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Forex Currency Trading Systems: Why Can't I Make Money?

Forex Currency Trading Systems: Why Can't I Make Money?


Forex Currency Trading Systems: Why Can't I Make Money?

by Jason Cline

You will see a new automated forex trading system just about every week now, it seems to me. They all produce amazing results in the tests they show 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 crumble to ashes? Is it down to the user and their settings? Were the results faked? Or is there some obscure law that dictates that the moment a currency trading system is automated, the currency market will alter its course to prevent it from working?

Sounds crazy I know but I've wondered about it sometimes and you too maybe.

But in reality I do not believe it's due to any of those causes. Maybe I will be blasted for this but here is what I believe actually happens ...

The way a forex robot tends to come into being is this: a trader or traders take a system that has been working for them (or dream up a new one and backtest it), pay a programmer to turn it into a robot, and then to cover the cost of the programming and hopefully make a lot more besides, they sell it to traders like you and me.

The crunch comes in that first step. If a system has been working for the expert for a reasonable time, fine. But in most cases they move much too fast. They are depending more or less on backtests. They know that new robots always sell well, so they will easily cover their investment cost on the automation, so there is in fact very little risk in hiring a programmer the minute they think up a system that gives the results on backtests. They do not necessarily wait for live test results.

So they go ahead and create a new automated forex trading system. Then of course they need to market it. Possibly they might do a little live testing, but it is risky! What if it made a loss? They couldn't lie about the results so maybe it would be better not to run it live, but release it right away. People are credulous and far too many of them will buy on the backtest results alone. Quick! the expert thinks, Let's get it on the market now while it still seems that it works!

So what's the problem with backtesting? Nothing, if you think that its results in the future will mirror past results. But hey, isn't that the first thing you see in the disclaimer on all investment documents? "Past results are not a guarantee of future performance ..."

Take a simple example. You know that the odds of winning on black in roulette are just under 50%, right? It's less because of the zero. I think it is about 48.5%. But probability theory says that if you considered a few hundred spins you would probably not get exactly that number of blacks. You might easily see 51% black for example.

So what if you did that, looked at the results and said, Wow, 51% black in backtests! Cool, let's develop a robot that always bets on black ...

It would be sure to lose in the long term.

Of course the forex market is more involved than a roulette wheel, but even so I believe that is fundamentally what developers are doing if they build a forex automated trading system based on past results. And I think that is why they often do not work.

I'm not saying that you shouldn't 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 not grab the latest robot the minute it comes out. Wait a while, watch the online forums and find out how other users like you get along with new forex trading systems before you thrust your money into the developer's grasping hands.

About the Author:
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 FAP Turbo in his FAP Turbo review at www.automatedeasyforexsystem.com

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