| Forex Currency Trading Systems: Why Can't I Make Money? |
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| Written by Jason Cline |
| Wednesday, 03 February 2010 00:28 |
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Someone launches a new automated forex trading system practically every week now, it seems. They all show great results in theory but when users start live testing the story can be very different, as many of us know from bitter experience.
There is a new automated forex trading system almost every week now, it seems to me. They all give great results on the website but when we try live testing the story can be very different, as many of us know from bitter experience. So why do our hopes crumble to dust? Is it due to the user and the settings that they chose? Did the developer advertise fake results? Or is there some obscure law that says that the moment a currency trading system is automated, the currency market will alter its course to stop it working? I know that last one may sound a little crazy but I've wondered about it sometimes and maybe you have too! But honestly I don't think it is because of any of those causes. Maybe I will be hammered for this but here's what I think actually happens ... This is how a new forex robot is usually developed: traders take a system that has been working for them (or devise a new one and backtest it), pay a programmer to turn it into a robot, and then to get back the cost of the software development and more besides, they market it to traders like you and me. The critical question comes in that first step. If a system has been working for the developer for a good long time, fine. But in many cases they move much too quickly. They depend more or less on backtesting. They know that new robots always sell well, so they will surely cover the cost of the automation, so there is really very little risk in them giving it to a programmer as soon as they dream up something that backtests pretty well. They may not wait for live test results. So they go ahead and create a new forex currency trading system. Then of course they need to market it. Possibly they might do a little live testing, but that is risky! It might make a loss. They couldn't lie about the results so maybe it would be better not to run it on the live market, but just release it immediately. People believe what they read and too many of them will buy on the basis of backtesting alone. Quick! the trader thinks, Let's release it now while it still seems that it works! So what's wrong with backtesting? Nothing, if you accept 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 small print on all investment documents? "Past results are not a guarantee of future performance ..." Consider a simple example. You know that the odds of black winning at roulette are under 50%, right? It's less because of the zero. I think it's around 48.5%. But probability theory says that if you looked at a couple of hundred spins you would probably not get exactly 48.5% blacks. You might easily see 51% black for example. So imagine if you did that, took those results and said, Wow, 51% black in backtests! Great, now I will develop a robot that always bets on black ... It would lose. Of course the currency trading market is a little more complex than a roulette wheel, but I think that is basically what developers are doing when they build a forex automated system based on backtests. And I believe that is why they often do not work. I'm not saying that you should not use robots, not at all. A forex robot can be a wonderful tool. I am just saying that we should all consider how the systems that we use have been tested. I would never buy the latest robot the same day that it is launched. Wait a couple of months, check the forums and find out how other traders like you get along with new forex trading systems before you thrust your money into the developer's eager hands. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Jason Cline writes on automatic forex trading systems and the forex market for a number of internet sites. Discover his opinion of the top selling FAPTurbo in his FAPTurbo review at www.automatedeasyforexsystem.com |