Someone develops a new automated forex trading system just about every week now, it seems to me. All of them give amazing results in theory but when users start live testing the results can be very different, as most of us know from bitter experience.
So why does the dream crumble to dust? Does the fault lie entirely with the user and the settings that they chose? Were the results faked? Or is there some bizarre cosmic law that dictates that as soon as a system is automated, the forex market will alter its course to prevent it from working?
Sounds crazy I know but I've wondered about it sometimes and maybe you have too!
But in reality I do not think it's due to any of those causes. I may be criticized for this but here is what I believe actually happens ...
This is how a forex robot usually comes into existence: a trader or traders take a system that has been bringing in profits (or invent a new one and backtest it), pay a programmer to automate it, and then to get back the cost of the programming and hopefully make a lot more besides, they sell it to traders like you and me.
The critical question comes in that first step. If the system has been working for the trader for a good long time, no problem. But most times they act too quickly. They are relying to a greater or lesser extent on backtesting. They know that new robots sell, so they can surely cover the money they put in to automation, so there is really very little risk in hiring a programmer as soon as they think up something that backtests pretty well. They do not necessarily wait for live testing.
So they go ahead and create a new forex currency trading system. Then of course they need to sell it. They might possibly do a small amount of live testing, but it would be risky! It might make a loss. They won't want to lie about the results so maybe it would be better not to run it live, but release it immediately. People believe what they read and many of them will buy on the backtest results alone. Quick! the trader thinks, Let's get it out there now while it still looks like it works!
So what's wrong with backtests? Nothing, if you think that its results in the future will be the same as past results. But wait, isn't that the first thing they tell you in the fine print on all investment documents? "Past results are not a guarantee of future performance ..."
Consider a simple example. You know that the chances of black winning in roulette are less than 50%, right? The zero makes it less. I think it's around 48.5%. But distribution patterns mean that if you recorded a couple of hundred spins you would probably not get exactly that number of blacks. For example you might have 51% black.
So what if you did that, looked at the results and said, Wow, 51% black in backtests! Great, so now I will develop a robot that always bets on black ...
It would lose.
It is true that the currency trading market is more complex than a roulette wheel, but even so I think that is fundamentally what developers do when they build a forex automated robot based on backtests. And I think that is why they often do not work.
I do not mean that you shouldn't use forex software, not at all. An automated forex trading system can be a wonderful tool.
I am simply suggesting that you should pay attention to how they have been tested. Do not rush to buy the latest forex robot the moment it is launched. Wait a few weeks at least, check the online forums and see how other people like you get along with new forex trading systems before you push your money into the developer's eager hands. - 15224
So why does the dream crumble to dust? Does the fault lie entirely with the user and the settings that they chose? Were the results faked? Or is there some bizarre cosmic law that dictates that as soon as a system is automated, the forex market will alter its course to prevent it from working?
Sounds crazy I know but I've wondered about it sometimes and maybe you have too!
But in reality I do not think it's due to any of those causes. I may be criticized for this but here is what I believe actually happens ...
This is how a forex robot usually comes into existence: a trader or traders take a system that has been bringing in profits (or invent a new one and backtest it), pay a programmer to automate it, and then to get back the cost of the programming and hopefully make a lot more besides, they sell it to traders like you and me.
The critical question comes in that first step. If the system has been working for the trader for a good long time, no problem. But most times they act too quickly. They are relying to a greater or lesser extent on backtesting. They know that new robots sell, so they can surely cover the money they put in to automation, so there is really very little risk in hiring a programmer as soon as they think up something that backtests pretty well. They do not necessarily wait for live testing.
So they go ahead and create a new forex currency trading system. Then of course they need to sell it. They might possibly do a small amount of live testing, but it would be risky! It might make a loss. They won't want to lie about the results so maybe it would be better not to run it live, but release it immediately. People believe what they read and many of them will buy on the backtest results alone. Quick! the trader thinks, Let's get it out there now while it still looks like it works!
So what's wrong with backtests? Nothing, if you think that its results in the future will be the same as past results. But wait, isn't that the first thing they tell you in the fine print on all investment documents? "Past results are not a guarantee of future performance ..."
Consider a simple example. You know that the chances of black winning in roulette are less than 50%, right? The zero makes it less. I think it's around 48.5%. But distribution patterns mean that if you recorded a couple of hundred spins you would probably not get exactly that number of blacks. For example you might have 51% black.
So what if you did that, looked at the results and said, Wow, 51% black in backtests! Great, so now I will develop a robot that always bets on black ...
It would lose.
It is true that the currency trading market is more complex than a roulette wheel, but even so I think that is fundamentally what developers do when they build a forex automated robot based on backtests. And I think that is why they often do not work.
I do not mean that you shouldn't use forex software, not at all. An automated forex trading system can be a wonderful tool.
I am simply suggesting that you should pay attention to how they have been tested. Do not rush to buy the latest forex robot the moment it is launched. Wait a few weeks at least, check the online forums and see how other people like you get along with new forex trading systems before you push your money into the developer's eager hands. - 15224
About the Author:
Jason Cline writes articles on automated forex trading systems and the forex market for a number of internet sites. Discover his views on the top seller FAPTurbo in his FAPTurbo review.
