People release new automatic forex trading systems virtually every week now, it seems to me. All of them give amazing results on the website but when we get into live testing the bottom line can be very different, as all of us know from bitter experience.
So why does the dream turn to dust? Does the fault lie entirely with the user and settings? Were the results faked? Or is there some little known cosmic law that says that as soon as a system is automated, the whole market will alter its course so that it doesn’t work?
I know that last one sounds crazy but but sometimes I have wondered and perhaps you have too.
But really I don’t think it’s any of those causes. Maybe I will be blasted for this but this is what I think really happens …
The way a forex robot tends to come into being is this: traders take a system that has been bringing in profits (or invent a new one and backtest it), pay a software developer to automate it, and then to recoup the expense of the programming and hopefully make a lot more besides, they market it to people like you and me.
The crunch comes in the very first step. If the system has been working for the trader for a long time, no problem. But often times they move far too fast. They are relying to a greater or lesser extent on backtesting. They know that people will buy a new robot, so they can easily cover their investment cost on the automation, so there is in fact very little risk in hiring a programmer as soon as they think up something that backtests pretty well. They may not wait for live testing.
So they go ahead and create a new automated forex trading system. Then of course they need people to buy it. Possibly they might do a small amount of live testing, but it’s risky! What if it made a loss? They wouldn’t lie about the results so maybe it would be better not to test it on the live market, but release it to the market right away. People are credulous and many of them will buy on the backtest results alone. Quick! the trader thinks, Let’s get it on the market now while it still looks like it works!
So what is the problem with backtesting? Nothing, if you believe that its results in the future will be the same as past results. But hey, isn’t that the first thing you see in the disclaimer on all investment documents? “Past results are not an indicator of future performance …”
Consider a simple example. You know that the chances of black winning at roulette are under 50%, don’t you? It’s less because of the zero. I think it’s around 48.5%. But probability theory says that if you recorded a few hundred spins you would probably not get exactly that number of blacks. You might have 51% black for example.
So what if you did that, took those results and said, Wow, 51% black in backtests! Cool, now I will develop a robot that always bets on black …
It would be sure to lose in the long term.
Sure the forex market is a little more complex than a roulette wheel, but I believe this is fundamentally what developers are doing when they build a forex robot based on backtests. And I think that is why they often do not work.
I am not saying that you shouldn’t use forex software, not at all. An automatic forex trading system like FAP Turbo can be a wonderful tool.
I am just suggesting that you should pay attention to 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 see how real people like you get along with new automatic forex trading systems before you push your money into the developer’s grasping hands.
Jason Cline writes articles on automatic forex trading systems programs and the foreign exchange market for many internet sites.
Find out what he thinks of the best seller FAP Turbo in his FAPTurbo review.
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