal indicator and volatility bands. These indicators are free and can be easily added to the chart using trading view. The K’s reversal indicator shows buy or sell signals with two parallel lines and a triangle that points up or down. The volatility bands indicator helps determine the stop loss level.
Once we have the indicators set up, we can start testing the strategy. The buy setup occurs when the K’s reversal indicator gives a bullish signal and the yellow line of the volatility bands indicator is above the white line. The sell setup occurs when the K’s reversal indicator gives a bearish signal and the yellow line is below the white line. The goal is to aim for at least a 1 to 1.5 risk to reward ratio.
To test the strategy, we used a one thousand dollar account and ran the strategy on Euro/USD and Pound/USD pairs. The results showed a notable 13% drawdown within a three-week time frame. The profit factor of 1.63 indicates a positive expectancy, but the 52% win rate raises concerns about consistency. Further refinement of the strategy’s risk management mechanisms and extended back testing is recommended before considering its implementation in live trading.
In conclusion, back testing Forex trading strategies generated by ChatGPT can provide valuable insights into their performance under real market conditions. While the results of this particular strategy were mixed, it highlights the potential of using artificial intelligence in trading. It’s important to conduct thorough testing and refine the strategy before implementing it in live trading. If you’re interested in back testing your own strategies, you can try Trader Edge, a tool that makes back testing easier and faster.
Thank you for watching and happy trading!
